NJ Sustaining Corruption

The Garden State Initiative released a report on the state of New Jersey finances. You have heard it all before but what keeps being left out of these ivory tower pronouncements is the systemic corruption at all levels and in all corners of officialdom here that makes even the slightest improvement in our general fiscal situation a pipe dream.

Here are some excerpts along with a few charts on the pension system, the last of which makes my point.

The state needs to avoid being lulled into complacency because of more than $6 billion of one-time Federal COVID financial relief and its $4 billion repayable borrowing. In particular, New Jersey needs to address once and for all the massive underfunding of its public employee pensions (nearly $131 billion in combined underfunding) and other public employee benefits (OPEB) which includes retiree health-care (nearly $76 billion), in addition to deferred infrastructure improvements (of at least $50 billion). (page 4)

The state has consistently failed to make the contributions recommended by actuaries to its pension systems, leaving the state’s plans with the worst funding ratio (assets to liabilities) in the country. Furthermore, pension liabilities are growing faster than the state’s economy, and it is this economy that ultimately supports these systems. (pages 4-5)

Continue to reform pension and retiree health care benefits. These legacy obligations continue to consume larger and larger parts of the budget. Liabilities are growing faster than the state’s economy. There is no reasonable chance that the state can get these liabilities under control because political leaders have kicked the can down the road for too long. These costs are also crowding out other new public needs. (page 7)

Most importantly, the state’s legacy obligations of unfunded pensions and retiree health care costs
are so enormous, and are growing faster than the state’s economy, that no reasonable person can expect the state to catch up on its decades of neglect without serious and substantive reforms. Therefore, elected officials ought to pursue reform options that reduce these unfunded obligations even if it requires amending the state constitution. Reforms should protect those who are already retired so that current pensions are not reduced. But elected officials should seek older retirement ages, less generous benefit accruals, and increased contributions from beneficiaries. In retiree health care costs, the state should also move to reform benefits. Beneficiaries should share more of the health care costs with the state. Ideally, the state could move to a defined contribution system of health care benefits in which retirees are given some amount of money to purchase whatever benefits they choose. The contribution could be limited so that it is affordable to the state. Retirees who are not yet eligible for Medicare could use this defined contribution to purchase health insurance on the state insurance exchanges. (page 34)

Focus on that last chart. Liabilities actually decreased over the last two years. Significantly decreased against all logic and reason. Did everybody take a pay cut? Did 30% of plan participants disappear? No. The actuaries just got told to lower liability values and like dutiful apparatchiks they complied.