More and more taxpayers today understand the budgetary sleight-of-hand their state and local officials engaged in to promise workers rich benefits without actually funding them. Jersey took a turn onto the highway of fiscal irresponsibility in 1998 when the Whitman administration borrowed $2.7 billion to finance a contribution into the pension system rather than pay that contribution out of the state's budget. Below is a table showing the annual payments the state must make over 30 years to finance that single borrowing. What began as merely a $90 million hit to the state budget has now reached $300 million and will increase to $500 million annually by 2020. In all, Jersey will spend $10.3 billion to pay back that $2.7 billion in borrowing. But there's more:
Jersey's irresponsible legislators, delighted they could reward public employees with virtually no budget impact, then went on an even bigger fiscal bender. In 2001, an election year, they added lavishly to pension benefits and then began a process of simply ignoring the pension system's funding needs by making only minimal contributions to the system that fell well short of annual required contributions that should have averaged between $2.5 billion and $3 billion. The situation is so bad that last year, when the state finally did pension reform, it agreed to start contributing to its own system, but gave itself seven years to get back to fully making its required annual contributions.
By magically ignoring its pension obligations, state legislators had no idea (or simply didn't care), how far the state's benefits package was getting out of whack. The chart below makes it clear. Employee benefits costs make up about $4.5 billion in the state's budget, including health benefits (in black on the bars), and pension costs (that small grey area on each bar). Those two areas alone (the additional white area on each bar is employer taxes) amount to about $3.2 billion in the state budget, but if Jersey were fully funding its pensions, that cost would actually be about $6 billion. Here's the state's problem. According to the National Governor's Association, pension and health benefits costs make up about 10 percent of a state's budget. But in Jersey, those benefit costs have grown to about 20 percent of the budget.To get back to fiscal health, Jersey will have to find a way as its required contributions under the new law grow to either pare back employee benefits to a more reasonable level, or watch those costs crowd out other state spending. The state has a long way to go to bring those costs in line with other state averages.
By magically ignoring its pension obligations, state legislators had no idea (or simply didn't care), how far the state's benefits package was getting out of whack. The chart below makes it clear. Employee benefits costs make up about $4.5 billion in the state's budget, including health benefits (in black on the bars), and pension costs (that small grey area on each bar). Those two areas alone (the additional white area on each bar is employer taxes) amount to about $3.2 billion in the state budget, but if Jersey were fully funding its pensions, that cost would actually be about $6 billion. Here's the state's problem. According to the National Governor's Association, pension and health benefits costs make up about 10 percent of a state's budget. But in Jersey, those benefit costs have grown to about 20 percent of the budget.To get back to fiscal health, Jersey will have to find a way as its required contributions under the new law grow to either pare back employee benefits to a more reasonable level, or watch those costs crowd out other state spending. The state has a long way to go to bring those costs in line with other state averages.
And here is the rest of the story.
In New Jersey, the public employees themselves have contributed extensively to the pension funds while the taxpayers have shirked. While the employee bear some responsibility for the disaster, due to the retroactive pension enhancements, it is taxpayers who are the most to blame in that state.
Meanwhile, in New York City, taxpayers have paid more into the pension funds, as a percent of employee wages, than probably anywhere else in the country. And yet the NYC pension funds are as bad off as in New Jersey, according to most comparative analyses.
Even though the New York State pension funds, which also cover local government workers in the rest of the state, are among the best funded public plans.
What have they done to NYC? Why is NYC as bad off as New Jersey, instead of as well off as the rest of New York state, when NYC taxpayers have paid in so much more? No one has ever explained this.
I get what you are saying about New York, Larry.
However, to say that taxpayers have shirked in NJ is another way of saying that those whom taxpayers have elected in the state (from both parties) have shirked. And they've done so because the level of benefits promised to employees have been so generous that the required contributions would have been difficult to sustain. Faced with the task of paying up or reforming and reducing benefits to a sustainable level, Jersey's politicians did neither.
While Jersey public employees do contribute to their pensions, the bulk of the annual required contributions must come from the state budget, not employees, and the state was supposed to be responsible to make up the difference when the pension funds did not hit their annual required contributions.
To take one example. Going back to 2002, when the state was contributing relatively little to pensions out of the McGreevey budget. The annual required contribution should have been about $2.5 billion from the state on a budget of about $23 billion, based on the benefits that employees were accruing. Instead, the state contributed about $200 million. In other words, the state's contribution should have been more than 10 percent of its budget. By contrast, the typical burden of annual required contributions to state budgets across the country at that time was about 4 percent.
In other words, Jersey was way out of line with its pension costs even back in 2002, before a decade of no growth in the stock market. The solution in Trenton was, and continued to be for a decade, merely to ignore those costs as part of the budget.
Having a law in place back then (as the state does now) that required those contributions be made would have greatly clarified to taxpayers just how expensive the state's promises to workers had gotten. I suppose you can fault Jersey taxpayers for not understanding all of that.
Quoting ..."To get back to fiscal health, Jersey will have to find a way as its required contributions under the new law grow to either pare back employee benefits to a more reasonable level, or watch those costs crowd out other state spending."
I've got a much better and much "fairer" solution .....
These VERY VERY rich pensions (with the taxpayer paid-for share easily 4 times greater in value at retirement than the employer paid-for pension of a comparable Private sector worker) are the direct result of collusion between the Public Sector Unions and our elected representative more than willing to accept campaign contributions and election support in exchange for favorable votes on pay, pensions and benefits.
the pensions for CURRENT 9yes CURRENT) employees are at least 50% greater than what would have been approved in the absence of this collusion and if the taxpayers were truly represented at the "bargaining table".
Instead of fully funding these grossly excessive and fraudulently obtained promised pensions, several things must be done:
(1) STOP digging the hole deeper by reducing accrual for future service by AT LEAST 50% .... and they would STILL be greater than the accrual level in almost all Private sector pensions.
(2) ALL new employees go into a 401k style DC Plan with a modest match .... NOT in a DB Plan.
(3) For all CURRENT workers not already age 50, the earliest full retirement age is 65 (62 for cops).
(4) ZERO further accrual toward subsidized retiree healthcare. Private sector worker do NOT get this and Civil Servants are NOT "special" at taxpayer's expense.