Opinion: Will Public Employees Have to Give Back Even More?

Carl Golden | October 6, 2014 | Opinion
Preliminary Pension and Health Benefit Study Commission report reveals size of financial challenge, could open door to more givebacks

Carl Golden
By releasing a preliminary report, the Pension and Health Benefit Study Commission appointed by Gov. Chris Christie sought to establish in stark, if not frightening, terms the extent of the fiscal challenges the system confronts.

But it also teed up the genuine possibility that further public employee concessions will be required to avert insolvency.

According to the report, the state faces a $37 billion unfunded liability in the pension system and a $53 billion unfunded liability in its health benefits program — a shortfall of $90 billion, nearly triple the entire state budget. And as the report warned, without fairly dramatic action the situation will worsen.

While the commission did not offer recommendations for changes — those are expected later this month — the underlying message made clear that the problem is too severe and the liability too great to be resolved by merely mandating the state increase its share.

Employee contributions were increased in 2011 under legislation that also established a timetable for the state to meet its full obligation over a seven-year period. In addition, the legislation imposed a freeze on cost of living adjustments (COLA) for retirees to remain in effect until the system achieves solvency — estimated at 30 years. The freeze is currently the subject of litigation contending that it violated a contractual employer-employee agreement.

Dramatic shortfalls in revenue collections led to Christie reducing the state contributions to the pension fund by more than $2 billion this year and next, igniting a political firestorm, including accusations of broken promises and a warning that the Democratically controlled Legislature would reject any effort to extract further concessions from employees.

Senate President Steve Sweeney, who was the target of public employee union wrath over his support of the 2011 legislative package, has sought to make amends by criticizing the governor for shorting the system and arguing that as long as the state contributions met the mandate the system’s solvency will be assured.

The commission report echoed the governor’s oft-repeated criticism that several of his predecessors, by failing to make any payments or by providing only partial payments, bore the bulk of the responsibility for driving the fund deeply into the red.

While the criticisms are, indeed, valid, identifying sins of the past is of little value in resolving the difficulties of the present. If anything, it provides a degree of protection for the administration, which can legitimately contend the problem is an inherited one rather than one of its own making.

While it is anticipated the commission will recommend a wide-ranging series of significant reforms, in all likelihood it will include greater employee contributions or reduced benefits, particularly in the medical benefits program.

Democrats have vowed to resist further concessions, setting up a political confrontation between a governor who has been adamant in opposing a tax increase to provide additional revenue and a legislative majority that has been equally adamant in blocking any impact on public employees.

This faceoff will occur against an ominous warning by the study commission that continued inaction would be catastrophic, sending the entire system into bankruptcy and depriving both retirees and active employees of promised benefits.

Should Democrats again approve restoring the income tax surcharge on wealthy New Jerseyans — the so-called millionaire’s tax — as a way to help bail out the system, Christie will surely veto it as he’s done three times in the past.

The certainty of a gubernatorial veto is solidified by the widespread belief that the governor will accept some sort of increase in the state’s motor-fuels tax to replenish the soon-to-be-bankrupt Transportation Trust Fund.

Christie, who maintains an interest is seeking the Republican nomination for president in 2016, is not about to approve two tax increases in the same year and most assuredly not one on income.

At the same time, it is crucial for Sweeney, whose interest in the gubernatorial nomination in 2017 parallels the governor’s concern with impressing national party leaders and donors, to man the barricades against further encroachment on public employee benefits.

The Senate president absorbed a great deal of abuse from organized labor for joining forces with Christie three years ago in support of increasing employee contributions, and he’s not about to subject himself to it again.

He is acutely aware of labor’s organizational and financial clout in Democratic politics — particularly in hotly contested primaries — and with the emergence of Jersey City Mayor Steve Fulop as a potential rival for the nomination, Sweeney can ill afford to antagonize union leadership yet again.

It will be the task of the study commission to, among other things, develop some compromise, some common ground on which both the governor and the Senate president can stake out politically beneficial positions.

Each may find it necessary to give in order to get, but the trick is in submerging the amount of giving to the higher level of getting.

The dilemma remains, however — a $90 billion liability that will increase exponentially and threaten the entire underpinning of the public pension and health benefits structure.

There is no question the issue will dominate the 2015 legislative session as two seasoned pols go eyeball to eyeball, each hoping the other blinks first or that neither will be required to blink at all.