Posted on 04/09/2007 3:14:08 PM PDT by Swanks
A growing shortfall in the public employee pension system is "one of the greatest challenges" facing New Jersey, Governor Corzine said last week. Here's a look at what's happening, how things got this way, who is affected, and possible solutions.
What exactly is the shortfall?
It's how much more money should be in the state-administered pension funds right now to pay the benefits promised to employees and retirees of state, county and local government agencies and schools. As of June 30, 2006, the market value of the pension funds was $77.7 billion, while the total liability, or the state's estimate of the benefits owed, was $110.4 billion. That produces a shortfall of nearly $33 billion.
For perspective, the budget Corzine has proposed for the entire state for the fiscal year starting July 1 is $33.3 billion.
[Note: and now we frame the issue in a way to downplay this crisis....go back to sleep, nothing here...] I'm a retiree. Is my pension check in trouble?
No. The pension accounts still have $77 billion, and no one is saying that payments to retirees are in jeopardy.
I'm a public employee expecting a pension. What about me?
There is general consensus that the benefits workers have already earned cannot be reduced without violating the state constitution. But it's a matter of dispute whether formulas could be changed covering future benefits for existing workers.
The contract Corzine recently negotiated with state workers, which still must be ratified, calls for new employees to pay higher pension contributions and work more years before they are eligible to retire. A Benefits Review Task Force in 2005 recommended raising the retirement age for all employees.
I'm not a public employee. Why should I care?
At some point, more money must go into the pension fund. That means less money would be available for things like aid to public schools, property tax relief or state services. It could also mean higher income or sales taxes.
"We have a responsibility to close that gap," Corzine said last week.
When would that happen?
It could be sometime soon. New Jersey's biggest teachers union has sued the state to force it to make required annual payments. Corzine has also called for a legal review of recent accounting methods that allowed prior state officials to skip making pension fund payments.
How did it get to this point?
During the past decade, governors and legislators of both parties did not make annual payments into the pension system. Sometimes money that should have gone into pension plans was spent on other things, such as tax cuts, rebates or school aid. In other years, when the budget was tight, pension tricks were used to avoid spending cuts, layoffs, or tax increases.
Two events were significant in leading to the current situation.
In 1997, Gov. Christie Whitman calculated that there was a $2.8 billion unfunded liability in the pension system. This was caused both by past administrations increasing benefits without paying for them and by maneuvers Whitman used to afford tax cuts earlier in her term.
She borrowed the $2.8 billion on the bond market and the cash was invested by the pension fund managers into stocks just as the dot-com bubble began to inflate.
As stock values grew, the state skipped annual payments for several years because the pension system appeared over-funded, in part because of changes Whitman had made in the way the size of the liability was calculated.
In June 2001, a nearly unanimous Legislature approved the first significant change to the basic pension formula in 44 years, providing a 9 percent increase in pension benefits for more than 354,000 employees and 125,000 retirees. Fiscal analysts said that while the benefits would cost more than $5 billion over time, there was no cost to the state budget because of the "surplus" assets in the pension funds.
That calculation, however, was based on the stock values as of June 1999 and ignored signs in early 2001 that the dot-com bubble was bursting. The Sept. 11 terrorist attacks that year forced the market down further.
By 2002, the state should have resumed making payments, but the stock market plunge also meant less income for wealthy investors and Wall Street traders living in New Jersey, and their reduced incomes caused a $1 billion drop in state income tax collections.
As a result, just when the state really needed to resume making payments, it didn't have the money. Gov. James E. McGreevey continued to postpone payments during his term, and it was not until last year that Corzine finally resumed putting in some of the hundreds of millions of dollars needed.
Corzine has proposed adding more this year, but it is still not the full amount actuaries say should be deposited, and does not make up for the missed payments in previous years.
What about those politicians who hold multiple public jobs to pad their pensions? Aren't they causing this?
Experts say that pension padding is not a big part of the financial problem, but it does erode public support for addressing the pension issue.
Is this only happening here?
People familiar with public retirement systems say New Jersey's problem may be worse than average, but it is not the worst, and it is hardly alone.
What can be done about it?
The possible solutions include:
# Making annual payments of the full amount actuaries say is needed, even in years when the system may appear flush.
# Diversifying the holdings in the pension fund to reduce the possibility that another stock drop would make the problem worse.
# Changing the benefits promised to workers and the amount workers contribute toward them.
# Reducing the public workforce, so there are fewer retirees in the future.
# Making a large contribution of cash into the system, possibly from the sale of a major asset such as the New Jersey Turnpike.
# Changing the governance of pensions so individual governors do not have as much authority over changing the system.
# A combination of any of the above.
Note that : " The shortfall of nearly $33 billion". Even the liars in the Record admits to that much, so you know it's much worse. "For perspective, the budget Corzine has proposed for the entire state for the fiscal year starting July 1 is $33.3 billion".
So in other words, you could shut down the NJ Gov't, turn out the lights, and mothball the buildings and it will not cover the pension deficit. So in other words, you could shut down the NJ Gov't, turn out the lights, and mothball the buildings and it will not cover the pension deficit.
Ahhhhhhhhhhhhhhhh,big government. Ain’t it a beautiful thing !!!
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Those still left and who can, run for your lives. Your house will be 1/2 it's value in five years when the boomers really begin to retire enmass. And no one in their right mind would moe into the state.
NJ; a state Mississippi can make fun of.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Corzine should write a check for it...he ripped off enough people to cover it.
The initial Time investigation [which the Record tries so hard to ignore] quotes former budget people claiming that the unfunded liabilities could be as high as $175B.
The 'reporters' out to flak for the Rat Party would LOVE to have the deficit only $30B.
Corrupt Rat governments with bloated corrupt unions equals higher taxes for all NJ residents. I grew up in South Jersey and bailed out about 15 years ago. When I return to visit family I can’t wait to get the hell out of there after only two days.
( I do miss the good food!)
Government lives and dies by promises kept and unkept.
In other words, every dollar you earn that the government doesn't expropriate is money that the government is spending on you.
The language of public policy is so corrupt that there is no way to discuss the subject rationally.
“In 1997, Gov. Christie Whitman calculated that there was a $2.8 billion unfunded liability in the pension system. This was caused both by past administrations increasing benefits without paying for them and by maneuvers Whitman used to afford tax cuts earlier in her term.”
Here we go. The RATS are blaming Whitman for this. OK, she borrowed 2.8 bil. WIth a 2.7 bil shortfall, we have 5.5 billion. Let’s add interest to this over three years. So let’s be conservative and say 10 billion.
Where did the other 23 billion go? And people or the media aren’t asking.
The Peoples Republic of New Jersey at work.
Left out of the discussion, and the list of alternatives that close the article, is bankruptcy. I talked to a friend who is a very smart tax attorney and he said that in law school they reviewed a case of State bankruptcy, it can be done. In that case the unfunded liability to retirees is no longer sacred, the retirees become just another set of creditors who get reduced payments. Possibly the entire pension liability could be fobbed off to the Pension Benefit Guarantee Board, as the pensions for countless other Americans who work for bankrupt entities, like airlines and manufacturing companies, have been. This board pays pensions out at a much lower rate than they were promised. Alternately a bankruptcy judge could just reduce the amount owed to all employees, as has been done with Airline pilots. At some point it is likely these remedies will be at least considered, if they are not being already. Keep in mind that several of the states with this problem have both shrinking populations, shrinking average incomes (as high wage earners more to lower tax and more sovlent state) and growing pension liabilities. At some point increasing the taxes on citizens will result in no new revenue (as people leave even faster). NJ may already be there. The bond option is probably closed as it was used by the last Gov.
Sounds just like the U S Social Security!!!!!.....
That's the answer! Stick it, all $175B, to NC, SC, GA, FL, AZ. After all this is where a net 72,000 NJs moved out to last year. [Solves that problem...]
Things there are so pathetic they seriously talk of selling the NJ Turnpike to raise capital.
“Corzine has proposed adding more this year, but it is still not the full amount actuaries say should be deposited, and does not make up for the missed payments in previous years. “
I worked on the pension plan for a New Jersey county some years ago. We very carefully worked up a recommended contribution for them and made a presentation. They thanked us for our time and said they would make a completely different contribution according to their budget. See you in three years, they said.
“Possibly the entire pension liability could be fobbed off to the Pension Benefit Guarantee Board, as the pensions for countless other Americans who work for bankrupt entities, like airlines and manufacturing companies, have been. “
The Pension Benefit Guaranty Corporation does not cover plans established ... by the government of any State... I suppose it’s possible that our Congress critters could change the law to help New Jersey, but it seems highly unlikely. The Pension Protection Act passed last year was intended to shore up the PBGC’s finances, so they won’t be in a hurry to weaken them.
Good to know. I bet that bankrupt public agencies get their own version, that pays at 100% or damn near, and uses FedGov taxes to make it happen.
Just a sense, but the real power in the USA is with the government now, not citizens. They will take care of themselves in a much better way than the way that mere citizens are taken care of.
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