Photographer: Victor J. Blue/Bloomberg
Christie Panel Says Only Benefit Cuts Can Fix N.J. PensionsBy
Panel warns that employees’ health costs will begin to rise
Benefit costs may consume 26% of budget by 2023 without change
New Jersey employees’ medical benefits are the only budget expense with enough potential savings to fix the state’s pension deficit, according to the final report of a panel created by outgoing Governor Chris Christie.
Those benefits are “substantially more generous and expensive” than those of non-government employees. Incremental fixes, such as moving some retirees to the privately run Medicare Advantage plan, have contained costs for two years, but they will increase again in the fiscal year that begins July 1, according to the report.
“Health benefits costs will resume their rise at a time the state will desperately need additional savings to achieve the second half of its planned ramp-up of pension funding,” according to the report released Wednesday by the New Jersey Pension and Health Benefit Study Commission.
Since the mid-1990s, governors from both parties have missed or skimped on payments. Christie, a two-term Republican, skipped one during his first year as he inherited a budget deficit. He enacted benefit cuts in 2011 that shrank the liability. Then, the gap grew as he made partial contributions. Still, Christie has put $8.8 billion into the system, more than double the combined payments of all governors since 1995.
Even with those contributions, and a Christie move to transfer billions from the lottery, the pension system’s unfunded liability under new government accounting standards is about $90 billion, up from $80 billion in the panel’s initial report in 2014. New Jersey’s fiscal health ranks last among U.S. states, according to a study by the Mercatus Center at George Mason University.
“States that fail to address long-term drivers of debt and are not prepared for recessions will continue to rank poorly,” Mercatus researchers said in a research paper.
Governor-elect Phil Murphy, a Democrat who takes office next month, won the November election with financial backing of public-employee unions. He has said any changes to benefits should be done through collective bargaining, not legislation. At the same time, he has promised to fully fund pensions, without saying how.
“Governor-elect Murphy is acutely aware of these issues, having chaired the first state commission on pensions and benefits more than a decade ago,” a spokesman, Dan Bryan, said in an email. “He remains committed to the state living up to its obligations as a first and necessary step and working in good faith with all sides on a sustainable path forward.”
Pension commission member Tom Byrne, a Democrat and chairman of the State Investment Council, which oversees the pensions, said the crisis now falls to the incoming administration.
“The personalities in Trenton are going to change but the math is not changing,” Byrne told reporters.
The crisis has contributed to a record 11 downgrades under Christie by the three major credit-rating companies.
Without benefit changes, pension and medical costs will consume 26 percent, or $10.7 billion, of the budget by 2023, according to the panel. It recommended holding those costs to no more than 15 percent.
“A workable solution is one that preserves benefits earned to date and provides competitive benefits going forward,” the report said. “Such a solution is possible, as long as there is the will to achieve it.”
Christie has battled New Jersey’s teachers’ union since taking office in 2010, calling its leaders “political thugs” as he pushed to cut benefits, change tenure, link pay to performance, make firings easier and reduce funding to the poorest school districts.
New Jersey teachers, firefighters and police officers are the highest-paid in the U.S., according to Christie. Their health benefits continue after retirement.
“Where are they suffering, exactly?” Christie said Wednesday at a press conference in Trenton.