You hate to have to do something like this, but the people we elect apparently can’t be trusted to make sure that pension contributions are actually used for pension payments. So we’ll just have to take their ability to run the three-card monte away from them.
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The governor is calling for changes in the accounting used to track the state’s pension funds, but that may not be enough at this point to avert catastrophe. The changes, which would seem pretty simple (I’m not an accountant so maybe I’m wrong) and would bring the state in line with regular practices, should help give us a more complete picture of the problems we face.
And the problems are huge.
Douglas Love, an investment expert who monitors the retirement accounts as a member of the State Investment Council, said at a council meeting last month his independent analysis of the state’s pension debt puts the shortfall even higher — at $56 billion.
The problems date back to a revaluation of the pensions by Gov. Christie Whitman — and were exacerbated by Gov. Jim McGreevey’s own pension gimmicks.
Initially, the numbers held — but then came the “collapse of the stock market,” which “drained $22 billion from the funds.”
Lawmakers compounded the problem by using accounting gimmicks to skip required annual payments into the funds and to cover billions of dollars in additional costs from increased retirement benefits they granted to public employees.
“The fact is we have a huge hole,” Corzine said. “It has been created by failure to deal with this issue, frankly, for the better part of a decade.”
While Republicans are shouting for reforms on this, they were part of the problem in the first place and injecting politics at this time is only guaranteed to ensure that nothing will actually get done.
Essentially, this is a bipartisan problem that requires a bipartisan solution.
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New Jersey’ pension system — through no fault of the state’s employees — is in complete disarray. Thanks to the efforts of several gubernatorial administrations (of both parties) and a compliant state Legislature (run at times by both parties), there is not likely to be enough cash in the system to pay off the workers who eventually might like to retire.
And, according to The New York Times, things maybe worse than we think.
In 2005, New Jersey put either $551 million, $56 million or nothing into its pension fund for teachers. All three figures appeared in various state documents — though the state now says that the actual amount was zero.
The phantom contribution is just one indication that New Jersey has been diverting billions of dollars from its pension fund for state and local workers into other government purposes over the last 15 years, using a variety of unorthodox transactions authorized by the Legislature and by governors from both political parties.
The state has long acknowledged that it has been putting less money into the pension fund than it should. But an analysis of its records by The New York Times shows that in many cases, New Jersey has overstated even what it has claimed to be contributing, sometimes by hundreds of millions of dollars.
The discrepancies raise questions about how much money is really in the New Jersey pension fund, which industry statistics show to be the ninth largest in the nation’s public sector, with reported assets of $79 billion.
State officials say the fund is in dire shape, with a serious deficit. It has enough to pay retirees for several years, but without big contributions, paid for by cuts elsewhere in the state’s programs, higher taxes or another source, the fund could soon be caught in a downward spiral that could devastate the state’s fiscal health. Under its Constitution, New Jersey cannot reduce earned pension benefits.
This is a disaster with longterm implications for the state. We have an ethical obligation to replenish the fund as quickly as we can — but this will mean increasing taxes, dwindling services and a broken economy to follow.
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If an actuarial report issued today is accurate, the state is in far worse financial shape than anyone appears willing to acknowledge.
The annual actuarial report on the Public Employees Retirement System, the state’s second largest retirement program, shows the total amount of pension benefits for which no money has been salted away soared from $4.5 billion to $7.2 billion as of last June 30.
Filling the gap will cost taxpayers dearly.
According to the report, the state’s contribution in the budget Gov. Jon Corzine is scheduled to unveil tomorrow should be $459 million, compared with the $192 million the current state budget included for the fund.
Local governments, who are paying a total of $218 million into the fund this year, should pay $491 million in their upcoming budgets, the report shows.
The dire news should lend momentum and a sense of moral urgency to the tax reform debate, but is more likely to enflame the current anger directed at public employees over what is seen as extravagant benefits.
There is no doubt that state employees receive top-notch health and retirement plans, along with very generous vacation policies. In the current climate and given the current fiscal mess, it only seems right that employees contribute to the solution with changes in future benefits.
The pension obligation that has been racked up int eh past, however, should not be part of the discussion. It is part of a promise made to state and local employees in past contracts, a moral obligation if you will, and it is incumbent upon every elected official in the state to find a way to ensure that these payments are made.
That’s why tax reform is so crucial. We need to restructure both state and local government to reduce costs and find a better, fairer way to pay for it and one that will be recurring and protected from the kind of politically expedient decisions made by the Whitman and McGreevey administrations to balance their budgets without raising taxes.
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Hank Kalet 