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Local Governments May Be Steering Clear of Christie’s Pension-Reform Roadmap

Concern is that Republican changes could drive up property taxes, already highest in the nation

bill dressel

Nearly three months have passed since Gov. Chris Christie released his latest plan to cut the cost of public-employee pension and health benefits. And though Christie has been regularly making the case at town hall-style events for sweeping reforms, including freezing the current pension system and moving employees into less costly health-benefit plans, so far none of his proposals have won support from Democrats who control the Legislature.

But another key obstacle that has emerged is the lack of full support and cooperation that Christie’s proposals have generated from the local governments that would also need to play an important role in the overall reform effort.

Groups that represent school boards, county governments, and municipal governing bodies all say they have concerns about Christie’s proposed reforms, including how they could impact property-tax bills that are already the highest in the nation. They also question whether there’s enough time at this point to meet a June deadline set by a nonpartisan panel of experts that Christie convened to look at the benefits-affordability issue.

“The sand is running out of the hourglass,” said Bill Dressel, executive director of the New Jersey League of Municipalities.

Still, despite those overall concerns, there does seem to be some interest among the groups in finding ways to reduce the cost of employee health benefits. And defenders of Christie’s proposed reforms, commonly referred to as the “roadmap,” also note that whether this proposal makes it to the finish line or not, the costs for both pensions and health benefits are only going up and eventually will have to be dealt with.

Christie’s roadmap proposal -- outlined in a report released in February by the panel of experts -- calls for the state pension system’s $40 billion in debt to be paid off using savings realized by shifting employees to cheaper health coverage. That would also allow governments to avoid a federal tax on so-called high-cost Cadillac health plans that many public workers in New Jersey receive that’s due to be charged in 2018.

To keep from going deeper in debt, the current pension system would be frozen and all employees would be moved into a new retirement plan with features of a 401(k). And the pension debt would be paid down over decades using a payment schedule voters would be asked to endorse via a constitutional amendment that would go on the ballot this fall.

Winning support from Democratic legislative leaders and public-worker unions was always going to be an uphill climb for Christie after he decided last year to go back on a promise to increase state contributions into the pension system. It was his pledge to step up the state payments over a seven-year term to reverse two decades of underfunding that helped win support in 2011 for a reform law that also increased how much employees pay toward their pensions and health plans. The unions have sued Christie in an effort to enforce the payment schedule and a ruling from the state Supreme Court could come down at any time.

But Dressel said for local governments the property tax issue remains a key sticking point. For example, many towns are providing their employees with better health coverage than the State Health Benefits Plan but at a cheaper cost, so going to uniform plans would actually increase their costs.

Piscataway Mayor Brian Wahler said he would have a hard time going to his constituents and explaining why they have to pay higher property tax bills to help the state pay off its pension debt.

“Basically this is a bailout of the state by the municipalities and the counties,” said Wahler, who is also the president of the League of Municipalities.

Still, his organization has been looking closely at all of the issues raised by the benefits-review commission, setting up five different task-force groups to look at specific concerns, such as the impact the changes would have on local pension funds and the alarms the commission sounded about health benefits and the looming federal tax on high-cost health plans.

The league is preparing to come forward with its own findings next month, Dressel said.

“We’ve always said we’re just not going to sit at the table and say there are problems. We’re going to try to sit at the table and be constructive and offer solutions,” he said.

The New Jersey School Boards Association, meanwhile, is also in support of the overall goal of finding savings from employee health-benefits, something it also backed in 2011 when the prior reform effort was passed, said spokesman Frank Belluscio.

And even Democratic legislative leaders who oppose Christie’s roadmap have themselves been exploring ways to find health-coverage savings. A pilot program for state employees that Senate President Stephen Sweeney (D-Gloucester) unveiled before Christie’s report came out seeks to find savings by shifting employees who choose to participate from fee-for-service coverage to wellness-intensive patient-centered healthcare.

And just last week lawmakers also pushed a measure that’s designed to address high out-of-network fees. Though the bill doesn’t target public employees, it could end up lowering their costs as well if passed.

But like the League of Municipalities, the school boards group also has concerns about some of the roadmap’s other goals, such as the proposal to shift the cost of covering the employer contribution for teacher pensions back to the school boards after decades of that being a state responsibility.

“NJSBA recognizes that the state faces serious, potentially crippling financial obligations,” Belluscio said. “There are certain provisions of the roadmap that we oppose; others that we could support; and still others for which we still need more information.”

And John Donnadio, executive director of the New Jersey Association of Counties, raised concerns about what the roadmap could do to the overall health of the local pension funds, which actuarial records show will last decades longer than the state funds. That’s because unlike the state, which is allowed to skip or make only partial employer pension contributions, the county and municipal governments cannot.

“NJAC’s position on the roadmap is that we object to any initiative that would affect, alter, comingle, or integrate the local pension systems, as counties and municipalities have met their obligations as employers and the local pension systems are fiscally sound as a result,” Donnadio said.

Christie press secretary Kevin Roberts declined comment on the roadmap issue when asked for a response Friday.

But Tom Byrne, an investment manager who was a member of the commission that came up with the roadmap, acknowledged the concern about shifting costs onto local taxpayers and whether it’s fair to even ask.

The League of Municipalities, the school boards group also has concerns about some of the roadmap’s other goals, such as the proposal to shift the cost of covering the employer contribution for teacher pensions back to the school boards after decades of that being a state responsibility.

“NJSBA recognizes that the state faces serious, potentially crippling financial obligations,” Belluscio said. “There are certain provisions of the roadmap that we oppose; others that we could support; and still others for which we still need more information.”

And John Donnadio, executive director of the New Jersey Association of Counties, raised concerns about what the roadmap could do to the overall health of the local pension funds, which actuarial records show will last decades longer than the state funds. That’s because unlike the state, which is allowed to skip or make only partial employer pension contributions, the county and municipal governments cannot.

“NJAC’s position on the roadmap is that we object to any initiative that would affect, alter, comingle, or integrate the local pension systems, as counties and municipalities have met their obligations as employers and the local pension systems are fiscally sound as a result,” Donnadio said.

Christie press secretary Kevin Roberts declined comment on the roadmap issue when asked for a response Friday.

Tom Byrne, an investment manager who was a member of the commission that came up with the roadmap, acknowledged the concern about shifting costs onto local taxpayers and whether it’s fair to even ask the local governments to play a role in what is largely a state problem when it comes to pension funding.

But he said the savings for local governments that could come from changing health benefits for their employees would likely total $2.5 billion annually -- about 10 percent of the overall statewide property tax levy.

“That’s the clearest reason and the reason addressed in the report,” said Byrne, who also heads the State Investment Council, which oversees the pension system.

He also said that local governments have another good incentive to keep state government on sound fiscal footing given how much aid the state provides, both directly and through grant programs.

“It’s really not in anybody’s interest to have the state become insolvent,” Byrne said. “Whether we like it or not, we’re all in this together.”

But he said the savings for local governments that could come from changing health benefits for their employees would likely total $2.5 billion annually -- about 10 percent of the overall statewide property tax levy.

“That’s the clearest reason and the reason addressed in the report,” said Byrne, who also heads the State Investment Council, which oversees the pension system.

He also said that local governments have another good incentive to keep state government on sound fiscal footing given how much aid the state provides, both directly and through grant programs.

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