Even while union leaders in New Jersey are declaring that the newly passed pension package is draconian in nature, the reality is that the state hasn't begun to solve its severe pension problems, only moved to buy itself some more time, as Eileen suggests below.
One element of the package that should prompt Jersey taxpayers to stand
up and take notice is the clause that now requires Jersey to make its
annual required contributions (which heretofore have obviously not been
'required"). But wishing will not automatically make it so, and this
will be a big new obligation in the Jersey budget which the state will
not easily fulfill in its current condition. Jersey has not made a full
annual required contribution to its pension fund in 17 years, the NY
Times has previously estimated. That's got to be the longest pension
holiday in the nation.
Recently the state's been estimating it should be putting in $3 billion annually in its pension funds. That's money Jersey doesn't have. Its budget is a mere $29 billion, and its tax collections just about $25 billion. So Gov. Christie better hope either for a gigantic economic uptick next year which increases tax collections by some 10 percent or more, and even then the state would have to hold all other spending flat just to begin to find the revenues to make an adequate ARC. Failing that, it will be tempting for the state to simply rely on some new budget gimmick, like adjusting the actuarial tables to magically make the required contribution seem smaller. This is one problem with defined benefit pension systems; the accounting is so easily manipulated that anyone who has an interest in simply pushing off a problem for another few years can do so by rigging the numbers until a system comes so close to running out of money that the accounting can't be rigged anymore.
That's Jersey. Joshua Rauh, the Northwestern U. finance professor, calculated that Jersey pensions could go broke sometime around 2019, but even he generously used the aggressive investment rate of return that Jersey's pension actuaries assume. If the market doesn't hit that rate, somewhere north of 8% a year, things could get ugly sooner. In fact, Jersey's own actuaries estimated that if all things stay as they are (including the lousy stock market), some of the state funds could go bust as soon as 2014. Yesterday's legislation only helps that marginally.
Here's one way of thinking about the problem. Jersey's pensions are currently paying out about $8 billion a year. John Bury, an actuary who has followed the pension mess in Jersey, estimates workers are putting $1.5 billion a year into the system, and with yesterday's deal that will increase by $250 million. The state is supposed to be putting in another $3 billion or so, and the rest is supposed to come from the aggressive stock market returns that haven't materialized in a decade. Every year that all three of those income sources don't come through, Jersey's pension system gets drained of more cash. This is one reason why the state estimates its pensions are $56 billion short and independent analysts put the number north of $100 billion.
Jersey taxpayers, in other words, shouldn't feel off the hook yet. Short of a miraculous economic turnaround that sends tax revenues and stocks sky high, Jersey hasn't solved its severe pension problems yet.
Recently the state's been estimating it should be putting in $3 billion annually in its pension funds. That's money Jersey doesn't have. Its budget is a mere $29 billion, and its tax collections just about $25 billion. So Gov. Christie better hope either for a gigantic economic uptick next year which increases tax collections by some 10 percent or more, and even then the state would have to hold all other spending flat just to begin to find the revenues to make an adequate ARC. Failing that, it will be tempting for the state to simply rely on some new budget gimmick, like adjusting the actuarial tables to magically make the required contribution seem smaller. This is one problem with defined benefit pension systems; the accounting is so easily manipulated that anyone who has an interest in simply pushing off a problem for another few years can do so by rigging the numbers until a system comes so close to running out of money that the accounting can't be rigged anymore.
That's Jersey. Joshua Rauh, the Northwestern U. finance professor, calculated that Jersey pensions could go broke sometime around 2019, but even he generously used the aggressive investment rate of return that Jersey's pension actuaries assume. If the market doesn't hit that rate, somewhere north of 8% a year, things could get ugly sooner. In fact, Jersey's own actuaries estimated that if all things stay as they are (including the lousy stock market), some of the state funds could go bust as soon as 2014. Yesterday's legislation only helps that marginally.
Here's one way of thinking about the problem. Jersey's pensions are currently paying out about $8 billion a year. John Bury, an actuary who has followed the pension mess in Jersey, estimates workers are putting $1.5 billion a year into the system, and with yesterday's deal that will increase by $250 million. The state is supposed to be putting in another $3 billion or so, and the rest is supposed to come from the aggressive stock market returns that haven't materialized in a decade. Every year that all three of those income sources don't come through, Jersey's pension system gets drained of more cash. This is one reason why the state estimates its pensions are $56 billion short and independent analysts put the number north of $100 billion.
Jersey taxpayers, in other words, shouldn't feel off the hook yet. Short of a miraculous economic turnaround that sends tax revenues and stocks sky high, Jersey hasn't solved its severe pension problems yet.
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