Senate President Revamps Payment Plan for Closing Deficit in Pension Fund

Sweeney’s tweak of proposed constitutional amendment may make plan more viable politically, but GOP leaders say it would just result in higher taxes

Senate Minority Leader Tom Kean Jr. (left) and Assembly Republican Leader Jon Bramnick, both R-Union, speak during a news conference in the State House.
A subtle change has been made to the original draft of a proposed constitutional amendment on public-employee pension funding that legislative leaders want to put before voters next year.

The difference isn’t a substantial one when it comes to the already ugly numbers for the grossly underfunded pension system, but it could play a big role in how the pension-funding issue plays out politically, both in the short-term during the push for approval of the ballot question and in the long-term as state policymakers would work to fund it.

The revision was put forward just one week after Senate President Stephen Sweeney rolled out the original version of the amendment, which was immediately criticized by Gov. Chris Christie, who said it would lead to substantial tax hikes.

And it comes as Republicans, business-lobbying organizations and other groups are starting to ramp up their criticism of the amendment in advance of a public hearing on the proposed ballot question that is scheduled for Jan. 7 in the State House in Trenton.

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At issue is a funding proposal that, if approved by voters next year, would constitutionally prohibit the state from skipping out on the full contributions into the pension system that are calculated each year by actuaries. The amendment spells out a period between the 2018 and 2022 fiscal years in which the state would increase its payments into the fund, which now totals at least $40 billion.

The constitutional amendment would also compel the state to make its pension payments on a quarterly basis, not just in a lump sum at the end of each fiscal year as is the current practice. Democratic analysts maintain the quarterly payments could save the state billions of dollars over three decades.

To get on the ballot in November, Sweeney’s proposal needs to pass the Legislature with a simple majority during the current legislative session, which ends January 11, and then win passage again during the next session.

The original constitutional amendment proposed last week by Sweeney (D-Gloucester) called for starting the ramp-up to full payments with an estimated $3 billion payment during the 2018 fiscal year. That’s more than double the payment that Christie has budgeted for the current fiscal year.

But after the last-minute amendment yesterday, the payments would start with $2.4 billion during the 2018 fiscal year before accelerating up to a $5.5 billion payment in the 2022 fiscal year.

The change doesn’t impact the long-term actuarial calculations in a meaningful way. But from a political perspective, the adjustment gives Sweeney and other Democrats a stronger political argument to make against Christie and others who oppose the constitutional amendment. That’s because the payment that would now be required in the first year of the ramp-up is the same amount as the payment Christie’s administration has proposed in a long-term pension-funding schedule that was included in the state’s current budget.

That plan came out earlier this year after Christie abandoned an earlier pension-funding schedule that was included in a bipartisan overhaul of public employee benefits known as Chapter 78 that was enacted in 2011.

The Christie administration’s new schedule would see the state ramp up to full funding of the pension system by 10 percent each year through the 2023 fiscal year, adding more than $14 billion in costs over the long term compared to the original schedule in the Chapter 78 plan.

And under the new plan, according to figures released by the state Department of Treasury earlier this year, the state payment required during the 2018 fiscal year would be $2.4 billion, the same amount that is now the starting point for Sweeney’s proposed constitutional amendment.

“We are simply requiring the governor to make the phase-in payment in 2018 that he has already promised to make; that payment is projected at $2.414 billion,” Sweeney wrote in an op-ed piece published yesterday by NJ Spotlight.

From a longer-term perspective, the revised payment schedule in Sweeney’s plan would also mean that Christie could stick to his own payment schedule until he leaves office in early 2018. That could head off a messy fight with Democrats that could have played out under Sweeney’s original ramp-up schedule.

It could also give the state a better shot at funding the larger pension payments if a Democrat succeeds Christie as governor (Sweeney is widely expected to seek the office in 2017) and annual revenue growth in the state budget can’t keep pace with the growing pension obligations. Sweeney has maintained the larger pension contributions can be made without raising taxes on middle-class taxpayers, but that more revenue could be generated if necessary by increasing income taxes on earnings over $1 million, something Christie has vetoed numerous times since taking office in early 2010.

Christie spokesman Kevin Roberts yesterday said “it’s entirely political and disingenuous” for Democrats to compare the $2.4 billion pension contribution that Christie has slated for the 2018 fiscal year with the payment that would be made during the first year of Sweeney’s proposed payment schedule.

That’s because Christie’s broader goals for pension funding involve freezing the current pension system and moving employees into a new, hybrid retirement plan with some features of a 401(k). He’s also proposed offering employees less generous health plans and using the savings to pay down the current pension system’s debt. The funding plan included in the current fiscal year budget was only a fallback position in case Sweeney and other Democratic leaders didn’t advance the broader reforms.

Roberts also noted that Christie’s broader reform plan includes a mechanism to fund the current pension debt, using the savings that would be generated by making employees accept less generous health coverage.

“All Sweeney’s plan does is stick taxpayers with a $3 billion tax increase that’s embedded in the constitution,” he said.

A spokesman for Sweeney declined comment later yesterday when offered a chance to respond to Roberts.

Also yesterday, the two highest-ranking Republicans in the Legislature held a news conference to raise attention to what they said could be dramatic consequences for the state budget if the pension-funding constitutional amendment prevails in 2016. They promised to continue to speak against out against it over the next several months.

When the required state pension payments under Sweeney’s plan climb to over $5 billion in a few years, Senate Minority Leader Tom Kean Jr. (R-Union) said, the result would be steep tax hikes.

“It makes the state simply unaffordable,” Kean Jr. said.

Assembly Republican Leader Jon Bramnick (R-Union) added that it would also likely mean a “permanent tax increase” while jeopardizing funding for other valuable programs.

“We should never lock it into the constitution when we don’t know the future,” Bramnick said.

That criticism followed a conference call organized the day before by another opponent of the pension-funding constitutional amendment, the New Jersey Business & Industry Association.

“When the money isn’t there, if the Legislature follows past practice, any need for new revenue will hit small businesses first and the hardest,” said NJBIA president Michele Siekerka.

And Mike Proto, a spokesman for the conservative organization Americans for Prosperity, said his group will be considering whether to mount a public push against the ballot question as it did in 2014 to oppose a ballot question – which ultimately won approval by state voters — calling for dedicating corporate-business taxes for open-space preservation.

Proto was among those who spoke against the amendment during yesterday’s Assembly Judiciary Committee hearing on the Assembly version of Sweeney’s proposal, which is sponsored by Assembly Speaker Vince Prieto (D-Hudson).

“We support reforming the current system and creating a stable retirement system,” Proto said. “The last thing we can afford to do is see massive tax hikes . . . massive income-tax hikes and massive sales-tax hikes.”

“We strongly oppose this constitutional amendment and really call on legislators to work together to try to reform this system,” Proto said.

But several public-worker union officials also weighed in yesterday, saying the constitutional amendment could undo the long-term harm to the pension system that was caused by Christie’s decision to abandon the 2011 agreement.

“For 20 years, the pension has been the last thing that’s been paid,” said Hetty Rosenstein, state director of the Communications Workers of America labor union. “It’s an enormous pyramid scheme, and it’s about to topple, but it doesn’t really have to.”