A new report that analyzes recent state government pension-reform efforts holds up New Jersey as an example of a state that has enacted major changes that will pay long-term dividends — even as leaders here are still struggling with a serious pension-funding problem.
The report due to be released today by the Manhattan Institute, a conservative think tank based in New York, looks at the pension-reform issue largely from a political perspective. It identifies key factors such as strong leadership and budget pressures that have fostered environments in some states where meaningful changes were passed.
New Jersey is cited along with Rhode Island, Utah, and Virginia as examples of where more than just cosmetic changes have been made to public-employee pension systems since the last recession helped bring to light serious underfunding problems in states across the country.
“These few states offer lessons about when and why pension reform can work,” the report says. “They point the way toward successful political strategies for serious pension reform that might be emulated elsewhere.”
The report, written by Manhattan Institute senior fellow Daniel DiSalvo, goes on to highlight the bipartisan deal on public-employee benefits that was struck in 2011 between Gov. Chris Christie, a Republican, and Democrats who control the New Jersey Legislature.
A measure known as Chapter 78, which Christie signed into law in late June of that year, increased employee pension contributions, raised the retirement age, suspended cost-of-living increases, and scheduled increased state pension payments. The Christie administration projects those changes will save roughly $120 billion over three decades.
DiSalvo credits the leadership of both Christie and Senate President Stephen Sweeney (D-Gloucester) in overcoming opposition from public-worker unions to get the reforms signed into law.
“In New Jersey, leadership came from the top of the political system,” the report says.
But the report also acknowledges that New Jersey is still struggling to right a pension system that remains at least $40 billion in debt. And it mentions Christie’s subsequent decision to break the state-funding promise that was made in the 2011 law, and the state Supreme Court’s decision in June that upheld the legality of Christie’s underfunding.
New Jersey, meanwhile, is also facing a legal challenge to Chapter 78’s suspension of cost-of-living adjustments for current retirees, with the state Supreme Court agreeing in July to take up a case being pressed by Charles Ouslander, a retired state deputy attorney general.
And New Jersey’s remaining pension debt has also been cited as a key factor by major Wall Street credit-rating agencies as they’ve lowered the state’s debt grade on three separate occasions since Christie took office in early 2010, leaving New Jersey with the second-worst credit rating among states, ranking ahead of only Illinois.
DiSalvo, in an interview with NJ Spotlight, said New Jersey still deserves to be held up as a success story given just how bad the state’s pension problem had become by 2011 and what the political leaders here were able to accomplish compared with other states.
“New Jersey was starting from such a low point,” said DiSalvo, who is also an associate professor of political science in the Colin Powell School at the City College of New York. “You have to put New Jersey amongst its peers.”
[related]The report also outlines a new push for more pension changes by Christie — who is in the midst of a second term and now aggressively seeking the GOP’s 2016 presidential nomination. Christie, heeding the advice of a commission of benefits experts he impaneled last year to look at the issue, has called for a freezing of the current pension system and moving employees into a new retirement plan with some features of a 401(k).
Christie is also calling for less generous health coverage for public workers at all levels of government in New Jersey and using savings to pay down the debt of the existing pension system, which covers an estimated 770,000 current and retired employees. His plan also seeks to shift responsibility for teacher retirement benefits to school boards after decades of the state taking on that burden.
But this time around Sweeney — who seems to be laying the groundwork for a run for governor when Christie’s second term ends in a few years — is not cooperating with Christie as he seeks additional changes. Instead, Sweeney and other Democratic legislative leaders have called on the governor to live up to the state-funding promises made in 2011 even if it means raising taxes.
DiSalvo said New Jersey “will have to do more” on pensions, but it may mean waiting until a Democrat like Sweeney is governor due to the deep divisions that now exist between Christie and New Jersey’s public-worker unions.
“I think New Jersey is really between a rock and a hard place,” DiSalvo said.
And as for other states, his report compares the scale of pension underfunding nationwide with the fiscal problems faced by Social Security and other large federal entitlement programs. The combination of a general lack of understanding of the issue among voters and an incentive for politicians to push the burden onto future generations are among the obstacles that have blocked leaders in many states from enacting meaningful changes, the report says.
“Addressing the pension problem is a way to ease budget pressures and ensure that government does not end up doing less but costing more,” the report says. “The present path is one where current public priorities will be constrained while we continue to pay off the costs of public services that we have already consumed.”