Job Number One

The Sunlight Policy Center released another report yesterday blasting the New Jersey Education Association (NJEA), this time for their complicity in the bankruptcy of the retirement system that included a helpful history though I disagreed on a couple of points.

Unsurprisingly,the NJEA blames it all on the state: “The state’s failure to fund its share of pension costs is the only reason for [the] pension crisis faced by the state.” (page 6)

That wold be true if the state and localities were (a) provided with honest contribution amounts to fund the benefits being promised, and (b) had to put in the money. There would absolutely be no crisis if the state and localities were to put in annual contributions of $15 billion (to start).

Unions don’t object to the underfunding because they know the law protects their pensions no matter how bad the situation gets.

COLAs too?

The NJEA Flips the Legislature. In one of the more remarkable feats of political power in modern New Jersey history, the NJEA showed its enormous political clout when newly elected Gov. James Florio revived the idea of shifting responsibility for teacher pensions to school districts. After a New Jersey Supreme Court ruling mandated increased state aid to poor districts, Florio sought to raise taxes and devise a new school funding formula while relieving the state of the teacher pension burden as part of the 1990 Quality Education Act. NJEA President Betty Kraemer highlighted why the NJEA feared such a shift: “In a few scant years, increasing pension costs will eat into the dollars available for programs in schools. Local property taxes will have to rise to sup-port programs.” When Florio and other Democrats enacted the pension shift and subsequently moved tax dollars from state education aid to property tax relief, the NJEA endorsed 46 Republicans and three Democrats and put its full muscle behind flipping the legislature in the ensuing 1991 legislative election. The result: The NJEA was credited (and credited itself) with turning a Republican minority into a veto-proof Republican majority.As noted in a national news report, “Most observers said the NJEA played the biggest role in turning Democratic majorities in the Assembly and Senate into veto-proof Republican majorities.” The pension shift was postponed and ultimately repealed. (pages 15-16)

Faced with legislative elections in 2001, lawmakers fell over themselves to please the NJEA, granting both existing and prospective retirees a 9 percent pension increase. Further,the law was passed in conjunction with statutory provisions excusing non-funding of both the newly enhanced and preexisting benefits for several years. As a final sop to the NJEA, the law temporarily reduced employee contributions from 4.5 percent to 2.5 percent. In a particularly underhanded move aimed at creating “surplus” assets to fund the enhancement, the legislature reached back to June 30, 1999, to value pension assets when they were $5.3 billion higher than under the then-current valuation method—even though by 2001 the dot-com bust had in reality reduced the value of those pension assets by billions of dollars. (page 19)

The only thing the NJEA did not achieve was full funding. Politicians, keenly focused on self-preservation and presented with the choice of pleasing the NJEA or keeping state taxes down, did both—they gave the NJEA what it wanted on retiree benefits but did not spend the money to fund them. Sure, the NJEA made some noise at rallies and in the press and filed a few lawsuits, but until 2015, it never directly punished lawmakers for underfunding the way it punished them for trying to shift pensions to local districts, cutting state education aid, or reducing benefits. Instead, during the time that pensions were being shortchanged, both incumbents and NJEA-endorsed candidates were elected at extremely high rates. (pages 26-27)