After largely staying out of the political debate over funding public-employee benefits for nearly a year, a commission of experts impaneled by Gov. Chris Christie has jumped back into it, issuing a new report that roundly criticizes a pension-funding constitutional amendment proposed by Democratic legislative leaders.
The new report also provides new details on the panel’s own plan to save roughly $2 billion by making sweeping changes to government worker and retiree healthcare plans. That money, under the plan, would then be used to help pay down the state’s $40 billion pension debt.
The report was released as Christie prepares to present his latest state budget to a joint session of the Legislature on Tuesday.
And it also comes as the troubled public-employee pension system remains one of the state’s biggest fiscal challenges despite a bipartisan effort in 2011 involving Christie that was supposed to largely repair it.
The commission’s report was criticized yesterday by the leader of the New Jersey Education Association, who accused the panel of trying to deflect attention away from Christie’s record on pension issues on the eve of the budget address.
A top aide to Senate President Stephen M. Sweeney (D-Gloucester), sponsor of the proposed constitutional amendment, also took issue with some of the commission’s findings, while officials from the New Jersey League of Municipalities said they wanted to see more details.
But the report drew praise from the leading Republican on the Assembly Budget Committee.
Last year, the same commission released a set of sweeping recommendations that included freezing the current pension system and creating a cash-balance retirement plan with some features of a 401(k). The commission also proposed offering current public employees and retirees less generous health plans and using those savings to pay down the current pension system’s debt.
School districts would take on the cost of teacher pensions and retiree healthcare under the commission’s plan, which was wholly embraced by Christie but has never been supported by Democrats who control the state Legislature.
The pension-funding issue was also raised during last year’s legislative elections, which saw Democrats pick up four seats in the Assembly.
The report released yesterday fleshed out some of the details of the commission’s proposed healthcare changes, including reforming out-of-network rules for current employees and reducing their premiums, but increasing out-of-pocket costs. It also called for using healthcare exchanges for retirees, presumably through the federal Affordable Care Act. And it included new actuarial estimates validating the commission’s earlier projection of $2 billion in annual healthcare savings.
“The actuaries confirmed the dollar savings, actually a little more than $2 billion a year,” said Thomas Healey, coordinator of the commission, during a conference call with reporters yesterday.
But Wendell Steinhauer, president of the New Jersey Education Association, portrayed the commission’s work as an effort to shed what have traditionally been state obligations.
“Like last year, the report is full of excuses for why it’s too hard for the state to meet its obligations,” Steinauer said. “It’s full of proposals to make public employees pay for the state’s two decades of failure. But it lacks any real commitment to a long-term funding solution that honors the state’s obligations.”
The section of the report that took aim at Sweeney’s proposed constitutional amendment asserted that his plan contains no concrete explanation of how the state would be able to afford a series of significant pension contributions.
Sweeney’s plan calls for the state, over the course of several years, to eventually get up to the full pension contributions calculated by actuaries to restore the health of the pension system. It would also require that the state make payments on a quarterly basis rather than at the end of each fiscal year, which is the current practice.
The pension payment in Christie’s current state budget is $1.3 billion, but the state contributions would climb to over $5 billion in less than a decade if the constitutional amendment – which Democrats want to put before voters this fall — is approved.
The report said that, without reforms, employee pension and health benefits would eventually eat up more than 25 percent of the state budget, while 15 percent would be a better target.
“The premise of the amendment is that funding employee benefits — not protecting the health, safety and welfare of the public — should have the first call on the State’s funds,” the report said.
Assemblyman Declan O’Scanlon (R-Monmouth) said the commission’s findings “hit the nail on the head.”
“Unless we implement the necessary reforms, we cannot make the projected massive payments into the system. We will be digging our huge budget hole even deeper,” said O’Scanlon, the top Republican on the Assembly’s budget panel.
But Mark Magyar, policy director for the Senate Democrats, suggested the commission didn’t take into account several key factors in its analysis of the proposed constitutional amendment, including its projection of 7 percent annual increases in employee healthcare costs.
“Our assumption is we need to continue to find savings in the healthcare costs,” he said, pointing to roughly $100 million in cost-savings approved over the summer by public-employee representatives working with the Christie administration.
Nothing in the proposed amendment prevents further changes to employee-pension contribution levels, said Magyar, who added his office is still going through the report and is receptive to some of the commission’s findings.
Commission members said they hope their report eases concerns raised by local government officials who fear the broader reform plan, by shifting more responsibility onto school boards with the promise of huge savings, would expose property taxpayers to more risk at the state’s convenience.
“It’s a process of continuing education,” said Tom Byrne, a member of the commission and the leader of the New Jersey State Investment Council, which sets policy for the pension system.
“I think people are gradually realizing that we’re all in this together,” Byrne said.
Reached later in the day, officials from the New Jersey League of Municipalities, which released its own study of the commission’s initial findings last year, praised the panel for keeping lines of communication open. But they said more data is needed before a full evaluation can be conducted.
“We have been for some time trying to get the data that shows how those savings are generated,” said Michael Darcy, the organization’s executive director.
“I think we all understand the problem the state is facing,” Darcy said. “This is a solution that everybody is going to have to get involved in. We’re in it for the long haul.”
Employee pension and healthcare contribution rates were last ramped up in 2011 under the bipartisan reform law known as Chapter 78. Workers were also forced to pay more for their healthcare coverage, while the state promised — as part of the reform law and a previous bill enacted in 2010 — to increase contributions into the pension system over a seven-year period.
Christie, however, reneged on that part of the deal after state tax collections failed to meet his revenue projections during the 2014 fiscal year.
That laid the groundwork for the commission’s work as Christie was forced to come up with a new strategy on public-employee benefits as he prepared to seek the GOP’s 2016 presidential nomination.
Christie’s office did not respond to requests for comment yesterday.