New Jersey’s fiscal and economic future depends on how we answer a simple question: Do we have the courage to reform a broken pension system that’s driving us towards insolvency?
There are some hopeful signs that the answer is “yes,” but if the state legislature gets its way, that hope will quickly fade.
There is little doubt that New Jersey faces a massive fiscal crisis, thanks in large part to its unsustainable pension system. The non-profit State Budget Solutions estimates that the state is short more than $200 billion out of the $286 billion in scheduled pension payments—money that lawmakers have promised to retirees but haven’t put in the bank. These unfunded liabilities, the sixth-largest in the nation, work out to more than $22,000 per New Jerseyan.
On its current course, payments to retirees will rise by hundreds of millions every year, progressively overwhelming the state budget. If the state hopes to continue funding other priorities, such as education and infrastructure in the years ahead, lawmakers will have to pass both a “millionaire’s tax” and a 23% income tax hike for everyone else. Yet this is no solution at all—it will only further erode New Jersey’s economic competitiveness and harm people already struggling to get by.
The only solution
The only real solution to our pension crisis is long-term reform that delivers much-needed savings. The good news is that both the Supreme Court and Governor Chris Christie recognize this reality.
On June 9, by a vote of 6-1, the New Jersey Supreme Court upheld the 2011 lawthat froze cost-of-living adjustments for current and future pension recipients. Passed by a bipartisan majority in the statehouse and signed by Gov. Christie, it shaved $74 billion off the state’s pension debts. State Senate President Stephen Sweeney told the Newark Star-Ledger that, had the court sided with the labor unions challenging the law, it would have “cause[d] the bankruptcy of the pension system.”
This ruling leaves lawmakers free to pursue other reforms that would pare back the $200 billion-and-growing in unfunded liabilities. On that note, a bipartisan commission created by Gov. Christie has released two reform proposals in the past two years.
The first—and better—plan would freeze existing pensions and move current government employees onto a hybrid defined-benefit and defined-contribution plan. The savings from the freeze alone would total $2 billion a year. The secondwould make significant reforms to employees’ health plans, using the resulting $2 billion savings to fund the existing pension system. Although this fails to fix that system’s underlying problems, it is nonetheless a step in the right direction.
But no reform, big or small, will be possible if the state legislature successfully enacts its own pension “plan.”
Democrats are forestalling reforms
For the past year, the commanding Democratic majorities in both the Senate and the General Assembly have laid the groundwork for a ballot initiative that would enact additional constitutional protections for pensions and force the state to ramp up annual payments until the current unfunded liability is eliminated. The Assembly voted 50-25 to move forward with this measure on June 27. If the Senate does the same—and a similar vote passed earlier this year, 23-16—it will appear on the November ballot.
This is a transparent attempt by Democrats and their public-sector union allies to forestall any reforms—even if it bankrupts the state. New Jersey state employees already enjoy strong constitutional benefits for their pensions, but this would raise those to unprecedented levels. It would effectively lock state lawmakers into an eternity of current bad policy, unable to make even the most basic—and necessary—reforms.
The ballot measure’s requirement for increasing funding would also hasten New Jersey’s decline. It would force the state to increase pension funding from a planned $1.86 billion this year to over $5 billion a year in the years ahead, necessitating dramatic cuts in other parts of the budget. This being New Jersey, the state legislature would surely move to increase some combination of personal and business taxes, even though we already have the worst business tax climate in America.
A recipe for disaster
The bottom line is this ballot measure is a recipe for disaster, as other states have shown. Take the example of Illinois, where courts have deemed pensions untouchable and a law requires 90% funding over the next 30 years. This combination is slowly but surely crushing the state’s economy, draining its taxpayers, and mortgaging its future
Is that really the path that New Jersey should take? Our lawmakers showed courage in 2011 when they agreed to the bipartisan pension reforms that the state Supreme Court just upheld. Now they need to finish the job. If they would rather trade in their courage for cowardice and move forward with the ballot measure instead, then it’s up to the voters to make the hard choices that their so-called leaders will not.