"Knowledge will forever govern ignorance

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Wednesday, November 23, 2005

The High Cost of Public Employees

New Jersey needs to add at least $7 billion to its public pension funds over the next three years in order to meet future benefit obligations for state and local government workers. This estimated contribution assumes annual returns average 8.75 percent over the next three years. However, so far this year the funds have earned 2.9 percent. The state would need to add $25 billion if returns were 4.6 percent a year, a rate of return more in line with reality.

New Jersey’s public employees contribute between 3 and 8 percent of their salaries toward their pensions, with most paying 5 percent. State and local government workers and retirees pay nothing or in some cases a modest amount for their healthcare benefits; they pay no deductible and a $5 co-payment for doctors' visits.

New Jersey’s public employees not only enjoy job security, but they receive salary and benefits exceeding those earned by private sector employees. The state’s public employees now earn an average of $54,600 a year while private sector workers average about $49,000.

The cost of public employees and their benefits are bankrupting the state. The state should be seeking a major reduction in the number of public employees and not permitting the tremendous growth in government jobs witnessed in recent years. The fastest growing employment sector in New Jersey is government, while higher paying private sector jobs are fleeing the state. The situation is completely out of control and totally unnecessary. Government employees no longer work for taxpayers – we work for them.

What will be done about the growth in government headcount and the unsustainable growth in public employee benefits? The usual political response is to form a task force and then raise taxes.

The Governor's Benefits Review Task Force is supposed to release a report shortly with recommendations for reining in the cost of public employee benefits. According to an article in the Asbury Park Press the task force will recommend:

Task Force Pension Benefit Reform Recommendations
  • - Increase the retirement age for teachers and certain public employees from 55 to 60
  • - Base pensions on the highest five years of salaries rather than the highest three years
    - End pension boosting, such as sharp salary increases for favored employees shortly before retirement
  • - End early retirement incentives
  • - End pensions for nongovernment employees, such as private contractors and private-practice municipal attorneys
  • - Deny pensions to public officials convicted of crimes
  • - State and local government should fully fund pension obligations
  • - End pension bonding in which the state borrows money based on the pension funds
  • - End accounting tricks which make the pension systems look more solvent than they are
Apparently the task force will not recommend a switch to a 401(k)-type defined contribution plan, common in the private sector and will not provide recommendations for closing the mega billion public pension fund shortfall.

Task Force Medical Insurance Reform Recommendations
  • - All retirees and current employees should contribute at least 5 percent toward the cost of health insurance
  • - Merge state health plans to save an estimated $104 million
  • - Increase the use of generic drugs for prescriptions
The task force estimates that its recommendations could save up to $1 billion a year. Even these minor changes will be met with howls from public employee unions. Any changes to the state’s public employee pensions or medical benefits would have to come through collective bargaining negotiations or new state laws.

The majority of state lawmakers owe their jobs to public employee unions and as government employees enjoy the same benefits plans, don’t expect any new state laws written to help taxpayers.

Stephen Wollmer, spokesman for the New Jersey Education Association teachers union, said while the elimination of abuses is a goal everyone can support, any benefit cuts "would be a hard sell for our members."More than 200,000 active and retired teachers are in the pension system, and "they fought hard for the benefits and we believe they are well-deserved," Wollmer said. The incentives help retain talented employees, he said.

Alan Kaufman, legislative political coordinator for the Communications Workers of America union, which represents 50,000 state, county and local government employees, said any extra costs imposed on workers would be unfair.
Meanwhile taxpayers are on the hook for $24+ billions for the under funded pension plans, a $5 billion hole in the state’s budget in large part caused by spiraling medical insurance costs and of course the highest in the nation property taxes.. Any extra costs – read taxes – imposed upon the rest of us, is apparently considered fair.

Maybe taxpayers should unite and go on strike. How about a Pork Busters campaign for New Jersey?


At 11:41 PM, Blogger Bob said...

Yes, reduce the number of workers. Absolutely. But do not cut benefits. Public workers earn their benefits for reduced salary. I am not certain where you have gotten information about public employees earning more than the private sector. I know as I complete my second graduate program my compensation as an elementary school teacher is far less than my friends in the private sector who do not have the graduate work behind them.

The benefits do not even the field. Changing the rules for those who have dedicated their careers to this business is not the correct course.

Yes, NJ has fiscal issues. The $7 billion in contributions that need to be made is not because of the public employees. It is because the state decided not to fund its portion of the tab. The feeling was that the market was doing so well the ROI would more than compensate the state's portion. The market stalled and the state still did not fund the pensions. To now say how much of a drain we are on the tax dollars seems a bit disingenuous. The tab has been running and now it has become serious money. If the state had not borrowed against those contributions we wouldn't be in this predicament. Public employees are already short $7 billion dollars. Your solution is to add to that misery.

Government is too big, yes. But not every public employee deserves the wrath of the public because of the irresponsibility of the elected government..

At 2:48 AM, Blogger Enlighten said...

Bob,You’re right the leaders in Trenton should have funded the state employee pension obligations each year. However, the folks in Trenton should have never increased pension benefits by 9 percent in 2000. Even if the state had properly funded the pension plans annually, the yearly cost to taxpayers for state employee pensions will triple by 2009. This is not the fault of public employees, but this level of spending is not sustainable.

As for public employee health insurance, Acting Governor Codey stated (http://www.state.nj.us/budget2005/text.html)
In the last four years...
... the total cost of health benefits for current State employees has risen by 50 percent
.... the total cost of health benefits for retired State and college employees has tripled.
... the total cost of free health benefits for retired teachers and other school personnel has doubled.

Further:“Codey puts a lot of blame on generous pension and benefit packages for state employees and retired teachers that squeeze New Jersey's budgets. If anything, we've got to pull back from these entitlements that are strangling the taxpayers of New Jersey.”

Many private sector employees began their career with defined benefit retirement plans, but times changed and now 401k plans have taken their place. The same was true of health insurance benefits – low premiums, deductibles and co-pays. Those days are long gone in the private sector.

The information about average NJ public employee vs. private sector employee salaries was published in all the NJ papers this past summer. Most links are no longer working, but here is an active link with the information:http://www.thnt.com/apps/pbcs.dll/article?AID=/20050508/NEWS03/505080412/0/SPECIAL04

Here is another link with the same information on Property Tax New Jersey quoting the Courier News.http://www.propertytaxnj.com/weblog/archives/state_news-index.html#000497

At 9:25 AM, Blogger Bob said...

So, your solution is to change the benefits of retired teachers? Let's see . . . forty-five years ago when my father began his teaching career, my mother remained home. They worked extra on the sides to make ends meet. My father worked an entire career (from a wheelchair, no less), retired, took fewer benefits so my mother would be taken care of (as the system provided). He died and now my senior citizen mother collects his retirement benefit.

She could no longer afford to live in the state she raised her family and bailed to Florida to stretch those reduced retirement dollars, she is a drain on the system. Sure, she could now begin a career to pay her way. Hell, we can't afford to continue funding the pension and healthcare plans (the latter which she sees not one dime of, btw) so we'll further reduce what we shell out.

She's nonproductive, she doesn't live in the state, why should we even send her a check?

No, this is not the appropriate way to handle this. You do not reduce benefits that have already been earned . . . not to retired workers or those who are currently working under a promised set of rules. That private companies have done this does not support the argument. It is wrong!

Create a plan for future workers and stick to it. An enlightened society treats its workers better than this. There are ways to make the ends meet without taking the hide of public employees, just because there is disdain toward them.

At 11:50 AM, Blogger Enlighten said...

No one is suggesting changing the pension benefit for those who are already retired. Their pensions have been earned and funded – it is those working today who will retire in the future whose pension benefit earned to date that have not been fully funded. The benefits earned to date by current employees must be funded, no one is suggesting otherwise.

Keep in mind unlike Social Security – pension plans are not “pay as you go” with the money contributed to the pension funds today being used to pay current retirees.

We did not describe how a defined benefit plan is converted to a defined contribution plan (i.e. 401k) in our post or comments. However, if this change were to occur no one would lose benefits accrued to date, but going forward the plan would change for all current and future workers.

Just as no one is asking government workers to give back salary they have already earned, no one is asking workers to give back retirement benefits they have earned. But, we can decide how we wish to compensate people for future work. Medical insurance and pension plans are components of a worker’s total compensation and taxpayers can not continue offering these huge compensation increases.

At 7:40 PM, Blogger Bob said...

No one is suggesting changing the pension benefit for those who are already retired.

With all due respect, the following from your first comment, says otherwise:

“Codey puts a lot of blame on generous pension and benefit packages for state employees and retired teachers that squeeze New Jersey's budgets. If anything, we've got to pull back from these entitlements that are strangling the taxpayers of New Jersey.”

It would be wonderful for government to take the lead in fighting rising healthcare costs. Pretty soon only the rich will be able to seek care. Passing legislation that curtails the ridiculous lawsuits that drive up malpractice insurance would be a good place to start. That way, public employees might still be able to have coverage without breaking the bank.

Of course, that requires leadership. It is easier to call for cuts in spending without fixing the problem.

At 2:20 PM, Anonymous Anonymous said...

NJ has a lot of government waste. Why do we need so many school districts, govt officials and so on for a small state.

Switch immediately to a 401K model, increase employee contribution, put all assured pension funds into a separate fund, let that pay retirement benefits... this state cannot retain its citizens otherwise. Tax payers cannot exist to fund govt employees... this is just too much. I am seriously considering moving to PA.

If it is this bad now, imagine a day when the economy hits rock bottom, govt cannot issue any more bonds and corporate and industry move out of NJ. Who will bear the cost? Outlaw unions for local and state govt employees.

These are tough decisions, but are needed for hard times ahead.

At 2:12 PM, Anonymous Harry said...

It can't work in reality, that's exactly what I think.
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