Man With a Plan: Sweeney Looks to Federal Loans to Pay Down Pension Debt
Senate president makes clear $50 billion in federal funds would be borrowed -- not a handout or bailout
Senate President Stephen Sweeney (D-Gloucester) has come up with an ambitious plan to pay down New Jersey’s more than $40 billion in public-employee pension debt. It centers on convincing the federal government to create a new loan program that would help not only New Jersey, but also dozens of other states that are struggling with huge unfunded pension liabilities in the wake of the recent recession. Sweeney hardly has the field to himself.
Gov. Chris Christie’s scheme involves freeing up cash with a new round of employee health-benefit cuts. And Assembly Speaker Vince Prieto (D-Hudson) has floated his own idea: spreading out the state’s current pension-contribution schedule to make debt payments more affordable in the short term.
Sweeney said during a State House news conference yesterday that he envisions New Jersey receiving a $50 billion Federal Reserve loan that could be paid back over 30 years at 1 percent or 2 percent interest.
Sweeney calculates that the loan could eventually help the state cut in half a nearly $6 billion annual pension bill that will come due in less than a decade under the state’s current.
He said he’s begun lobbying members of Congress and other state lawmakers across the country to begin considering the federal-loan idea. And Sweeney wants to make one thing about his plan clear: “This is not a bailout or a handout. It’s a loan program,” he said.
For Sweeney -- who many believe is readying for a run for governor in 2017 -- getting control of New Jersey’s pension-funding problem is a key long-term goal. And there are both political and fiscal reasons to do it.
It was Sweeney who in 2011 worked with the Republican Christie in the face of public-worker union protests to enact a series of bipartisan employee-benefits changes that were supposed to put New Jersey’s chronically underfunded pension system back on sound footing.
But even though workers have been forced to pay more for their pensions and health benefits as a result of those changes, Christie has since gone back on a promise to increase state contributions to the pension system. The agreement, spelled out in a 2011 law known as, said the state would follow a seven-year ramp-up that was supposed to culminate with it making the full pension contribution called for by actuaries by 2018. Instead, the state Supreme Court said in a ruling last month because only voters can authorize such long-term funding commitments.
Sweeney, however, said yesterday that his proposal goes beyond just fixing New Jersey’s pension headache. He pointed to athat found state-run retirement systems across the country had a cumulative nearly $1 trillion funding shortfall as of the end of the 2013 fiscal year. And more than half of the states are running unfunded liabilities of at least $10 billion, with New Jersey among the worst with a $51 billion shortfall as of the end of the 2013 fiscal year.
“It’s truly a national crisis,” Sweeney said. “State budgets are being consumed by these obligations.”
He also argued that it’s only fair for the federal government to intervene and save public-worker pensions given its recent involvement in bailing out Wall Street and propping up the U.S. automobile industry.
“It’s fair to all of the workers that are actually doing their part,” Sweeney said.The federal-loan concept got an early endorsement yesterday from Wendell Steinhauer, the president of the New Jersey Education Association. “Math teacher here, the numbers are working,” Steinhauer said, pointing to the $3 billion annual payment the loan would create once principal on the federal loan, interest, and the pension costs of current employees are factored in.
And though $3 billion is far less than the projected $6 billion pension bill the state will be facing as soon as the 2023 fiscal year if changes are not made, it would still be more than double the $1.3 billion contribution that Christie has budgeted in the $33.8 billion spending plan that he signed into law late last month.
Asked for a response to Sweeney’s proposal yesterday, the governor’s office pointed to Christie’s own reform plan. That sweeping proposal calls for cutting costs by freezing the current pension system and moving employees into a new retirement plan with some features of a 401(k) that would cost only a little more than $1 billion annually to maintain.
Christie’s plan also involves forcing workers to accept less-generous health coverage and using the savings to pay down the current pension system’s debt, which the latest state estimates put at
The proposal, which is based onof benefits experts Christie impaneled last year, would also shift the cost of retired teacher benefits onto local school boards after decades of the state taking on that burden.
“The simple fact is that we have a system where a NJEA member retiring in just a few years contributes just $126,000 to their pension and health-benefit costs over 30 years and takes out $2.4 million in benefits,” said Christie deputy press secretary Nicole Sizemore. “The math does not work at all. That is the fundamental problem that needs to be solved.”
But there is one similarity between the pension fixes that both Christie and Sweeney are proposing. Both of their plans require asking voters to commit the state to paying down the pension-system’s debt over the next 30 years. Though Sweeney would get the money up front from the federal government and Christie would generate it from the cheaper employee-health plans, voter approval would prevent future governors from skipping the full payments, something Christie and several governors before him have done repeatedly over the past two decades.
That’s important in the wake of the state Supreme Court’s June 9 pension-funding ruling, which cited the state constitution’s debt-limitation clause as a reason to reject the seven-year payment ramp up that was called for by law in 2011.
Prieto’s proposal, however, would not need to go before voters because it calls for simply adding more years, possibly five, to the seven-year ramp-up schedule spelled out in Chapter 78. Though that would add some more money in the long run to the unfunded liability, it would also give the state a little more time to grow the economy and tax base as annual pension payments will eventually reach nearly $5 billion.
"I always welcome more ideas as we continue considering options to responsibly ensure the health of the pension system," Prieto said yesterday when asked about Sweeney’s proposal.