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Democrat Phil Murphy cruised to victory in New Jersey’s gubernatorial race in November. The state’s powerful public-sector unions, which endorsed his progressive vision of higher taxes and more spending, played a pivotal role in his 14-point victory. Now the hard part begins.
As he takes office later this month, Mr. Murphy must confront the state’s biggest problem—a pension system that is about $90 billion short of what it needs to pay future benefits. He has already promised to devote some of the new revenue from his proposed taxes to pensions, but he can’t fully shore up the system without benefit reductions. And the unions that supported him have fiercely resisted such cuts. Can a progressive Democrat elected with the help of unions govern responsibly in an age of exploding public-employee costs and limited tax resources?
New Jersey’s pension woes aren’t new. A succession of governors and legislatures enhanced worker benefits without properly accounting for their costs. In 2010 the Securities and Exchange Commission cited the state for fraud because of the way it misled investors about its retirement system’s funding problems. It was the first state to earn this dubious distinction.
The state’s powerful unions have played such a key role in the crisis that even some Democrats lost patience. In 2010 state Senate President Stephen Sweeney, a Democrat, described how unions had consistently pressured legislators for higher benefits while ignoring the system’s funding problems. “The union leaders need to take off their blinders and stop ignoring their own complicity in this problem,” he wrote.
The following year Gov. Chris Christie and a bipartisan group of legislators enacted reforms that rolled back some benefit increases for employees and retirees. But the group’s optimistic assumptions of how much the state would save didn’t pan out. The state government also had trouble keeping up with the increased contributions mandated by the reform legislation, thanks to weak growth in tax revenue.
Trenton has since set out a new plan that dedicates $1 billion a year from the state lottery to pensions. But even with the lottery cash, the state must contribute an additional $5 billion a year of taxpayer money to save the system.
That’s much more than New Jersey—which has never paid more than $1.9 billion a year from tax revenue into its retirement system—can afford. The state, which will collect some $35 billion in taxes this year, now says it will gradually increase pension contributions until they reach an adequate level in 2023. But it’s hard to see how Trenton can get there without wrecking its budget.
Even if New Jerseys’s tax collections grow by the same rate as in the past five years—the current recovery’s most robust—pension contributions alone would eat up two-thirds of new revenue. According to calculations I’ve outlined in a forthcoming Manhattan Institute report, “Garden State Crowd-Out,” this would leave little room to pay for increases in other budget items. Meanwhile, Trenton must also replace the $1 billion in lottery revenue previously used to fund other budgetary programs.
The whole scenario is overly optimistic, because the nation is already in the ninth year of an expansion. The Rockefeller Institute of Government recently reported that state and local tax collections are slowing around the country. If the country faced even a mild recession sometime in the next several years, New Jersey’s prospects for bailing out the system would become even more remote. Moody’s concluded in October that a recession would harm New Jersey more than most states, causing a $3.5 billion hit to its budget.
Mr. Murphy ran pledging $1.3 billion in new taxes, targeting the rich in a state with one of the country's highest tax burdens. Some Democratic legislators already have balked at the proposed levies, given Congress’s imposition of a limit on the state and local tax deduction. But even assuming all of the governor-elect’s proposed taxes make it into law, much of the new revenue would quickly disappear into Mr. Murphy’s newly proposed spending programs. The relentless rise of pension and employee-benefit costs and the need to replace lottery revenue would only make the situation tougher.
Yet continuing to shortchange the system is untenable. The bipartisan New Jersey Pension and Health Benefits Study Commission last month warned of the unprecedented risks the Garden State faces if the system continues to deteriorate. The commission has proposed reforms that would save the system by moving workers out of their defined-benefit plan and into individual retirement accounts similar to 401(k) plans. It also proposed reducing state employees’ health-care benefits to the same level private-economy workers enjoy. The savings would be redirected into the pension system.
Unions vigorously fought the new plan in the hopes they could help elect the next governor. They succeeded. What happens next will determine who really runs the Garden State.
Every new NJ governor has faced NJ's legacy fiscal nightmare.
Murphy was just given cover by the media so results of his policies will not look so pathetic and have a scapegoat to use for the next election.
Too bad after all these decades, and despite the election of Biden/obama/hillary proclaimed financial guru, Jon Corzine, Nj taxpayers actually live the nightmare carefully nurtured by both parties.
from 1960 to 2001, nj's annual state budget went from 590 million to 24 billion.
Nj population
1960 -6.07 million budget 590 million
2001 - 8.49 million 24 billion
2016 - 8.94 39 billion
A quick glance at the population vs budget suggests something is askew.
Every administration used creative accounting to market an improved budget. Every successive administration has accused the previous administration of using creative accounting.
NJ has been in a state of chronic financial crisis for decades. Murphy is not a victim of the previous administration, Murphy will join a long line of governors who will accomplish nothing at increased taxpayer expense.
And the larger part of the electorate will rejoice our support of a continued disastrous economic legacy. Foolishly will take pride in partisan games that blame the opposition.
Yes, it’s quite a mess and has been for a long time.
My prediction is Murphy increases contributions in an attempt to make it work. Gains ground, but does not get there. Next governor moves new hires (or those with only a few years experience) into a hybrid system. COLA is probably gone for good.
I would make sure you have some type of secondary retirement investment if you plan on retiring with a public pension from the state of NJ in the future.
States like NJ, NY, CA, IL etc are under siege by Public Sector employee UNION PENSIONS which include salaries, and benefits for LIFE. They keep kicking the can down the road in the hope of a Fed bailout where other states (people) pay for their fiscal irresponsibility buying votes and union campaign support. Most cities are in the SAME PREDICAMENT.
States like NJ, NY, CA, IL etc are under siege by Public Sector employee UNION PENSIONS which include salaries, and benefits for LIFE. They keep kicking the can down the road in the hope of a Fed bailout where other states (people) pay for their fiscal irresponsibility buying votes and union campaign support. Most cities are in the SAME PREDICAMENT.
Don't blame the Unions for wanting what was fairly negotiated through the "Collective Bargaining" agreement that the states's you mentioned including NJ all have a legal responsibility to pay,they(the states) choose not to pay those pensions and now they ...the pensions and the states are in trouble.Yet people like you who want to blame the Unions not the state are all so the ones complaining if the pension goes under and these people now need assistance be it SS or Welfare you call them deadbeats or bad planners for wanting what they earned . If taxes must go up to cover what should have been put in at the time it was due ....so be it. The Unions didn't go back on their word those states did.
I think pensions are guaranteed by the federal government so that if they fail, the pensioneer can still collect up to $50K. Personally, I think $50K plus SS is more than adequate to retire on in NJ. My pension is less than that and my wife and I do fine after being retired here for about 10 years. If they need to cut all those pensions down to $50K then it's fine with me. NJ has very little income tax and utilities are reasonable. If you have a modest house, property taxes are not an excessive burden, in the area of 6K a year or so. I think my NJ income tax last year was $400 (about 1/2 of 1 % of my gross income) If people want to be rich in retirement and don't get to do so, too bad.
Public Pensions are not part of the Federal Pension Guarantee Fund.
Private Pensions are, they pay a premium to the fund, The fund does have a Max Payout, So if your private pension would pay $80K a year, the max might be $50K a year, Your Pension would go down by $30K.
I think the Federal Pension Guarantee Fund (like the FDIC) has a federal loan backstop plan, But it backstop that would need to be paid back (probably by increasing the insurance fees, and reducing the the future max payouts).
You are both right, my mistake. But if the NJ pension funds ever run short the federal government will have to intervene in some fashion. If that happens, it's likely the higher pensions will get cut. But it may be decades away. As I said before, the NJ tax burden is relatively light for the majority of taxpayers. There's room to increase taxes as well as other ways to improve the pension funds.
Quote:
Originally Posted by flyonpa
Public Pensions are not part of the Federal Pension Guarantee Fund.
Private Pensions are, they pay a premium to the fund, The fund does have a Max Payout, So if your private pension would pay $80K a year, the max might be $50K a year, Your Pension would go down by $30K.
I think the Federal Pension Guarantee Fund (like the FDIC) has a federal loan backstop plan, But it backstop that would need to be paid back (probably by increasing the insurance fees, and reducing the the future max payouts).
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