"Knowledge will forever govern ignorance

 and a people who mean to be their own governors

 must arm themselves with the power which knowledge gives."

Tuesday, January 22, 2008

New Jersey Needs $38 Billion Plan For Employee Benefits

What’s the real purpose of Governor Jon Corzine’s $38 billion asset monetization plan? It’s all about paying for New Jersey’s public employee benefits. The conversation about the state’s bond debt and Transpiration Trust Fund is misdirection and cover for the real problem The funding requirements for both are basically flat, as we previously explained. It’s the staggering increases for public employee benefits that’s causing the state’s financial crisis.

In 2002, the total for all benefits (health insurance, pension, etc) for active and retired employees cost taxpayers approximately $2 billion and comprised 8.8% of the state’s budget. By 2008, that number had grown to $4.9 billion, gobbling up 14.8% of the state’s budget. Teacher retirement benefits, paid from the state’s income tax revenues, are included in those numbers.

The Governor’s 2008 budget (current year), also provided a forecast for employee health insurance and pension benefit costs for the next five years. By 2013, the total for health insurance was estimated to be $4.6 billion and pension contributions, $3.3 billion. That’s $7.9 billion per year, excluding employer paid payroll taxes.

Read the Governor’s January 2008 asset monetization presentation and you’ll find he’s now projecting that by 2010, health insurance costs will jump to $4.9 billion, just for retired employees. Missing from Corzine’s chart are the projections for health insurance for active employees and the pension contribution required for teachers.

The Report of the Benefits Review Task Force from December of 2005 sounded the alarm with the following cost projections for employee health insurance. The Governor and Legislature thanked the task force kindly and then did essentially nothing about the skyrocketing costs.

Health Insurance
The state’s pension plans were fully funded as of June 30, 2002, as shown in the following chart from the same Benefits Review Task Force report:

Pension Funds
The task force recommended a “one-time” payment of $8.6 billion, plus annual increases in the state’s pension contributions to eliminate the deficiencies.

We reluctantly acknowledge that such a large reduction in the liability might be achieved through the sale of a publicly-owned asset. While we are generally opposed to a one-time asset sale to generate revenue, we feel compelled to put aside our reservations and make the recommendation.
That’s the reality and that’s the problem Governor Corzine is trying to solve with his $38 billion asset monetization plan and the huge toll hikes required to pay for it.

That’s why we reluctantly support Jon Corzine’s Financial Restructuring Plan. (If someone has another way out of this mess we’d like to see the details.) However, taxpayers should insist on some key changes to the plan and future state spending as the price for their support. We’ll write about that in future blog posts.

Recommended Reading:
The Report of the Benefits Review Task Force – December 2005
The state of New Jersey Debt Report – November 2007
State of New Jersey Financial Restructuring – January 2008

Why The Sudden Panic Attack Over New Jersey’s Bond Debt?
Does New Jersey Need A $38 Billion Asset Monetization Plan To Solve an $800 Million Transportation Funding Problem?

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At 6:49 PM, Anonymous Incorrigible said...

"(If someone has another way out of this mess we’d like to see the details.)"

I guess we can't just turn the pension liability over to the Feds? (http://www.pbgc.gov/)

It would be nice to see some significant personnel reductions first. I would support an increase in the gas tax before a bulk sale (monitization, whatever) of the state highways. There's simply no way to enforce the proceeds from the sale going to where it should

At 7:25 AM, Anonymous Anonymous said...

I suppose it is also just too much to ask our legislators to actually, you know, CUT costs.

At 7:42 PM, Anonymous Jim - PRS said...

In the private sector, these unfunded pension liabilities would result in someone going to jail.

Remember, this was the guy pumping his fist in the air promising the state union workers, "I will fight for you."

I really could puke.

At 10:32 AM, Anonymous Katy said...

Interesting posts. Really interesting.

Outta curiosity, have any newspapers gone into details about this?

At 10:33 AM, Anonymous Anonymous said...

I do not understand how any of the $38 billion will actually go towards benefit costs.

On page 18 of the Asset Monetization Background briefing, Corzine spells out how the bonded money will be spent. $8 bil for reserves, $5.7 bil for Toll Road debt, $10.7 to take care of TTFA, $1.4 for OPen Space debt, and then $11.9 bil for General Fund debt.

The General Fund debt is the credit card bill you posted earlier. Pension and health costs liabilities are not included in that bill, right?

At 11:27 AM, Blogger Enlighten-NewJersey said...

The state’s bonded debt (credit card debt) includes the Transportation Trust Fund (TTFA) debt, the Garden State Preservation Trust debt and the other the so-called “general fund debt” which Corzine’s plan would reduce.

Total Transportation Trust Fund Authority debt would be reduced by $10.650 billion, Garden State Preservation Trust debt would be reduced by $1.350 billion and other bonded state debt would be reduced by $11.9 billion. That’s a total of $24.9 billion in debt reduction out of the total $37.6 billion toll road monetization deal.

Eliminating the payments on those debts reduces the state’s annual debt payment requirements and therefore, frees up that money for other state expenditures. The money is needed for employee benefits.

Public employee health insurance costs (active and retired) are going up 18 percent, per year. Large and growing pension contributions must be made. The state’s revenues are not increasing enough each year to meet these greatly escalating employee benefit expenditures.

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