Pension Delusions

Earlier this month, Chris Christie, the Christiecrats, and a large faction of the the commentariat decided to pat each other on the rump over the "savings" that are allegedly coming from screwing public workers out of their justly earned compensation pension "reform."

Give great credit to the Asbury Park Press for seeing through this nonsense:

Ordinarily, an annual savings of $267 million to state government is nothing to sneeze at. But when you’re talking about New Jersey’s unfunded liability of $54 billion to public workers’ pension funds, there really isn’t much to say except “gesundheit.” 

Because that savings, which the Christie administration was crowing about last week, is a drop in the bucket. The badly needed pension reforms passed this year are estimated to save $120 billion in pension payments over the next 30 years among all the systems — teachers, police, judges and other workers. But the reforms were not front-loaded to save more money in the short term.

[...]


Add to that the uncertain outcome of the constitutional challenge by state public employee unions to the legislation that froze annual cost-of-living increases for retirees until their individual pension funds can cover 80 percent of their long-term expected liabilities.

If the courts rule in favor of the unions, the state and its property owners can kiss most of those savings and any attendant property relief goodbye. The freeze accounts for nearly two-thirds of next year’s projected pension savings. 

Add to those uncertainties the commitment the state government has made to catch up to full pension funding in a scant seven years. Those figures are chilling: It must pay $5 billion toward pensions in fiscal 2018, compared with $468 million in the current fiscal year and $1 billion next year.

The plain truth is that this state went on a 20-year pension holiday, where its leaders - both Republican and Democrat - promised free money for everyone:

Say what you will about Jon Corzine, but he's the only governor we had who made some sort of effort to pay into the pension funds. But Christie has gone back to selling snake oil: he crows about property tax relief without any viable plan to make up for the lack of contributions to the pensions.

And it's not going to get any better:

Oct. 13 (Bloomberg) -- New Jersey’s pension-fund assets dropped 9.9 percent to $66.4 billion in the first three months of this fiscal year as global stocks declined, according to a report presented to the State Investment Council.

Assets as of the June 30 end of last fiscal year were $73.7 billion, after an 18 percent gain during the 12-month period. Since July 1, the fund for government workers has withdrawn $1.8 billion for benefit payments, according to a summary from the state Division of Investment.

The funds returned less than 1 percent in July before declining 2.9 percent in August and an estimated 4.2 percent in September, according to the report. International equity investments lost 22.8 percent during the three months while domestic stocks declined 15.9 percent. Fixed income returned about 9 percent.

We're not going to grow out of this, and stupid references to the 30-year "savings" of pen-ben are clearly pie in the sky. There are really only two choices left: start taxing the wealthy, or flout the law and default on paying current and future retirees.

The unions are being proactive on this, as well they should. I won't make any predictions as to the outcomes, because I've seen courts make some truly awful rulings in my life (Gore v Bush, Citizen's United, etc.). But it's going to take some real pretzel logic to convince anyone impartial that getting rid of the COLA's and skipping payments isn't a violation of a contract.

What no one seems to want to consider, however, is the effect this will have on the labor market and public employment. Teachers, cops, firefighters, social workers, and other public employees are certainly motivated by things other than money, but they need to live. The implied contract - no, scratch that, it's an explicitly stated contract - is that you give up a good bit of money up front in exchange for doing a job you love and getting compensation on the back end.

Christie and the Christiecats have pretty much destroyed any trust folks may have had in keeping this arrangement - and it was an arrangement that was good for taxpayers! "But you don't get deals like that in the private sector!" whine the willingly obtuse. They refuse to acknowledge the obvious truth: the private employee gets more money up front (in flush times, a lot more money). But he or she get less in hard times. That was part of the deal, too: there would be some level of security for public employees.

Now that these short-sighted, self-congratulating vassals of the wealthy have taken this all away, well-qualified people will be far less likely to enter the public sector. Basic economics dictates one of two things will happen: there will be fewer people who will be willing to do these jobs, or the quality of the worker willing to take this increasingly crappy deal will decline. And you can only cut so many public jobs; someone's got to arrest the bad guys and put out the fires and design the roads and teach the kids.

So, what do you think happens next?