By Assemblyman Edward H. “Ned” Thomson
Around the same time lawmakers were celebrating the enactment of the fiscal year 2020 budget, a report was issued which demonstrates that this budget represents another missed opportunity to get our fiscal house in order by finally addressing our massively underfunded pension systems that continue to head toward insolvency.
Moreover, the $38 billion budget signed into law on June 30 actually exacerbates our already perilous financial standing by increasing spending while we fall even further behind on our existing obligations to our teachers, police and public employees.
A June report from the Pew Charitable Trusts https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2019/06/the-state-pension-funding-gap-2017 noted the growing gap between well-funded systems and the most underfunded states, including New Jersey, and illustrates how our irresponsible fiscal practices not only put the retirements of hundreds of thousands of workers at risk, but significantly increase pension costs and crowd out other important spending priorities.
The report also offers an eye-opening assessment of our ever-increasing pension liabilities and the catastrophic impact that would result in the event New Jersey is forced to confront a recession. Most importantly, the Pew study offers valuable insights into successful strategies employed by other states which have allowed them to weather market fluctuations and recessions while ensuring the retirements earned by their pensioners are safeguarded.
These strategies are often innovative and require political courage; yet, for the most part, they do not require the enactment of new or overly complicated financial policies. In fact, the main recommendations largely center on the critical need to make full, actuarial recommended pension payments every year.
While this seems like simple advice, New Jersey politicians from both parties continue to ignore this recommendation while touting that they have made “record” pension payments. This conveniently ignores the fact that, while we are paying more and annually ramping up our contributions, we are still increasing our liabilities which, according to some estimates, have now surpassed $100 billion.
This should be of grave concern to all of the state’s taxpayers who, whether they receive a pension or not, will be saddled with the bill to make the systems whole–estimated by some at a cost of $11 billion a year just for current benefits. To put this into perspective, according to a Truth in Accounting study https://www.truthinaccounting.org/library/doclib/NJ-2017-2pager.pdf, our massive state debt, fueled by the cost of pension and health benefits, equates to a tax burden of more than $61,000 for each taxpayer.
While the annual budget process is often a debate over spending priorities, ever-increasing pension payments will continue to crowd out other funding priorities. In fact, the pension payment, along with health benefits, will consume more than a quarter of our state spending in the coming years, which will force us to make some very difficult decisions on how we spend a dwindling amount of taxpayer dollars.
So what can be done to head off this crisis? Huge spending cuts on vital programs? Massive tax hikes? Allow the system to collapse and dramatically reduce benefits for retirees? These and other potential “solutions” are less than appealing. Senate President Steve Sweeney and Senator Steve Oroho have proposed an ambitious pension and benefit reform plan in their “Path to Progress” that must be part of any discussion of our pension crisis and will likely be considered by the Legislature next year.
In the meantime, the most effective method of ensuring the pension system remains solvent is to make the full, actuarially recommended pension payment now and each and every year going forward. Not just the “largest” payment or 7/10 of a full payment as we made in this year’s budget. The full, 100% payment as recommended by the state’s own actuaries.
Only then can we start reversing the years of fiscal mismanagement that have put our pension systems in this precarious position and only then should we celebrate the passage of a state budget.
We are 8 months away from the Governor’s next budget address. This is another opportunity for the Governor and lawmakers to resist the urge to enact new spending initiatives and finally commit to fully funding our pension system. Anything less is just another missed opportunity to meet our obligations and head off a looming financial catastrophe.
Assemblyman Edward H. “Ned” Thomson represents the 30th District which covers Ocean and Monmouth Counties. He is also an enrolled pension actuary who administers pension plans.