Garden State Crowd-Out

The Manhattan Institute released a report this week warning that:

[a]bsent some unexpectedly robust acceleration of the economy, it is highly unlikely that New Jersey will generate enough new revenues to meet its pension commitments without severely hobbling the rest of the state’s budget. At the same time, allowing its pension system to continue to accumulate debt by not contributing adequately to it will push New Jersey toward a potentially catastrophic failure of its government pensions.

It then goes into some history with these highlights:

Such contributions were well beyond the state’s ability to pay—so it didn’t (page 7)

Moody’s observed: “The lottery transfer does not change the  state’s weak, albeit steeply rising, pension contribution schedule…. [T]here remains considerable risk that the state will be unable to afford rapidly growing pension contributions.” (page 8)

At the (roughly) 30% funded level (Figure 6), as estimated in October 2017 by Standard & Poor’s, New Jersey’s pension system may have already reached an unfixable tipping point (Figure 7): the system is now missing so much money that even when it achieves its investment goals, it falls far short of the money it needs to remain solvent over time (pages 12-13).

In August 2015, officials at America’s largest state pension fund, the California Public Employees’ Retirement System (CalPERS), warned the fund’s board members that because of the extreme volatility of financial markets, “if its [CalPERS’s] investments drop below 50% of the amount owed for pensions, even with significant additional increases from taxpayers, catching up becomes nearly impossible.” A November 2015 New York Times article made a similar point. “You can’t grow your way out [with higher investment returns],” observes a financial analyst in the article. “It’s almost mathematically impossible to close the [funding] gap.” (page 13)

13 responses to this post.

  1. Someone (Anonymous?) asked several times before, what would the “recommended contribution” would likely be in 2016-2017…

    IF the “actual contribution” in 2000-2008 had been equal to the recommended in those and subsequent years. We all know by now that the recommended contribution was artificially low, but surely the biggest reason New Jersey is number one is what Mary Pat said about Illinois.



    • Posted by Seesaw Junior on January 15, 2018 at 11:30 am

      We all know by now that the recommended contribution was artificially low, but surely the biggest reason New Jersey is number one is what Mary Pat said about Illinois.

      The “bills” were paid, but not in full, or even close to paid in full. But the fact remains, if the pensions were “reasonable” (not $100K+ for unskilled and semi skilled employees), and started at a “reasonable age” (at age 65-67, not age 40, 45, 50, 55, 60), then this fiasco would be 1/4 of the size it is today.


      • Posted by Tough Love on January 15, 2018 at 11:32 am


        Read my comment (posted below).


        • Posted by Tough Love on January 15, 2018 at 11:36 am

          Ooophs ….. sorry about that .

          I thought the comment to which I was responding was another one of “SeeSaw’s” idiotic comments. Clearly I was wrong after reading it again.


    • Posted by geo8rge on January 15, 2018 at 4:03 pm

      There are no bills for State pensions. The problem is if you fully fund a state pension plan you invite retroactive increases in benefits. If NJ was fully funded the COLA would still be in there and we wouldn’t have salary caps.

      Another problem of fully funding is that market prices can go down, but that kind of thinking is speculating.


      • Posted by Tough Love on January 15, 2018 at 4:12 pm

        The ROOT CAUSE of the problem is that PUBLIC Sector pensions are ALWAYS excessively generous ……… ROUTINELY being 3, 4 (even 6 times for Safety workers) greater in value-upon-retirement* than those typically granted Private Sector workers who retire at the SAME age, with the SAME pay, and the SAME years of service.

        * value-upon-retirement encompasses not just the $$$ formula payout, but also, the incremental value of being able to begin COLLECTING an unreduced pension at a very young age, and COLA increases (unheard of in Corporate-sponsored Private Sector pensions).


  2. Posted by Mike on January 14, 2018 at 8:31 pm

    Just a quibble….Chart 1 was wrong in the first NJ Study Commission report and it’s wrong here, no doubt because the P&B group at NJ messed up.

    In 1997, NJ issued a Pens Oblig Bond and put all $2.75 bn of it into the pension funds. Those contributions were left off of this chart.


  3. Posted by Tough Love on January 14, 2018 at 9:00 pm

    Well well well …the sign-in requirement is gone !

    Guess I’ll have to respond to Stephen Douglas latest/biased comment…….

    While Mary Pat Campbell’s statement is correct, it DOESN’T address the ROUTE CAUSE of NJ’s pension mess. Isn’t the ROOT CAUSE what we REALLY need to discuss ?

    If NJ’s Union-owned Elected Officials didn’t grant ludicrously excessive pensions & benefits in the first place, those “bills” would have been a GREAT DEAL lower. In fact, if NJ’s Public Sector worker pensions were always EQUAL (but no greater) in generosity to those typically granted comparable NJ Private Sector workers, there would likely be no underfunded liability AT ALL, because the pensions contributions (and investment earnings thereon) from NJ’s Taxpayers would have been sufficient to fund 100% of those MUCH MUCH MUCH less generous pensions.


  4. Here is the thing to remember. The people who benefitted from lower taxes and more public services by NOT funding pensions are different from the people who will be screwed by higher taxes and lost public services.

    And the public workers who got the unaffordable retirement deals are different from those from whom those opposed to pensions want to stick it to — unless they are willing to stick it to existing beneficiaries.

    Same with Social Security and Medicare, which the Republicans suddenly want to cut since the deficit is about to explode. OK. How about cutting them off a age 80, for future AND current beneficiaries alike? No?

    It’s all about Generation Greed. Whether you are talking about higher taxes, diminished services, whatever, it’s always about those who came after — who are poorer to start with.


    • Posted by Anonymous on January 15, 2018 at 10:56 am

      This is why the government need inflation desperately ,without it pensions and SS becomes a UN-affordable ponzi scheme .With interest rates near zero for ten years now it’s shining a magnifying glass on the hole .


  5. Posted by Seesaw Junior on January 15, 2018 at 11:24 am

    Time for NJ to repudiate that pension debt, or at least a LARGE % of it. Face it, that $$ is NOT going to magically appear, or PAID in full. The jig is up. NJ can pay as you go, until that jig is up too. And that day will also arrive. But NJ will have company because the $20 TRILLION in US debt is likewise NOT going to be paid back. Just not going to happen. Never. Ever. We may still pay the huge “interest” payment on the US debt, until a times comes somewhere down the road that even the interest cannot be paid. Just like NJ. The last 38 years worth of the Presidents have gotten us into this debt mess, blame them, as THEY are the ones ultimately responsible. That includes Clinton, who claimed he had a”balanced budget” while leaving SS off the books. Gimmickry. Trickery. Fraud.


    • Posted by PS Drone on January 15, 2018 at 1:48 pm

      I think the sham has been going on since FDR and was fatally exacerbated by LBJ. FDR created SS which even in 1935 was a tax raising scheme. Then LBJ, in order to fund the Viet Nam war and the “Great” Society at the same time invented the scam of including SS excess revenue as General Fund $ thus allowing it to be spent on non-SS activities (in exchange for non-marketable UST “Notes”, aka the “Trust Fund”). In between those two, Eisenhower had the opportunity (and resources) to convert SS into a legitimate separate account for each covered individual by paying benefits out of excess general tax revenues until the accounts were fully funded but failed to do so. Since LBJ it has been tax and spend Dems and borrow and spend Repubs which is why we are $20 Trillion in acknowledged debt and $100 Trillion or more of off-balance sheet obligations. We have an amazing ability to act as if all of this debt has no ultimate consequence. Sad. SS, Medicare, Medicaid and Defense spending all need to be cut, but no one has the balls to come up with an appropriate plan to fiscally save the Country.


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