Pension System Needs Saving, Not Starving
The Star-Ledger, May 9, 2014
The news that the state widely missed the mark on its April revenue projections was a sobering call that our fiscal house is far from being in order. With a budget gap of more than $800 million to make up in a little less than nine weeks, the administration and lawmakers will be scouring the budget to look for savings.
However, one area that should escape this budgetary scalpel is the state’s obligation to properly fund its public employee pension systems. And that’s for a simple reason – every penny skipped today will only grow over time, creating a bigger hole for future taxpayers to fill. That’s a lesson we already learned in prior years, as the state and municipalities both skipped billions of dollars of annual payments into the system, a practice that eventually blew a multi-billion-dollar hole in the pension funds which we are just now beginning to fill.
Over the past three years, because of reforms put in place in 2011, public employees – who have never missed a payment – have seen their pension contributions increase by more than one-third, with retirees forfeiting cost-of-living-increases. In return, the state finally began to make its way to fully funding its annual obligation. In order for the reforms to work, the governor and Legislature must allow them to work. And that requires the proper funding.
And, Governor Christie knows this. Even last year, he said at a press conference that though partial payments meant a continued unfunded liability, the reforms have meant “we’re falling behind a whole heck of a lot less than the years before I got here when they were making no pension payments…but we’re moving toward fixing it and that’s a heck of a lot better than where we were three years ago.”
The Governor’s statement was correct then, and in fact it’s true now. Reducing or skipping a payment now would only derail the progress made.
The governor’s proposed budget already includes a dangerous mid-year reworking of actuarial assumptions that threatens to prolong and deepen the crisis. That formula change aims to cancel nearly $94 million in payments into the system this year and cut next year’s payment by $150 million—a move which, alone, could blow a $900 million hole in the reform effort by just 2017. This runs counter to his campaign pledge to the residents of New Jersey that he would end budgetary gimmicks.
Further reducing or skipping those necessary payments will make that potential hole even bigger, and cost future taxpayers even more to fill. For pension reform to work, we can’t be changing the rules mid-game, or looking at pension obligations as a quick fix for current shortfalls. Every penny we miss today will only grow over time, pushing our ability to climb out of this pension mess further and further down the road.
Instead of digging the pension hole deeper, the governor should consider cancelling or reclaiming some of the tax subsidies handed out to large corporations. In his first term, he approved more than $2 billion in such subsidies. With our state’s economy still struggling and job growth greatly lagging, we must consider whether these companies are providing a fair return for the generous tax cuts they have received.
The bond markets have already taken notice of the administration’s fiscal games and again downgraded New Jersey’s rating. On April 9, Standard & Poor’s dropped the state to single-A status, a dubious level shared with only two other states, California and Illinois. This week, Moody’s warned of an additional downgrade. And when the ratings are cut, it costs us all more in the long run in terms of higher interest rates to pay off our debt.
Pension reform was a tough pill for public employees to swallow, as they are giving more but receiving less. We can’t afford undermining the progress already made in a mad dash to close this year’s budget gap. The governor and the Legislature must honor their deal.
Charles Wowkanech is president of the New Jersey State AFL-CIO.