Perhaps things are darker than we realized here in the great state of New Jersey. I mean, thanks to a decision by then-Gov. Christie Whitman, the state is about $58 billion short in its fund to provide health care to retired workers.
In 1994, New Jersey decided to stop setting aside money in a fund to pay for health care for its retired public workers. The savings paved the way for a big tax cut.
Meanwhile, hundreds of thousands of public workers were being told that as long as they worked 25 years, the system would provide virtually free health care for them when they retired, often when they were as young as 55.
No one added up the cost — until now.
It turns out that New Jersey will need about $58 billion, in today’s dollars, to provide all the care it has promised its current and future retirees. That’s nearly twice the state budget and nearly twice the amount of its outstanding debt. And because of the step it took in 1994, the state has virtually no money in reserve to cover those costs.
And….
The portion of the $58 billion that they need to come up with each year will rise sharply because of soaring health costs and a burgeoning population of retirees, according to the New Jersey Treasury. The state will spend about $1.1 billion on this year’s care, and the figure is expected to double in five years.
Meanwhile, the state’s revenues are largely static. That means that unless something changes, New Jersey will have less money each year to pay for vital services like colleges, hospitals and mass transit. Its popular program to preserve green space just fell victim to the need to devote huge amounts to the retirement plans and debt servicing.
You remember 1994, right? The first year of the Whitman administration.
So what happens now?
To create a retiree health fund from scratch, Mr. Goldman estimated, New Jersey would need to start by setting aside $6 billion a year to make up for all the years of no contributions.
That is on top of the pension fund’s pressing needs for new contributions.
Which means….
making more retirees pay for part of their health premiums and by switching retirees into a network of doctors at negotiated fees. Currently, most state retirees can see any doctor. As of 2003, fewer than half the states allowed retirees to do so.
Not exactly the direction health care reform is supposed to take. But then,
the plan to make more state retirees pay part of their premiums had a setback in June. The government agreed to drop it for retirees who signed up for wellness programs, which are supposed to save money by reducing the incidence of preventable diseases.
Meanwhile, retired teachers have dodged the bullet entirely. Their union, the New Jersey Education Association, negotiates contracts with school districts and not with the state, and the state has not asked them to chip in for their premiums.
But have no fear. There is another plan on the table — asset monetization (otherwise known as the sale or lease of the N.J. Turnpike) — though its exact shape and the timetable on which it will be unveiled has yet to be, well, unveiled:
The governor’s advisers had hoped to use the turnpike proceeds to pay down debt or fund the state’s retirement plans. But in June, Mr. Corzine acknowledged that the effort had become a political lightning rod, with his opponents whipping up fear around predictions that that the turnpike would fall into foreign hands.
He said foreign ownership was not in the cards, nor is a sale to a profit-making company. For now, he says he wants more planning and public debate, putting off any way to use the turnpike as a financial resource until after the state legislative elections in November.
“I’m going to fight for it,” the governor said. “The status quo is unacceptable.”
I’m pretty certain that monetization will be unacceptable, as well, leaving us back at square one and the likelihood that major budget cuts and tax hikes are in the offing.
Welcome to New Jersey, the state where political expediency has made a royal mess of things.
South Brunswick Post, The Cranbury Press
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Hank Kalet 