NJ Pension "Reform" Is Still a Lousy Deal for Local Governments & Employees

Now that Chris Christie has officially declared that he is no longer going to govern New Jersey, it looks like someone else is going to have to pretend to have an answer to the pension mess that doesn't involve raising taxes. Republican Assemblyman Declan O'Scanlon is answering the call:

Now that the 2016 budget debate is over, we must get back to the most pressing state issue of our time. The suggestion of some in the public worker sector that those of us who voted against the budget are abandoning our commitment to ensuring their pensions is completely false. Any responsible elected official knows it is imperative that we meet our commitments in a way that protects our pubic workers and the N.J. economy at the same time.

Gosh, sounds great... until we get to the pesky details:

It is also true that the $1.3 billion – while one of the largest contributions ever – doesn't meet the level we promised in the 2011 reforms. No one is happy about that, but the recovery we have experienced nationally hasn't met the reasonable expectations we had relied on here in New Jersey. But rather than point fingers, let's understand that the growth projections came from unbiased actuaries that relied on data from previous recoveries over 75 years. Gov. Christie and Senate President Steve Sweeney (D-Gloucester) relied on those projections in good faith. There is no nefarious plot here: You cannot blame Christie administration policies for the low growth in N.J. The governor has consistently argued for more pro-growth policies. [emphasis mine]

No, you can't blame Chris Christie for being a failure at growing the economy. After all, he only canceled the ARC tunnel, and backed the failed Revel casino and American Dream mall, and reneged on previous pension payments causing our bond rating to drop, and cut public employee pay, and urged cutting teacher pay, and froze homestead rebates, and gave away billions in tax breaks that have lead to anemic job growth, and jacked up NJ Transit fees, and neglected infrastructure, and made bad tourism promotion ads featuring himself, and gave away most of the Exxon settlement, and has been incompetent at managing Sandy relief aid...**

The notion that there was a plan to fund the 2011 pension "reforms," and that plan was undermined by poor economic growth, does not stand up to the most basic scrutiny. Wall Street knew Christie's economic projections were way too optimistic. In early 2012, the Star-Ledger noted that Christie's forecast of economic growth was twice the average of other states'. And guess who agreed with those projections:

State legislators will scrutinize the contrasting fiscal outlooks when they hold budget hearings this month. 

"I believe we’re going to see growth next year, but with the unemployment numbers lagging behind other states, the numbers appear overly optimistic," state Sen. Paul Sarlo (D-Bergen), the chairman of the budget committee, said. 

But Assemblyman Declan O’Scanlon (R-Monmouth), a member of the Assembly Budget Committee, said Christie has a solid track record on revenue estimates. 

"Is the administration projecting a healthy recovery? Absolutely," O’Scanlon said. "Should we question their credibility in making that projection? I don’t think so. They have earned credibility because their projections have been spot on thus far." [emphasis mine]

Declan O'Scanlon should be apologizing for swallowing those revenue estimates whole; instead he makes excuses. Worse, he pretends that there is still a viable solution to the pension crisis that doesn't involve raising taxes:

They exist within the data provided by the Pension And Health Benefits Commission Report, which is an extraordinary, comprehensive document. The commission comprises a bipartisan group of the dedicated public servants, including Tom Byrne, the former Democratic State Chairman and an expert on government finance. His presence at the head of the table with commission coordinator Tom Healey is proof the governor did not stack the commission. Among their proposals are the enshrinement of a payment schedule in the state Constitution – which should allay the lingering trust issue – and they will not cut accrued pensions. Their health plan suggestion is to reduce "platinum" policies to something north of "gold," which is not an outrageous sacrifice for workers. 

Now, that is a very limited reading of the commission's report. If Assemblyman O'Scanlon wants to really come up with a solution, he should start by being straight with public employees and taxpayers about what the commission's plan really calls for:

- The commission wants a constitutional amendment not just to ensure pension payments; they want an amendment that would allow the state to cut existing pension benefits.

From the report (p. 12):

Because of claims of constitutional protection, the ability of the Legislature to reduce pension benefits for individuals claiming nonforfeitable rights protection has been questioned. As a result, the Commission believes that the best means of ensuring the freedom to effect meaningful reform would be to amend the State Constitution to confirm, notwithstanding anything in the Constitution or laws of the State of New Jersey to the contrary, the power of the State to reduce existing pension and health benefits. If sufficient health benefits savings can be achieved to permit funding of the reduced pension obligations, it would be possible to include in the amendment a guarantee of the pension funding specified in the payment schedule. [emphasis mine]

A fair reading of this paragraph is that the primary goal of a constitutional amendment would be to allow the state to cut pension benefits. If some more money can be found to guarantee payments, sure, they'll include that too. But the objective is to cut benefits -- don't let anyone tell you otherwise.

Of course, if the commission and O'Scanlon think this is viable, why not go all the way? Write into the constitution that the state can renege on any of its obligations -- we'll make the Greeks look like pikers!

The problem with this plan is that even the NJ Supreme Court, in its latest (flawed) decision, admitted the state has to meet its obligations to public employees. What the court ruled it couldn't do was force the state to be responsible and make payments in advance. If the state wants to cause a train wreck and fund its pension obligations out of the general fund, the court can't tell them no -- but that doesn't mean the state doesn't still have to pay up.

Some have fantasized that the state would declare bankruptcy in that case. It's impossible to imagine this happening to an entire state; however, it's easy to see a non-governmental entity or a local government going into default. Which brings us to...

- The commission wants to transfer pension obligations -- especially teacher pensions -- over to local entities, even though these entities are arguably much more likely to go into default than the entire state.

For years, the state has refused to pay its share of the pension revenues, even as public employees have been forced to contribute. Now, after decades of neglect, the state wants to "solve" the problem by making local governments clean up the state's mess. The leaders of these counties and towns and school boards are rightly questioning why this burden falls on them, and not the state:

And John Donnadio, executive director of the New Jersey Association of Counties, raised concerns about what the roadmap could do to the overall health of the local pension funds, which actuarial records show will last decades longer than the state funds. That’s because unlike the state, which is allowed to skip or make only partial employer pension contributions, the county and municipal governments cannot. 

“NJAC’s position on the roadmap is that we object to any initiative that would affect, alter, comingle, or integrate the local pension systems, as counties and municipalities have met their obligations as employers and the local pension systems are fiscally sound as a result,” Donnadio said. 

The scheme concocted by the commission involves finding savings in health care benefits (more in a sec) and transferring those savings into pension revenues. Were I a mayor or school board president, however, I'd wonder why I couldn't use the savings I found to improve my town's services or reduce my town's taxes. Why should local governments have to fix a problem the state created?

And if I were a teacher (oh, wait...), I'd be wondering what would happen if my school district decided to renege on funding my retirement. If the constitution said my rights to my pension were now forfeitable, who's to say my school board couldn't cut my benefits whenever they wanted? Who's to say they couldn't simply declare bankruptcy and walk away from their obligations to me?

- The commission wants to find the revenues for pension obligations by forcing employees to pay even more in health benefits.

Remember: the 2011 "reforms" jacked up health benefits costs across the state. Now the commission wants to find savings... but it also wants to make employee contributions even higher than they are now.

Look, I'm all for finding savings in health care; the plain truth is this country's insistence on not moving to a single-payer-ish system is costing us billions more than countries that have that sort of health insurance. But making employees bear more of the burden does nothing to rein in the outrageous costs of drugs and services. Where is any suggestion from the commission that it's time for the state to start getting tough with insurers and providers as a way to cut health costs without cutting quality?

As to cost-savings through employee incentives: again, I think that's a good idea in general. People should be incentivized to take better care of themselves... but they should be the ones to earn at least some of the savings from their improved behavior. Why would I be motivated to lose weight as a cost-cutting measure if I don't get at least some of the financial benefits of going on a diet?*

I suspect the idea for incentives was added to the commission's report to soften a hard truth: the "savings" from health benefits will come from demanding more contributions from employees. Which the commission actually thinks is justifiable, because...

- The commission justifies its plan to slash public employee health and retirement benefits by claiming they are more lavish than those found in the private sector. What they neglect to mention is that public employee pay is lower than private sector pay for highly credentialed and experienced workers -- like teachers.

We've been through this I don't know how many times on this blog: New Jersey public employees who have a college degree, like teachers, make less than comparably educated private sector employees. Teachers in particular suffer a pay penalty for working in schools. The weak attempts to explain this away are undermined by cutting benefits without raising salaries; in other words, you can't argue teachers will still be compensated fairly if you cut their health care and retirement benefits without raising their pay.

The commission thinks it's just fine to put all the fixes for the state's decades of neglect on local governments and public workers. They moan that raising taxes on the wealthy is inadequate to the task without acknowledging that those same wealthy are the ones who have benefitted the most from New Jersey's failure to raise the revenues needed to meet its obligations.

No credible plan to resolve New Jersey's pension crisis leaves out the necessary action of collecting more revenues from the wealthiest residents of this state. It's ridiculous that the commission won't demand an increase in the millionaires tax on the basis that it's only a partial fix, even as it frets about the "symbolic" effects of double-dipping (p.31). The millionaires tax isn't close to a total solution, but it would have far more impact than going after a few retirees who return to public employment.

Further, the commission doesn't even bother to investigate whether the state has overpaid its pension fund managers, who by all accounts have done a mediocre job.

The bottom line here is that Declan O'Scanlon and the other cheerleaders for the commission's plan are not to be taken seriously unless and until they start talking about real increases in revenue. This state's teachers and other public employees have already made big sacrifices under the 2011 "reforms": we pay more in pension contributions, we pay more in health care premiums, and we are getting less for these payments than our fellow public employees in other states.

It's time for the state to stop making excuses. Local governments and public employees have done more than their share. Now it's the state's turn: raise taxes on the wealthy and start hacking away at the billions in tax expenditures and corporate tax subsidies this state gives away to special interests. Get the fees for pension managers under control and start demanding better performance or they will lose our business. Negotiate hard with health insurance companies and health care providers, including hospitals and pharmaceutical companies.

If that's not enough, then we'll talk. But not before.

We're waiting...

 * The obvious answer, of course, is that it's good for my health, and I should lose weight anyway. But if that's true, why have any incentives at all? And, therefore, why expect any savings to materialize?

** Thanks to you-know-who for help with this list.