Murphy’s Budget On Pensions

The New Jersey FY19 Budget in Brief had this to say on pensions:

Fulfilling our Promises
Funding State Pensions: Governor Murphy will put $3.2 billion towards pensions this year, a 28% increase over last year’s contribution. This year’s contribution is larger than the total of all contributions made during the last administration’s first term. (page 4)

Also $8 billion less than it should be.

Pension and Benefits Systems
Pensions
Providing adequate funding for New Jersey’s ailing pension system is fundamental to this budget. The contribution recommended in the fiscal 2019 budget, including contributions from the State lottery, total $3.2 billion, and will represent the largest single year contribution ever. Notably, this single-year contribution will exceed the contributions made during the entire first term of the prior administration. The amounts recommended for fiscal 2019 equal six-tenths of the Actuarially Recommended Contribution (ARC), and ensure New Jersey continues on a predictable and fiscally responsible path of increased funding for the pension system. The budget reflects a more conservative statutory assumed rate of return than was used in prior years for New Jersey’s retirement systems. This change brings the rate in line with long-term expectations and also the nationwide trend among states. Sustained increases in the State’s pension contribution towards full ARC funding, consistent with the advice of actuarial experts, will both make good on promises to our state’s public employees and also serve as a critical step towards improving the State’s credit rating, which will minimize borrowing costs borne by taxpayers. (page 19)

The ‘amounts recommended’ are six-tenths of the ‘Actuarially Recommened Contribuiton’? Were ‘actuarial experts’ advising or acceding?

Debt Service on Pension Obligation Bonds – in millions (page 29)
FY 2018 Adjusted  Approp.:   226.2
FY 2019 Budget: 243.8
Change: 17.6

Remember these?

57 responses to this post.

  1. Posted by Triune on March 21, 2018 at 10:58 am

    Mr. Bury-a question. How realistic is the $3.2B when considering the staggering taxpayer migration, companies and individuals. People applaud the statement, but I would ask from where does it come? It seems to me only from cuts in other services, but that is a guess.
    Do we have any indication when that money will actually be transferred to the pension? Tim Alexander
    Triune
    tim@triunegfs.com

    Reply

  2. Posted by Triune on March 21, 2018 at 11:17 am

    Wow and thanks. Do you know how effective the state has been at meeting budgets in the past. Looking at this though my banking eyes, I am very doubtful.
    Can you explain what are the quarter cycles for the state? Simple math suggests $800MM per quarter. It would be interesting to see if NJ can keep the promise and deliver $1.6B by the November elections.
    Thank you,
    Tim Alexander
    Triune

    Reply

    • Toward the end of the budget year they would cut the pension contribution if need be. Christie did it and the state Supreme Court has no problem with it.

      I agree those tax increase projections look ridiculously rosy. Sales tax going to 7% from 6.65% would get you 5.3% more in revenue all things being equal. How do they figure to get 8.2% more when this hike may cause some major purchases to shift online or to other states? Same goes for those massive projected Income and Corporate tax hikes. It looks like there has been no consideration of tax avoidance measures people and corporations could take (ie. fleeing the state).

      Reply

    • Posted by boscoe on March 21, 2018 at 2:26 pm

      What do the November congressional elections have to do with anything? The state’s fiscal quarters end on September 30, December 31, March 31 and June 30. And what do you mean by “how effective has the state been at meeting budgets in the past?” New Jersey, like most states, is required to end the year with a balanced budget. There is no provision for deficit funding, like the feds have. New Jersey has always ended with a balanced operating budget, and in fact a surplus (on paper). You can argue — with some persuasiveness — about how “fiscal gimmicks” contribute to that surplus, but it complies with financial reporting standards and state law.

      Governor Murphy’s FY2019 budget is balanced with assumed revenue from proposals to raise sales, personal income and corporate income taxes. These proposals have already been announced but have not been enacted. They are assumed to be in effect at the beginning of the fiscal year. If the legislature does not agree to impose these particular taxes, they will either have to pass other revenue increases or reduce spending to bring Murphy’s budget back into balance. Same thing if revenue forecasts for tax growth are unrealistic.

      The $3.2 billion for pensions includes the dedication from the state lottery enacted last year. It is not based on cutting other services to any significant degree.

      Reply

  3. Posted by Bonny Kelter on March 21, 2018 at 11:32 am

    Has the procedure to pay down pension debt quarterly instead of annually begun?

    Reply

  4. Posted by Tough Love on March 21, 2018 at 12:23 pm

    Quoting …………..

    “The budget reflects a more conservative statutory assumed rate of return than was used in prior years for New Jersey’s retirement systems. This change brings the rate in line with long-term expectations and also the nationwide trend among states. ”

    I wonder how the rate (7.5% for the new budget year) could be ….”in line with long-term expectations” ….. when the STATE already plans to reduce it to 7% over the next few years.

    Reply

  5. Posted by skip3house on March 21, 2018 at 3:20 pm

    Seems this will never happen, but why not reduce NJ pensions/medical to conform closely to actual funding right now? Then, if/when NJ can afford more, and deposits more into pension funding, increase benefits accordingly.
    No more lies about possible gold pots at end of rainbows.

    Reply

  6. Posted by Retired police on March 21, 2018 at 5:27 pm

    If The payments to the pension funds had been made as promised each year we wouldn’t have this problem.
    Don’t blame the the retirees, blame the politicians who skipped the contributions year after year. Now it has come home to roost and it must be made right no excuses..

    Reply

    • Posted by Anonymous on March 21, 2018 at 7:49 pm

      Amen brother.

      Reply

    • Posted by Tough Love on March 21, 2018 at 7:51 pm

      Quoting ………… “If The payments to the pension funds had been made as promised each year we wouldn’t have this problem.”

      What a load of self-serving BS.

      My proof……….. wouldn’t you be saying the SAME thing if the NOW ludicrously excessive Police pensions were even 2x , 3x, or 5X MORE ludicrously excessive? Of course you would.

      The ROOT CAUSE of the problem has ALWAYS been the ludicrously excessive.
      generosity. The lack of “full funding” isn’t the CAUSE of this mess. It’s a CONSEQUENCE of the real ROOT CAUSE ……….. ludicrously excessive pensions.
      ———————————

      While I agree with you that the Politicians that granted these ludicrously excessive pensions (AND benefits) are primarily to “blame”, isn’t it the workers who (via these over-sized pensions and benefits) the financial beneficiaries of the Politician’s self-serving decisions? Of course you are, so THAT is where the Taxpayers must look to right this wrong …… by very materially reducing those promised pensions & benefits.

      Reply

      • Posted by El gaupo on March 21, 2018 at 9:37 pm

        As long as you don’t cut mine. lol. Imagine what you could accomplish in life if ya spent as much time volunteering in a soup kitchen as you do on this blog.
        Signed #1 moocher.

        Reply

      • Posted by Stephen Douglas on March 21, 2018 at 9:46 pm

        “My proof………..”

        You call that proof? You think for one second that if pensions were -half- as much, New Jersey would have made the required payments?

        “ludicrously excessive pensions” Is excessively ludicrous.

        Reply

        • Posted by Tough Love on March 21, 2018 at 10:44 pm

          That’s irrelevant.

          What is relevant is that the currently promised pensions ARE indeed ludicrously excessive ….. and THAT is the ROOT CAUSE of the pension mess.

          Reply

          • Posted by Stephen Douglas on March 21, 2018 at 11:21 pm

            “THAT”

            is still just an opinion.

            Do some actual research. Use actual wages and pensions from all of New Jersey, other than just Bergen County. Tell Josh Rauh, and others, that you have found that private sector benchmark to gauge police compensation Submit your paper to an industry journal. Have it peer reviewed.

            This “think tank” is brand new. May be they are looking for a defining project.

            http://www.roi-nj.com/2017/10/24/politics/garden-state-initiative-aims-to-be-research-based-think-tank-on-n-j-economic-policy/

            They are a 501(c)(3) group, submit a donation… Send them a paste of your “demonstration”.

            They might actually agree with you, and publish in one of their articles.

          • Posted by Tough Love on March 21, 2018 at 11:27 pm

            Stephen,

            Maybe that brand new think tank has an opening for a light-bulb-changer. Send them your resume … years of experience doing that as a CA public Sector worker.

            You’re a shoe-in !

          • If they would allow me to telecommute.

            Our grandkids are in California.

            Greatest weather in the world is in California.

            What’s in New Jersey? Tough Love.

            Thanks, but no thanks.

      • Posted by Stephen Douglas on March 21, 2018 at 10:10 pm

        Then again…

        “If The payments to the pension funds had been made as promised each year we wouldn’t have this problem.”

        Doesn’t exactly work, either. “Payments as promised” mostly were calculated to low. Mary Pat Campbell had a recent article on states who did make 100 percent of the ARC and are still underfunded.

        But mostly, Retired police is correct. And “Amen” from Anonymous.

        Unfortunately… “it must be made right no excuses..” is a non-starter in New Jersey, Illinois, Kentucky… basically where the states didn’t even try to keep up payments.

        As Leo Durocher said, “You’ve got third base so screwed up nobody can play it!” … 

        Reply

        • Posted by Tough Love on March 21, 2018 at 10:57 pm

          That’s correct …………… even IF we paid the annually calculated ARC there would be material under-funding, for several reasons, the biggest of which include:

          (1) The endless “moocher”-driven stream of pension enhancements. Dozens of Bills are introduced every year, and many are approved (some retroactively, creating an instantaneous unfunded liability).

          (2) The calculated ARC uses assumptions and methodology that materially low-ball the best-estimate of the Plan benefit’s cost. They do this to make the Plans appear less costly than they truly are, because if the “best-estimate” costs were widely known, the Taxpayers would demand that they be reduced …. or never granted in the first place.

          ————————————–
          THANK GOODNESS NJ’s Taxpayers are NOT fully funding this thievery.

          The BIGGEST fools are CA’s Taxpayers who have somehow allowed full-funding (well-not really) of the ludicrous pensions and benefits promised their Public Sector workers.

          Must be all the weed they are smoking.

          Won’t work anyway. CA is going to DROWN in unfunded (and UNFUNDABLE) pensions. Bankruptcies will ultimately discharge a large portion of these ludicrous promises.

          Reply

          • Posted by Stephen Douglas on March 22, 2018 at 12:22 am

            “NYSTRS remains fully funded – meaning the assets on hand are sufficient to pay all current and future benefits of the System’s 130,000 retirees, as well as the accrued benefits of its almost 300,000 active members.
            .
            .
            .
            And, despite media reports to the contrary, a NYSTRS-style defined benefit pension plan is cost effective for taxpayers who fund them. NYSTRS employer contribution rates, for example, have been in single digits for 21 consecutive years. In six of those years, the rates were below 1.5%.”

            https://www.nystrs.org/About-Us/Press-Room/Archived-News/2010/NYSTRS-Remains-Among-Best-Funded-Pension-Plans
            …………………………..
            “New York state pension systems are better funded than California state pension systems, currently take a smaller bite out of state and local government budgets, and still provide pension benefits well above the national average.”

            https://calpensions.com/2017/05/01/new-york-pension-systems-outperform-california/

            DON’T PAY THE BILLS, THE DEBT GETS LARGER

            KEEP CALM. IF ALL ELSE FAILS, BLAME THE VICTIM

    • Posted by PS Drone on March 21, 2018 at 8:35 pm

      You bloodsuckers keep screaming the same thing: “if the required contributions had been made when they should have been we would not be in this financial dilemma”… blah blah blah. NO. If the pension programs had been rational in both $ amounts and benefit inception ages, there would be no problem. Your unvarnished greed and union political graft are the problems, not the lack of contributions.

      Reply

      • Posted by Anonymous on March 21, 2018 at 9:31 pm

        Long as I get mine, douche bag

        Reply

      • imagine…you put your money into a bank CD guaranteed to pay 3% interest annually for five years. As long as you don’t pull it out early, you are guaranteed to make the 3%. On year 4 and 9 months, you are told “sorry, we made you a promise we can not keep and your interest rate will be 1%”. How would you respond? Same with my pension. I made life-choices based on those promises. If you expect your bank to be held accountable, then what is the difference? If the promised “grossly excessive and above-market rates” that’s on them.

        Reply

        • Posted by El gaupo on March 21, 2018 at 10:26 pm

          Very true. They just don’t want to admit that. We fulfilled our end. That was the arrangement. I can’t wait to collect my Pfrs pension 2-7 years from now. 23 in as of July 1
          Then I’ll take I nice vacation and toast tough love. With a drop dead date of 2055, I have at least 30 years of six figure a year payments. I’ll be 84 and they won’t cut pension of an old bastard like me.

          Reply

        • Posted by Tough Love on March 21, 2018 at 11:08 pm

          Let me revise your description to one which better reflects Public Sector pensions ……..
          imagine… Your walk into a bank and get the standard offer available … you put your money into a bank CD guaranteed to pay 3% interest annually for five years. At the next desk is a Town Police Officer, and he’s offered not 3% on CDs, but 15%, smiles, files out the papers, and leaves. Dumbfound, you ask for the same deal. The bank loan officer laughs and says “sorry”, theat’s reserved for THEM, and adds, if we didn’t have to pay them so much everyone could have gotten 5%.

          Reply

          • Posted by PS Drone on March 21, 2018 at 11:27 pm

            These threads are growing tiresome. I cannot state strongly enough how much I look forward to NJ going bankrupt in all phases, starting of course with the drone pension funds. Then they can take their $100K pension promises to the bank and beg for a loan. Can’t wait. Maybe they can sell the boat for some quick cash.

          • Posted by Tough Love on March 21, 2018 at 11:35 pm

            PS Drone,

            When, (not if) these Plans run out of assets, there are only 3 possibilities (or a combination thereof):

            (1) HUGE tax increases …. think INCREASED taxes of about $10-$12 Billion annually

            (2) Near wipeout of Future service pension accruals and retiree healthcare, AND material reductions in PAST service accruals.

            (3) HUGE cuts in service.

            Number (3) certainly cannot be the full solution as there aren’t sufficient items to cut. While (1) OR (2) could be the “solution”, it’s far more likely to be a combination of all three. My fear is that (2) will only contribute minimally to the solution.
            :

          • Posted by Stephen Douglas on March 21, 2018 at 11:50 pm

            (Tough) Love…

            “Let me revise your description to one which better reflects Public Sector pensions ……..”

            You have a vivid imagination.

          • Posted by Tough Love on March 21, 2018 at 11:59 pm

            What, you don’t agree that my re-write was reasonable ?

          • Posted by NJ2AZ on March 22, 2018 at 12:07 am

            i’d bet my house they will start with the largest pensions, in the interest of “fairness”.

            They will institute an arbitrary cap, probably $100k because thats a nice round number, though my limited understanding of this issue is thats not nearly enough to really even dent the problem.

          • “What, you don’t agree that my re-write was reasonable ?”

            It was excessively LUDICROUS.

        • Posted by MJ on March 22, 2018 at 6:32 am

          Ummmm @ Patrick…thats exactly what happened back when the great recession hit everyone but the public workers……..too many publics doing way too little and promised way too much

          Although I do agree with whoever said if the promises were lower, full funding would still be next to impossible.

          This type of defined benefit is simply unsustainable at any level with our new normal….not to mention the health plans

          Reply

          • Posted by El gaupo on March 22, 2018 at 8:55 am

            pS drone. Pfrs drop dead date is 2055. I’ll be in my eighties. Doubt they cut mine. They likely raise contributions from actives and stop new hires at that poin. Other funds? Yea your dead on. Prob in the 2030s at some point. You’re no different than the puclic employee who says me me me. Can’t wait till they fail. lol. Loser, enjoy life bro. Don’t be a tool.
            And TL, you could’ve gotten the 15% on the CD if you became a police officer. That’s the package that was offered. You may categorize it as excessive, but that doesn’t mean that’s what was t offered by a state government to its employees.

          • Posted by PS Drone on March 22, 2018 at 10:13 am

            Good luck with making it to 2055 El Gaupo. If you believe that BS, I have the proverbial bridge to sell you. Good thing Murphy is going to legalize pot. It will allow the drones to continue to believe in the fairy tales they “bargained” for. After all, they did “their” part by paying a whopping 8 or 10 or 12% of their pay in exchange for six figure pensions at age 55. Who could argue with the fairness of that?

    • Posted by NJ2AZ on March 22, 2018 at 12:03 am

      I think its very reasonable to suspect that IF the full payments had to be made each year, the current benefit levels never would have been promised in the first place.

      Reply

      • Posted by Tough Love on March 22, 2018 at 1:23 am

        Especially if they were “best-estimate” costs …… not the ultra low-ball costs that that our Union-bought Elected Officials choose to show.

        Reply

        • Your “LUDICROUSLY excessive” adjectives are actually not helping your credibility.

          IMO

          Reply

          • Posted by Tough Love on March 22, 2018 at 11:28 am

            If not, then WHY do you spend SOOOOO much of your time challenging it ?

            Clearly you know I’m correct ….. and that it’s the LUDICROUSLY excessive pensions benefit levels that are the ROOT CAUSE of the pension mess.

          • Posted by Stephen Douglas on March 22, 2018 at 4:33 pm

            Logic, again.

            “…..story of a “single, ragged Confederate who obviously didn’t own any slaves.” When asked by a group of Yankee soldiers why he was fighting, the Rebel replied, “I’m fighting because you’re down here,” which, according to a smirking Foote, “was a pretty satisfactory answer.” 

            That is why I spend SOOOOO much of my time correcting your BS. Because it’s there.

            No, sir, I do not “know you are correct”. We can agree that public pensions, as a rule, are a greater share of compensation than are private pensions. That has been documented and quantified by the BLS, and others.

            To claim that public pensions are “excessive” you would need to show that, with pensions =and= wages, total public compensation is higher than private. For that, you need data, not opinions and demonstrations. And “you and I =both= know the answer”. Thanks to Andrew Biggs and others.

            Many public sector workers, typically at the lower end, earn more than private sector workers… because of the higher pensions and benefits.

            Many public workers, typically at the higher end, earn much less, =even with= their higher pensions, than equivalent private sector workers.

            And, as always, between those extremes is a group who, yes, have higher pensions, but total compensation equal to equivalent private sector workers.

            Stop me if you’ve heard this before… It is invalid to compare pensions outside the context of total compensation.

            Don’t be invalid.

            Or rude. Don’t be rude.

        • What on Earth were you thinking?

          Reply

          • Posted by Tough Love on March 22, 2018 at 1:42 pm

            Stephen, Here is my statement again………………

            Responding to …………”I think its very reasonable to suspect that IF the full payments had to be made each year, the current benefit levels never would have been promised in the first place.”

            I stated …..

            “Especially if they were “best-estimate” costs …… not the ultra low-ball costs that that our Union-bought Elected Officials choose to show.”
            ——————————————

            Read it again and concentrate this time.

          • Posted by Stephen Douglas on March 22, 2018 at 5:03 pm

            Read it. Twice times, at least. Your persistence is, perhaps, admirable, but you are not the definitive expert you claim to be. There is little doubt (outside of those like Steve Maviglio, there’s no defense for his wild claims. He’s as outré as you are, but on the other side.)… that the discount rates used by most American pension systems is too high.

            But… Government pensions are =not= the same as private pensions. Yes, governments =can= go out of business, or go bankrupt, but their governance can and should be different. On this subject I would yield to Girard Miller. Forget the risk free rate. Forget corporate rates, but public sector discount rates do need to be lowered, and should have been, years ago. Should some pensions be reduced? Yes, according to Miller. I do not disagree.

            But, “LUDICROUSLY excessive” and “ultra low-ball costs” is just inflammatory rhetoric.

          • Posted by Tough Love on March 22, 2018 at 6:30 pm

            Quoting Stephen Douglas ………….

            “Forget corporate rates, but public sector discount rates do need to be lowered”

            Sounds like you agree that the rates used for discounting Public Sector DB Plans liabilities should be lower, but NOT AS LOW as those now used in the valuation of Private Sector Plans.

            PRIVATE Sector Plans now use rates in the 3.5% to 4% range. WHY shouln’t PUBLIC Sector Plans have to use the SAME rates? Do you think that the major Corporations sponsoring many of the Private Sector DB Plans are stupid and would stand for being forced to use unjustly high rates? Of course not, and they have plenty lobbyists on call to protest where necessary. They accept the rate that they MUST use BECAUSE they understand that it is appropriate and reasonable.

            It’s the PUBLIC Sector that refuses to accept that lower rates are appropriate because it would lay bare the “LUDICROUSLY” excessive true cost of the “LUDICROUSLY” excessive pension benefits that have been promised……… CAPS & QUOTES just for you.

      • Perhaps “somewhat” reasonable to suspect, if that.

        The $100,000 pension club in California has been the lightning rod for so-called pension reformers for the last decade, and in many cases, these retirees, even with their larger pensions, overall receive less than than equivalent private sector workers.

        There are thousands of lower level employees who retire, after a “full career” with pensions under $50,000 whose total compensation is much more than they would have made in the private sector. That’s where a lot of the money goes. That’s what drives up the alleged “public sector advantage”. Also politically less likely to be reduced.

        The “full payments” New Jersey “should” be making now are mostly for the unfunded liability, which would be much lower if the state had made its normal ARC over the last twenty years.

        Reply

        • Posted by Tough Love on March 22, 2018 at 1:51 am

          Quoting ……..

          “The “full payments” New Jersey “should” be making now are mostly for the unfunded liability, which would be much lower if the state had made its normal ARC over the last twenty years. ”

          Of course they would be much lower or possibly zero ….. or stated differently, if you pay 100% of a huge bill (even though that the bill was was never justifiable), you’ll own nothing further.

          Big Whoop ……….. no wonder why you were a light-bulb-changer.

          Reply

          • “(even though that the bill was was never justifiable)”

            Opinion… show me the data.
            _______________________
            ” ……….. no wonder why you were a light-bulb-changer.”

            Probably not relevant to New Jersey’s pension crisis?
            ————————-
            “was was”… Most decent spell checkers will also flag double words… a “win win” one might say.

        • That chart never ceases to amaze me. Here’s another in the pension funding hall of shame.

          Reply

          • Posted by Tough Love on March 22, 2018 at 1:45 pm

            And yet NOBODY asked ……………. are the promised pensions too generous.

          • Posted by Stephen Douglas on March 22, 2018 at 5:15 pm

            Exaggerating again.

            Complaining about public pay and pensions has been around since Hector was a pup. Then, as now, some of the loudest complainers didn’t really understand what they were talking about. Never, ever, let that inhibit you, though. This is America! You have an inalienable right to your convoluted opinion.

  7. Earth to Mr. Douglas

    Excellent example, Mr. Douglas:

    “somewhat” reasonable

    Avoiding the overuse of extreme adjectives.

    All things in Moderation.

    Thank you.

    Reply

  8. Posted by NJ2AZ on March 22, 2018 at 2:18 pm

    Not that i’d wish such a task on anyone, but i’d like to see someone go back and calculate what the annual contributions would have been each year (up to today) to maintain a 100% funded ratio (even based on the absurd state assumptions and not realistic ones)

    Reply

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