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

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