It’s been well over a year since the New Jersey Supreme Court invalidated a key component of a bipartisan state benefits-reform law, throwing new doubt on the future of the $71 billion public-employee pension system.
Yet a dispute between Gov. Chris Christie and Democratic legislative leaders about what to do in response has now dragged on into this summer.
Christie wants to make drastic changes, including freezing current pension funds and slashing public-worker health benefits. Democrats and unions instead want to ask voters this fall to write into the state constitution a guarantee that the state will soon begin making the full pension contributions, as calculated by actuaries.
Both ideas were put under the microscope for a few hours on Friday during an animated panel discussion hosted by NJ Spotlight.
Union officials made their case that, with some key changes, the state could afford to beef up its contributions and put the pension system back on a sound footing. They were countered by a member of a special benefits-review commission appointed by Christie, who cast doubt on those claims and argued that the governor’s plan — which is based on recommendations released by the commission last year — is more responsible.
A separate panel discussion, held during the event in Trenton, delved into the related but often overlooked issue of the affordability of health benefits for retired public workers.
The unfunded costs of providing retirement benefits for New Jersey’s roughly 880,000 current and retired workers are staggering. They equal roughly $100 billion, or nearly three times the size of the current $34.5 billion state budget.
Christie — and Democrats who control the Legislature — believed they made significant progress on the benefits-funding issue back in 2011 when they enacted a sweeping benefits-reform law known as Chapter 78. It called for both healthcare changes for workers and retirees but also increased contributions to the pension system both by the state and current workers.
A few years later Christie reneged on the promise to increase state funding for the pension system. And last year, in response to a union lawsuit, the Supreme Court said in a landmark ruling that only voters could authorize such long-term funding commitments. Now, the pension system is more than $40 billion in debt even though public workers have been holding up their end of the bargain by making all of the increased contributions called for in Chapter 78.
That is what led Democratic leaders, with the backing of public-worker unions, to propose a ballot question that would ask voters this fall to write into the state constitution a schedule of pension contributions to bring the state up to full funding of pension payments. The same proposed amendment would also require the payments to be made on a quarterly basis rather than all at once at the end of the fiscal year, as is the current practice. The proposed amendment has cleared the Assembly and only needs to be passed by the Senate in the next few weeks to make it onto the ballot this fall.
Hetty Rosenstein, state director for the Communications Workers of America (CWA), said the state would be able to fund payments that eventually would be more than double the $1.86 billion set aside for the pension system in the current budget if it simply stopped providing big tax breaks to millionaires and corporations.
Christie has on numerous occasions blocked Democratic lawmakers’ efforts to reestablish a special income-tax surcharge on earnings over $1 million. His administration also phased in a roughly $3 billion business-tax initiative since he took office in early 2010. In the same period, the administration has pledged another roughly $6 billion in corporate-tax incentives to companies promising to provide a “net-benefit” in return. It’s still unclear whether the companies will be able to earn the full amount of the pledged incentives.
“The money would be there if we were not giving it away to millionaires and billionaires and Wall Street finaglers,” Rosenstein said.
Dominick Marino, president of the Professional Firefighters Association of New Jersey, also zeroed in on the state’s failure to make full pension contributions, something he traced back roughly two decades. “If proper funds are being put into the system, the system is sustainable,” he said. He also pointed to pension contributions that municipalities have made into funds for local employees that are in relatively better shape than the overall state pension system.
“The rhetoric that the governor keeps putting out there that it’s not sustainable is just that, it’s rhetoric,” Marino said.
But Tom Byrne, a member of the Christie administration’s Pension and Benefits Study Commission, said funding concerns remain because even as legislative leaders in Trenton have supported the proposed constitutional amendment, they’ve also been talking about ramping up spending on things like preschool education and lead abatement. Tax collections are only growing by about $1 billion annually, said Byrne, the leader of the New Jersey State Investment Council and son of former Gov. Brendan Byrne.
“All of this adds up, in a good year, to more spending than we have revenue growth,” said Byrne, who is a former state Democratic chairman.
“What a constitutional amendment would do is put us in a fiscal straightjacket and force cuts in discretionary spending to the point of potentially eliminating it, depending on what taxes are raised,” he added. “Does the state have unlimited taxing capacity?”
Rosenstein countered that there is a process available if the state has a year in which it simply can’t afford to make the full pension payments. She said in such circumstances the contributions, which would have contractual protections, could be shorted only when there’s a “reasonable and necessary” reason to do so.
“That’s the question, whether it’s reasonable and necessary,” Rosenstein said. “The bugaboo that ‘Oh my goodness, we could have a recession and we’d still have to pay’ is phony.”
The commission Byrne sits on has proposed offering employees and retired workers less generous health benefits and using the savings to pay down the pension system’s existing debt. The commission would also freeze the current pension system and move workers into a hybrid cash-balance retirement system that would have some features of a 401(k) plan.
“What the commission has proposed, ensuring that the savings stay in the pockets of the public workers, is a responsible way to go,” he said.
Tom Healey, another member of the administration’s benefit-study commission, defended the proposed healthcare changes as leaving workers and retirees with coverage that still would be considered at the “gold” level under federal law.
“The facts are, the healthcare provided to public workers in New Jersey, those benefits are the richest in the United States,” Healey said during the panel discussion on retiree-healthcare costs. “They’re greater than ‘platinum,’ which is the highest level available under Obamacare.”
Healey, who served as an assistant secretary of the U.S. Treasury during the Reagan administration, also said the commission took pains to minimize the impact of the changes on workers and retirees, and to prevent reforms from simply shifting more of the costs away from government and onto the workers and retirees.
Kevin Kelleher, director of research for the New Jersey Education Association, took issue with Healey’s claims. He rattled off a number of ways that public-worker unions are seeking to reduce the overall cost of employee and retiree healthcare plans, including better use of online technology and supporting legislation that would change “out-of-network” rules. Copays have also been raised for current workers and retirees in recent years, he said.
“We will no longer just cost-shift onto our employees as we have in the past,” Kelleher added. “We want responsible ways to change the way we deliver healthcare.”
Christie has made no bones about taking on an adversarial posture with the unions. Assemblyman Daniel Benson (D-Mercer) said the issue may end up being resolved more substantially only after Christie leaves office in early 2018, at the end of his second and final term.
“It’s not an easy task that any new governor is going to have,” Benson said. “(But) we can actually have an honest debate,” he said.
Former Democratic Gov. Jim Florio, speaking from the audience during a question-and-answer portion of the event, suggested the pension-funding issue in New Jersey may take intervention from the federal government. “As far as I’m concerned,” he said, “I just don’t think the states have the capability of dealing with these problems, and resolving them.”