I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Tuesday, October 20, 2015

Christie's Pension Plan Won't Work?! I'm So Shocked...

Well, duh:
A new report from a Wall Street rating agency warns that Gov. Chris Christie's seemingly dormant plan to overhaul government worker pension and health benefits to save the state billions of dollars could come at a risk to school districts if Christie's proposed reforms don't play out as envisioned. 
Moody's also raised questions about the plan as proposed, saying it doesn't explain how reduced health costs for municipalities will be used to balance out new expenses for school districts picking up the tab for teachers' retirements. 
That proposal, devised by a special pension commission and unveiled in February, would freeze the existing pension plan and shift workers onto less generous retirement and health care plans. While the state, which pays for school employees pension and health benefits, would continue to pay for the current system's existing debts, school districts would have to assume the costs of the new system and retirees' health care. [emphasis mine]
What anyone with half a brain knew when they read the plan was that if there were all these savings to be had with no costs to localities, chances are someone would have found them by now. This plan was never anything more than a scheme to shift costs away from the state, to the towns and cities, and eventually to the employees.

And it is predicated on the fantasy that public workers are not part of the labor market:
"A condition of the commission's proposal is that costs will only be shifted to the extent they can be offset by local benefits savings," Tom Healey, who heads Christie's commission, has said. But the commission has yet to provide details on exactly how the health plan changes would save money.  
If the savings doesn't pan out, the proposal could burden school districts that have few options but to raise taxes, cut costs, borrow money or spend their reserves to pay the tab for teacher pensions, Moody's said. 
"According to the proposal, districts would not be financially affected because any tax increases necessary on their side would be more than offset by tax reductions at the local government level, thus making it at least cost neutral," the report said. "There is, however, no mechanism currently in place or proposed to compel municipalities and counties to either share the savings or reduce their budgets in step with the savings." 
Moody's said it's also unclear "how the various local government entities would rebalance these shared savings over time as health care and pension costs rise." 
What did the commission think: that public workers would just happily accept worse benefits with no increase in pay to offset them? That they would come to the conclusion that somehow they were overpaid -- contrary to all evidence -- and allow their composition to be slashed? That there would always be a supply of teachers and cops and other public workers who would gladly make way less in total compensation than they could in the private sector?

And that they would do all of things against their self-interest simply because the burden shifted from the state to the towns?

What the commission essentially said was that public workers should pay more for their health insurance, so the government could take the extra money and put it into shoring up the pensions. That is equivalent, by any reasonable standard, to a pay cut. You knows what happens when you cut pay?

People who are qualified are less likely to do the job. They look out at the labor market and they say things like: "You know, I think I would really like to be a teacher or a fire fighter or a civil engineer or a social worker. But I'd also like a nice middle-class existence, and I'm going to have all these student loans, so..."

Tom Kean, Sr. knew this back all the way back in 1982. Of course, this was back in the days when there were Republican politicians who understood that the laws of supply-and-demand applied to all workers, not just those in the private sector. Some of them actually thought if we wanted well-qualified people in government, maybe we should pay them. But in today's cable pundit-informed America, this common sense idea is now considered radicalism -- even by many Democrats.

Look, I'll make the same deal I always make: give me back all the money I paid into the pensions, plus interest. Then give me all the money the state was supposed to put in, plus interest. I'll take my pile and go elsewhere, and I'll negotiate a new contract with my employer. In return, the state doesn't get to take any more of my money involuntarily and then attempt to change the rules later.

Yes, it'll mean higher property taxes. It will mean you'll have to pay me and my fellow public workers more cash up front, rather than use the power of the capital markets to save taxpayers money. And it'll mean the current pension will have to be funded out of the general fund of the state.

Sound like a good plan to you? Didn't think so.

We could, however, start taxing the wealthy at rates they were already paying before Chris Christie came into office. We can start negotiating better deals with the sharks who are devouring our money while managing the current pensions. We can start negotiating better deals with the health care providers and pharmaceutical companies. We could even consider self-insuring (if Daddy George lets his people in the Legislature even bring up the idea...).

Will that be enough? Probably not, but it would be a better start than continuing to push for the ludicrous plan that everyone, including Wall Street, knows will not work.

The commission failed. Time to move on. Everyone, except the most delusional people in Trenton, agrees.

Who are you calling delusional?!

6 comments:

StateAidGuy said...

I think the pension committee's proposal is terrible too, but I think that NJ's pension debts are unpayable by any strategy. The NJ economy won't survive the kind of tax increases necessary to fully pay off the pension debts.

http://njeducationaid.blogspot.com/2015/10/gutting-pension-reform-gutting.html

The NJEA is insane to demand the restoration of COLA benefits. Restoring COLA benefits would be good for current retirees and near-term retirees, but it will bankrupt TPAF all the sooner and people retiring in 15 years could get nothing.

There is no way that this mess will be resolved without cuts. Republicans respond to budget crises solely with cuts, but even Democrats will use cuts and tax increases.

Since education aid is a quarter of the state budget there's no way education aid will be spared. I feel terrible for new teachers who will be laid off in a few years when their districts get their aid slashed.

just sayin' said...

If you really want to see how this is playing out in current time, go to Tennessee and see what is happening in Clay County. Granted, the county system is rife with corruption and/or people who don't understand how budgets work at the government level, but still....the county district is trying to close because they can't afford to stay open as more and more cuts were made at the state and federal level, but no new income is coming in at the local level. To be fair to the local politicians, the county has no tax base. Walmart won't even locate there.

Giuseppe said...

So the whole burden of the pension crisis will be placed on the shoulders of future and current retirees who have already had benefits cut, sliced, diced and reduced? Active members continue to make their contributions to the pension fund with each and every paycheck, hundreds of millions of dollars every month? The millionaires' tax will not solve the problem but it will certainly alleviate the situation. All I hear is cut, cut, cut, cut, cut, cut and cut some more. We must make cuts because some day in the future we will have to make cuts. Whoopee.

tonymotley said...

I wouldn't trust Chris Christie with lunch money, so pension funds are out of the question.

StateAidGuy said...

Giuseppe,

I don't get your meaning here.

Eliminating COLA benefits was a way to make _current_ retirees sacrifice so that _future_ retirees would still have pensions to collect.

Yes, active members still make their contributions and Chapter 78 increased those contributions. Many current retirees, including Charles Ouslander, worked when pension contributions were much smaller than they are now. Whatever Ouslander is and other retirees of his era are getting out, it's way more than they put in.

Without eliminating COLA benefits there is no generational equity.

Some people would have you see the COLA case as taxpayer vs retiree, but it is also retiree vs retiree.

The current retirees who want to restore COLA benefits are willing to bankrupt the system, regardless of how it will affect future retirees as well as New Jerseyans who are dependent on state government in one way or another.

If Charles Ouslander and the NJEA win the COLA case taxes will increase, spending will be slashed, retiree healthcare will be cut, and active workers will probably see yet another increase in mandatory pension payments.

The NJEA is screwing over its current members, especially younger ones, for the benefit of its retirees and more senior members. Everyone who supports COLA restoration is screwing kids, since school aid will be cut deeply to attempt to balance NJ's budget.

Duke said...

"Whatever Ouslander is and other retirees of his era are getting out, it's way more than they put in."

Jeff, that is the wrong view. Ouslander didn't "put in" to his pension: it is compensation for work he has already done. He was told, when he went to work, that the state in good faith would do what was necessary to pay him his compensation. The state is trying to renege. That is a beech of contract and, if the state gets away with it, it will doom any chance the state has of getting concessions from current workers.

Ouslander isn't trying to "bankrupt the system": he is demanding the state fulfill its end of a contract. Period.

I thoroughly reject the notion that older, retired workers are "screwing over" younger workers or students. THEY are getting screwed over because they are past the point of making a decision as to whether to stay in their chosen field based on what they were being offered as compensation.

The state made a deal. They don't get to walk away just because they were so stupid as to believe the lies of politicians who told them money would magically fall from the sky to make pension payments.

And if the state really wants to try to extract concessions from people who have a contractual right to their pensions, they'd best start by making some good faith efforts to generate more revenue.

BTW: the people who are trying to paint current retirees as the bad guys in this, like Paul Mulshine, really are shameless. These are not people living lifestyles of the rich and famous. They are people who did necessary work and only ask for a middle-class retirement with dignity. Taking away their COLAs is a direct threat to that modest goal.