New Jersey’s Pension Funding Crisis
The shortfall developed since 2001, as the collapse of the stock market drained $22 billion from the funds. Lawmakers compounded the problem by using accounting gimmicks to skip required annual payments into the funds and to cover billions of dollars in additional costs from increased retirement benefits they granted to public employees.The Ledger fails to mention two other major factors driving up the state’s pension costs – the number of active public employees added to the pension rolls and the salary increases granted to state and local government workers.
The number of active employees added to New Jersey’s pension plans increased by 41,000 from July, 2001 to July, 2005, according to the latest audited enrollment numbers available from the state. New Jersey’s public workforce has continued to grow by the thousands from that point until today.
In addition to adding more employees, increasing salaries upon which pensions are calculated has further exacerbated the funding crisis. State and local public employees have been granted incremental salary raises on top of wage scale increases that greatly out pace inflation and far exceed the average raises received by employees in the private sector. Taxpayer income and state revenue haven’t kept up with these escalating public employee payroll costs, including pension obligations.
Making matters worse, Governor Jon Corzine has recently offered state workers a salary package that will provide the average employee with a 35 percent increase in salary over the next four years - 13.6 percent in wage scale increases, the balance in incremental salary increases.
The so-called “give backs” in the contract, a 1.5 percent of salary contribution for healthcare benefits and a 0.5 percent increase in employee contributions for pension, are more than covered by with the 13.6 wage scale increases in the new agreement. Raising the retirement age from 55 to 60 for new hires will “save” peanuts, $77.3 million per year by 2022.
As the Star-Ledger points out, lawmakers also unilaterally enhanced pension benefits without a means to actually pay for the increased costs. In July of 2001, completely outside of the union contract negotiation process, the legislature recklessly granted a huge 9 percent increase in pension benefits and lowered the retirement age, effective October 1, 2001.
The state’s pension funds certainly took a hit when the stock market (DJIA) went from, a then all-time high of, 11,722.98 on January 14, 2000 to 10,593.72 on July 1, 2001 and finally, to a five-year low of 7,286.27 on October 9, 2002. But has the state invested its pension funds so poorly that little of that reported $22 billion loss was regained as the market began its climb back to record highs? The market closed yesterday at 12,530.05.
Using accounting gimmicks to skip necessary state payments into the pension funds certainly didn’t help matters, but state contributions are in addition to employee contributions and fund investment gains. How many billions would taxpayers have needed to contribute since 2001, when the pension plans were fully funded, though 2007 in order to close a $25 billion to $56 billion funding gap?
Assuming the state’s estimated investment return rate of 8.25 percent, New Jersey taxpayers should have been contributing about $3 billion every year beginning in 2002 to close a $25 billion gap and about $7.1 billion annually if the pension fund deficit is $56 billion. And that’s just to pay for pensions – the state’s obligation for retiree healthcare benefits is now estimated to be $78 billion.
State officials should have been honestly stating pension obligations and making necessary pension fund payments. Had that happened, perhaps tens of thousands of additional public workers wouldn’t have bee hired, salary increases wouldn’t have been so extravagant, healthcare and other fringe benefits would have been scaled back to a sustainable level, retirement ages wouldn’t have been lowered and pension benefits wouldn’t have been increased.
Now we all know the extent of the problem and we know the cause. It should be obvious to everyone, taxpayers can’t afford the spending binge New Jersey’s politicians have been on since 2002. Lawmakers got us into this mess and it’s within their power to clean it up. Not with more tax increases and hocking state assets, but with meaningful public employee headcount, salary and benefit cuts. That’s only solution and every politician knows it now, if they weren’t aware of it before.
Our elected officials have a choice to make and so will voters come this November. Let your representatives know where you stand!
Labels: New Jersey, Pension Funding, Public Employees, State Budget 2008, State Worker Benefits, State Worker Union Contract
15 Comments:
As a state employee and taxpayer you should clarify this by adding that the politicals...the elected officials such as the esteemed Wayne Bryant have raped the pension system through their gimmicks and no show jobs, he wasn't the only one, he was just the first one caught. Also note that certain managers in the 100.000+ salary range who also were very cushy with the politicians received special pension deals, for instance, those who were in mangement in the Department of Law and Public Safety had their pension formula changed to reflect the State Police pension thus being able to receive more then they actually were entitled too.
How soon before the Feds have to take over NJ's finanaces also. Just when I think NJ cant get any lower, it does. Wonder how Corzine is gonna fix this mess? Are we looking at another sales tax hike?
This state is setting up for a MAJOR financial & housing collapse.
Sell your real estate now, and move out while you still can.....
SAS
I know what your getting at ANONYMOUS, but do you care to go into a little more detail. You seem to be on the money most of the time.
Like I said in a earlier post, I want to see perp walks all over this damn state and I wanna see them RIGHT NOW!!! Somebody is gonna have to go down hard for all those crookishness that has gone on in this state.
I have said a few times that I dont think Corzine is corrupt because he hasnt been in office long enough, but by not taking the hard measures needed to crackdown on corruption in this state, he is therefore an enabler and should have his sorry behind investigated also. For sake of this state we need a ELLIOT NESS.
Any CEO would have been arrested for such behavior.
Good point NJCONS, but which CEO. Who was running NJ while this was going on. Either this occurred under Whitman, McGreevy, or both.
Plus with all the double dipping that goes on in this state, its not just the GOV who is at fault, but all the local politicians in the state legislature.
KingDrudge:
My point is really just that in the private sector this behavior is a criminal offense. All of the mentioned parties are culpable. Because they are politicians they are not held accountable. Maybe we need a sarbanes-oxley for government officials.
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