A nonpartisan panel of benefits experts that Gov. Chris Christie assembled several years ago to examine the state’s beleaguered pension system released a final report yesterday, issuing one last plea for serious consideration of a set of cost-cutting recommendations that so far have been ignored by top leaders in the Senate and Assembly.
While the report itself offered little in the way of big new policy proposals, it voiced a loud sense of urgency, suggesting the window for leaders in the State House to enact meaningful change is closing quickly, even as some incremental improvements have been adopted during Christie’s tenure.
The pension system’s unfunded liability has grown by $10 billion since the group first released its recommendations in 2015. The state also faces the likelihood that employee and retiree healthcare costs will continue to go up.
“Intransigence, inaction, apathy and denial are habits the State can no longer afford when it is at risk of losing the budget flexibility necessary to respond to emerging challenges and crises,” the new report said.
The group released its final report just as Christie, a Republican, is getting ready to hand over the keys to the governor’s office in Trenton to Democratic Gov.-elect Phil Murphy, who thus far has shown little interest in making the types of cost-cutting changes that the panel is calling for, including slashing employee health benefits.
Gov.-elect Murphy ‘acutely aware’ of issue
Asked about the panel’s latest findings yesterday, Murphy’s spokesman, Dan Bryan, said in a statement that the governor-elect is “acutely aware” of the issue and remains committed to funding the state’s pension obligation, which was a regular promise from Murphy earlier this year on the campaign trail.
But the new report suggests it may take more than just increased funding, since one of the funds that make up the broader pension system — the retirement plan for judges — is projected to run out of cash in less than a decade. That means Murphy and Democratic legislative leaders may soon have to choose between considering at least some of the changes proposed by the Christie commission, or raising taxes on more than just the millionaires and wealthy hedge-fund managers that Murphy regularly targeted during the campaign.
The legislative leaders did not comment on the group’s final report after it was released yesterday.
A former Goldman Sachs executive, Murphy chaired a similar benefits-study commission in 2005, for then-governor Richard Codey. That panel’s top recommendation urged leaders in Trenton to stop using money that the state should have been putting into the pension system to finance other priorities. Despite that warning, governors from both political parties continued to make annual pension contributions that fell short of the full amount calculated by the state’s actuaries.
For his part, Christie has ramped up state pension payments significantly as his tenure now comes to an end. He also forced public workers to contribute more to their pensions, in 2011, and led an effort to dedicate state Lottery revenues to the pension system earlier this year.
Pension system’s unfunded liability — $50B or $90B?
But the current state budget’s $2.5 billion pension contribution is still half the amount that actuaries have called for, even as budget documents show more than $4 billion in revenue is being sacrificed to a series of tax cuts that have been enacted since Christie took office in early 2010.
In all, the pension system’s unfunded liability has grown to $50 billion by the state’s calculation, but it’s much larger by other fiscal estimates. For example, the report released yesterday cited figures from the Government Accounting Standards Board, or GASB, that peg the unfunded liability at $90 billion.
Under recommendations that Christie’s benefits panel first put forward in 2015, the state would begin to address its pension-funding problem by cutting employee health benefits, and using the savings to pay down the pension debt over several decades.
“Just like compound interest on a credit card, if it gets too high, it gets tougher and tougher to pay that off,” said Tom Byrne, a leading member of the panel, during a news conference in Trenton yesterday.
The group has also called for a freezing of the current defined-benefit pension plan in favor of a new “cash-balance” retirement system that would feature many elements of 401(k) plans that are common in the private sector.
Not the first warning
The new report was just the latest to offer a stern warning about the state’s fiscal condition, following others issued in recent months by nonpartisan groups like the Volcker Alliance and the Fund for New Jersey. The state’s pension-funding challenges were also raised last week by New York Federal Reserve Bank President William Dudley during an interview with NJ Spotlight.
As a candidate for office, Murphy spoke frequently about the issue of worker pensions and employee health benefits in his stump speeches. He pledged to raise more than $1 billion in new annual revenue to fund priorities like increased funding for the pension system, largely by hiking taxes on millionaires, large corporations, wealthy hedge-fund managers, and through legalizing and taxing marijuana. In addition to promising more robust pension contributions, Murphy suggested he would show workers more respect than had Christie, who has often criticized their unions, like the New Jersey Education Association.
The legislative leaders, meanwhile, have also called for increased state pension funding, while also suggesting that annual revenue growth, and other recent changes, including forcing the state to make quarterly instead of annual pension contributions, will improve the long-term outlook.
Under the state’s current pension-funding schedule, the annual contribution is set to increase significantly over the next several years, until the state is making the full payment assessed by actuaries – likely to be as high as $6 billion. And while the new report credits some recent reforms that have been enacted with union cooperation in recent years as having eased healthcare costs, it predicts those will rise to over $4 billion by the end of Murphy’s first term.
“While some progress has been made, it has not been enough,” the report said. “The new Governor, the Legislature, public employees and the citizens of the State as a whole need to act to effect the comprehensive reform required to make these benefits both affordable and secure.”
Christie praised Byrne and the other members of the benefits commission at yesterday’s news conference for producing what he called a “blueprint for the next administration and Legislature.”
“Whether they choose to follow it or not is completely up to them,” Christie said.