Union Leaders Blast Sweeney’s Cost-containment Reforms

John Reitmeyer | April 26, 2019 | Budget
Say proposals embraced by Senate President fail to address pension system’s unfunded liability, and overly focus on shifting costs to workers

Credit: NJTV News
Hetty Rosenstein, New Jersey director for Communications Workers of America
Top officials from the largest union for state workers took aim yesterday at a series of fiscal-policy proposals that Senate President Steve Sweeney has been pitching in town-hall events throughout the state, arguing they won’t effectively address New Jersey’s biggest budget challenges.

In a lengthy briefing held with reporters in Trenton, officials from the Communications Workers of America dissected several proposals related to public-worker pensions and health benefits that Sweeney (D-Gloucester) has made the focus of the public forums he’s been leading for the last several months.

For example, they said Sweeney’s call to change pension benefits for many new workers and those with less than five years of service won’t do anything to address the pension system’s already enormous unfunded liability. And on the issue of worker health benefits, they also criticized a proposal to change employee coverage by moving more of the cost of coverage onto workers instead of taxpayers.

The jockeying over worker-benefit costs comes as the latest round of budget hearings is well underway in Trenton in advance of the July 1 start of fiscal year 2020.

If New Jersey is in the midst of a “fiscal crisis,” as Sweeney has said during the town halls, the union officials suggested it’s because tax cuts enacted during former Gov. Chris Christie’s tenure are depriving the state of billions of dollars in revenue even as state leaders have committed to a pension-funding ramp-up plan.

“We had a decade of a ‘cuts-only’ approach,” said Seth Hahn, the union’s legislative and political director.

A hard look at the costs of employee benefits

In a statement issued later in the day, Sweeney said workers would benefit from the proposals because the reforms are ultimately aimed at providing the fiscal stability needed to “protect and preserve” things like pension and health benefits.

At the heart of the ongoing debate are a series of proposals that were issued last August by a group of fiscal-policy experts assembled by the Senate president. The panel was brought together in response to the federal-tax overhaul enacted by President Donald Trump in 2017, which has hurt many New Jersey residents, in part by limiting their ability to fully deduct state and local taxes, including property taxes.

Detailed in a report called the Path to Progress, the group’s recommendations suggest ways that all levels of government could save money in New Jersey to reduce the overall state and local tax burden.

But some of the proposals have generated controversy, including one that would change the pension benefits for teachers and many other local and state government workers who have less than five years of service. Although no actuarial analysis has been released that fully details the proposal, Sweeney said it would ensure new workers and those with less than five years of service get a traditional, defined-benefit pension based on up to $40,000 of their salary instead of their full salary as under the current rules. For earnings over $40,000, there would be another way of saving for retirement savings called a “cash-balance” plan that would somewhat resemble a 401(k).

Similar pension proposals have been made in the past in New Jersey and have been faulted for not keeping employees in the current system, which experts warn could add to state costs in the long run. But proponents say Sweeney’s “hybrid” proposal is designed to keep some funds flowing in from new workers even as their benefits are changed.

A growing gap in the pension fund

Hetty Rosenstein, CWA’s state director, said Sweeney’s plan still has a major flaw since it doesn’t directly take on the huge unfunded liability that has built up in the system after two decades of the state shorting its full employer contribution. The gap has grown to over $100 billion by some estimates, and even Murphy, an ally of the union, isn’t on course to fully fund the state’s annual pension obligation until fiscal year 2023 and thereafter.

“This is the problem we need to deal with,” Rosenstein said of the unfunded liability.
She also faulted the pension proposal for targeting some worker groups while leaving others unscathed, like police and firefighters — noting those who would see their benefits change the most are in the worker groups that have the highest percentages of women and people of color.

“This is not the answer,” Rosenstein said.

Credit: NJTV News
Senate President Steve Sweeney
The union also questions some of the Sweeney proposals that would impact worker healthcare coverage, including a call to move workers from what would be considered “platinum” level coverage under the federal Affordable Care Act to “gold” level coverage. The classifications generally relate to how much of the cost of coverage is picked up by the patient, with platinum-level coverage leaving 10 percent to the patient and gold level leaving 20 percent.

Rosenstein argued that the better course of action is to keep doing things to contain costs, such as when the unions persuaded the Christie administration to create an online reverse auction for pharmacy benefits. That policy change is now saving the state an estimated $325 million annually. Under a new CWA contract just negotiated with Murphy — who has not embraced any of Sweeney’s proposals — the state is projected to save another $88 million annually.

By only focusing on the cost-share component of healthcare spending, any savings for taxpayers could be completely eroded as the overall cost of healthcare keeps going up, she said. But Sweeney has praised both approaches as he’s emphasized reducing the overall bottom line for taxpayers given the high cost of healthcare in New Jersey. He also wants to merge the pooled benefits systems set up for state and local government workers and teachers to find more savings.

Unions: Tax cuts to blame

When it comes to the overall affordability of retirement benefits and healthcare for public workers, Hahn and Rosenstein pointed to a recent analysis from The Pew Charitable Trusts showing New Jersey has not yet reached its pre-recession peak for tax collections, even as 41 other states, including all of New Jersey’s neighbors, have fully recovered.

The union officials blamed major tax cuts that Sweeney worked with Christie to enact, including a sales-tax reduction and the elimination of the estate tax, and generous economic-development tax-incentives that were also doled out by the Republican’s administration with Sweeney’s cooperation.

But Sweeney’s office has suggested the state’s economic recovery has been held back by outmigration among more established wage earners who are fed up with the state’s overall high taxes.

“The ‘Path To Progress’ is about preventing a fiscal crisis that could have disastrous consequences for everyone, including public workers and taxpayers,” Sweeney said in the statement released yesterday. “The recommended reforms will provide savings for public workers, the taxpayers as well as state and local government.”

“We are all in this together and if we don’t take the steps needed to restore the integrity of public finances we will all suffer the consequences,” he said.