Soft Corruption by William E. Schluter ($14,663) has become a bible for one of my other lives as it reflects closely my experience with legalized graft in New Jersey politics. One example from the book tells of the story of the 1997 Pension Obligation Bond sale to which then-Senator Schluter had a front-row seat. From pages 12-13:
Soft corruption entered into this major policy initiative when three recalcitrant senators were pressured on the floor of the senate to vote for the proposal, despite their very strong reservations. They finally relented and voted to approve the measure. They subsequently received substantial campaign contributions from the senate campaign fund – only to lose the ensuing election. But all was not in vain, as they were awarded lucrative patronage appointments following their electoral losses.
Here is the story (pages 65-7):
THE PENSION BOND DEBACLE
Early in 1997, Republican governor Christie Whitman came up with a novel and highly controversial plan to finance the state’s annual pension payment in order to ease the strain on the current and future state budgets. The New Jersey pension system, which the state finances with yearly contributions from the general fund, covers retirees from local and state government as well as public school teachers and administrators. The fund is structured to produce enough earnings from its investors. The fund is structured to produce enough earnings from its investments to pay all pension benefits in current and future years. however, if the state defers its annual contribution, as has often happened in tight financial times, the system will accrue actuarial deficits – yet the mandated payments to retirees continue.
Whitman proposed to float a $2.8 billion bond issue, with the proceeds going into the pension fund to satisfy the accrued deficits, provide sufficient investment capital to ensure that future earnings at least match future pension payouts, and make the interest payments on the bonds. the plan allowed the state to suspend its current pension fund payment of $590 million in order to balance its budget for the upcoming fiscal year. Democrats howled that the bond sale would increase state debt by one-third – to $12 billion – and complained that the bonds would be sold by a semi-autonomous state agency, thereby circumventing the state’s constitutional requirement of a public vote on any increase in state debt.
Meanwhile, the bond-rating agencies questioned the administration’s expectations of an 8.75 percent return on pension investments, and Standard & Poor’s said the bond sale would jeopardize the state’s double A-plus credit rating. Public opinion polls showed New Jersey residents were against the bond issue, as were most newspaper editorial boards in the state.
But the governor’s biggest problem was that even Republican senators were not exactly enamored of her idea. She needed a twenty-one-vote majority for passage, and all sixteen Democrats were opposed. As many as ten of the twenty-four Republican members disapproved of the plan during early discussions. As the showdown vote loomed, this number was whittled to six holdouts who were extremely unlikely to change their minds: Henry McNamara, Robert Littell, John Scott, Dick Larossa, Joe Bubba, and me. But Whitman needed three senators to do just that.
The leadership scheduled a vote for early June, right after the primary election, and pressure on all state senators was building. Newspapers speculated that one holdout, Joe Bubba, a Republican from Passaic County who had lost his primary race, had been offered a state job in return for his vote. Bubba denied the charge.
Horse-trading for votes had been going on all spring and lasted right up to the vote on June 5. That day, Republican senators streamed into the governor’s office to either seek or be offered special benefits for voting yes on the bond issue. After floor debate on the bill concluded at 9 P.M., senate president DiFrancesco called for a vote. The initial vote count on the tote board settled in at eighteen green lights and twenty one red (one Democratic senator was absent). DiFrancesco then visited the desks of the Republican holdouts, trying to convince three to change their minds. After an animated discussion, bubba caved and put up a green light. Next came Dick LaRossa, of Trenton, who also changed his vote. At this point the tally was 20-19, and the tension was extreme. DiFrancesco gave Bergen County’s John Scott, the final target, the full treatment. Thirty-six minutes after the vote was called, Scott flipped the green switch, and the bond issue passed 21-18. The assembly easily approved the measure later in the evening, and Whitman signed it into law shortly thereafter.
Among the stories regarding the pension bond vote, a Star-Ledger reporter offered an interesting perspective of one participant when he wrote: “A wistful Sen. Henry McNamara, who voted no, looked back at the power politics that whiled around him for months, and sighed, “The deals I could have cut.”
After all the campaign-financing reports for 1997 were filed, it turned out that DiFrancesco’s leadership PAC gave a total of more than $480,000 to the campaigns of the three senators who cast the crucial yes votes, LaRossa, Bubba, and Scott. This amounted to more than 42 percent of what the three spent on their reelection bids. (Bubba had received the money for his primary contest.)
All three were defeated in their contests for reelection – but within two months of leaving office at the end of 1997, all landed jobs in the Whitman administration at salaries of approximately $85,000 each. After three years, their newly improved earnings would wind up tripling their monthly state pension benefits.
Postscript: the Whitman $2.8 billion bond issue did not stem the flow of red ink from the pension system, because the state subsequently missed making payments into the system, which also saw shortfalls in expected earnings. As of 2014, New Jersey’s unfunded liability for the state and local pension systems stood at more than $54 billion.