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Analysis: New Jersey Faces Four-Year Fiscal Crisis

While future governors will continue to pay in billions every year to cover what is still expected to be a $54 billion unfunded liability at the end of FY18, the annual increase in pension payments -- which is expected to jump by $2.45 billion over Christie’s last three years to a total of $4.8 billion that year -- is projected to slow dramatically starting in FY19. In fact, the state’s pension payments could actually drop in future years as the unfunded liability is slowly paid down.

That does not help Christie. The governor keeps complaining that rising pension, health benefits, and debt service increases are eating up 94 percent of this year’s revenue increase, but does not intend to propose any changes until he puts together his FY16 budget next February, Christie spokesman Kevin Roberts told Star-Ledger columnist Tom Moran.

Christie’s call for Democrats to push public employees to pay more toward their pension and health benefits is not going to resonate with Sweeney either.

Sweeney paid a political price for jamming through legislation that increased pension and health benefit payments for all employees of state, county, and municipal government and school districts, froze cost-of-living increases for public employee retirees, and suspended collective bargaining on healthcare issues by public employees for four years.

Angered by what they viewed as Sweeney’s treason to the union movement, the public employee unions banded together to block the state AFL-CIO from endorsing Sweeney, Sen. Donald Norcross (D-Camden), then the head of the South Jersey Central Labor Council, and other Democrats who voted for the pension and health benefits bill for reelection in 2011.

Sweeney, who will undoubtedly face a contested primary fight for the Democratic gubernatorial nomination in 2017, has been trying to rebuild alliances with the public employee unions, starting with his insistence that Christie stick to the pension funding agreement he made in 2011 and not ask public employees to pay more -- a position in which he has the strong support of Assembly Speaker Vincent Prieto (D-Hudson) and top Assembly Democrats.

Sweeney also knows that the increasing cost of retiree healthcare costs is also going to slow after FY21, the third year of the new governor’s administration, as a direct result of provisions in his pension and health benefits bill that will require employees who had less than 20 years of service as of June 28, 2011, to pay some of the cost of their medical coverage after retirement.

Aon Hewitt, the state’s benefits consulting firm, has calculated that the healthcare bills for public employees who retire after 25 years with full medical coverage will increase by an average of 8.5 percent through FY21 both for those whose full medical bills are paid by the state prior to age 65 and those who only rely on the state for Medicare copayments, according to an April 9 bond refinancing document issued by the Educational Facilities Authority.

Christie retroactively used $120 million in reserves in the State Health Benefits Program Fund to lower the payment as part of a series of budget maneuvers totaling $694 million that were criticized by Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, Inc.

Use of the retroactive “one shot” to lower the FY14 contribution resulted in a $263 million increase to $1.701 billion for retiree healthcare costs in the upcoming FY15 budget. Using Aon Hewitt’s projections, NJ Spotlight estimates that retiree healthcare costs will rise to $2.173 billion by FY18, Christie’s last budget, and continue to go up by 8.5 percent annually to $2.775 billion in FY21 under the next governor, then level off to 5 percent annual increases.

While the unfunded liability for retiree medical benefits -- $51.5 billion at the end of FY12 -- is actually 50 percent higher than the liability for pensions, which gets more attention, the state does not attempt to prefund postretirement medical benefits, and the cost to begin to do so would be prohibitive

However, beginning in FY21, Aon Hewitt calculates that the annual increase in retiree health care costs will drop to 5 percent a year – once again, a more manageable number considering that state revenues tend to rise an average of 6 percent a year, David Rousseau, a former Democratic state treasurer who serves as budget analyst for New Jersey Policy Perspective, pointed out. Officials in the governor’s office and the Treasury Department did not respond to questions last week about future projections for retiree health benefit payments.

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