One persistent theme of contributors to PSI has been that as states and cities dig deep holes in their pension systems, the climb out of trouble becomes progressively more difficult. New Jersey is a good example of that. Despite reforms, the state is nowhere out of the woods when it comes to its unfunded pension promises, as we've noted here and here, for instance. Earlier this month the State Budget Crisis Task Force produced a report on NJ which updates the state's still significant pension problems. The chart below illustrates that problem. (click to enlarge)
Based on the latest numbers from the task force, the PSI chart lists missed pension payments by the state going back to 2006 and
how each successive underfunding only made the problem worse. By 2018, Jersey will be required to contribute $5.5 billion out of its budget to pensions to keep the state on track toward solving its unfunded liabilities. As the chart shows, the state's required pension payments have risen from 5.1 percent of its tax revenues in 2006 to more than 11 percent today. That's an extraordinarily high percent of your revenues to devote just to pensions, which is one reason why even as the state commits to finally paying off its pension debt the task gets harder and harder.
Indeed, even if Jersey experiences 5 percent annual growth in tax revenues over the next five years, the required annual pension payment of $5.5 billion would consume 14 percent of tax revenues. That's way out of line with historical spending averages for states. In general states spend only 30 percent of their total budget on compensation, and salaries (not pensions) make up most of that costs. Pensions should be no more than 3-to-4 percent of a budget.
Jersey's pension reform legislation mandates that the state make its full annual payments by 2018. That's a lot of revenue that the state currently doesn't have that it must come up with.
The state's unions blame this entirely on politicians for not adequately funding pensions. But it's worth noting that when legislators enhanced pensions in 2001, a legislative election year, under pressure from unions, the new system was immediately unaffordable. In the very first budget after the enhancements, Jersey was required by its actuaries to place more than $2 billion into the system. But the state only collected about $21 billion in tax revenues that year, meaning pensions were even back then about 10 percent of taxes. The state could only manage to place only about $563 million that year into the pension system. It's simply never had the revenues available to adequately fund the rich system it put in place. Now, after having reduced the pension enhancements from back then, the state still has a long way to go to get out of its pension hole because of years of underfunding.
Indeed, even if Jersey experiences 5 percent annual growth in tax revenues over the next five years, the required annual pension payment of $5.5 billion would consume 14 percent of tax revenues. That's way out of line with historical spending averages for states. In general states spend only 30 percent of their total budget on compensation, and salaries (not pensions) make up most of that costs. Pensions should be no more than 3-to-4 percent of a budget.
Jersey's pension reform legislation mandates that the state make its full annual payments by 2018. That's a lot of revenue that the state currently doesn't have that it must come up with.
The state's unions blame this entirely on politicians for not adequately funding pensions. But it's worth noting that when legislators enhanced pensions in 2001, a legislative election year, under pressure from unions, the new system was immediately unaffordable. In the very first budget after the enhancements, Jersey was required by its actuaries to place more than $2 billion into the system. But the state only collected about $21 billion in tax revenues that year, meaning pensions were even back then about 10 percent of taxes. The state could only manage to place only about $563 million that year into the pension system. It's simply never had the revenues available to adequately fund the rich system it put in place. Now, after having reduced the pension enhancements from back then, the state still has a long way to go to get out of its pension hole because of years of underfunding.
when you get a few beers into a teacher or public safety person after a softball game, you will find that they resent the private sector- all of whom"they say" get 6 figure bonuses- who are greatly undertaxed and in fact using the teachers or public safety person as a low paid slave. Believe me, if you are in IT or pharma for example they assume you are making 90k to start and 200k by age 30. They believe you(private sector) are undertaxed and getting away with murder
Thieving Democrats + Corrupt Greedy Unions = BANKRUPTCY!