Opinion: A solution to N.J. pension problem in three simple steps
Updated On: Aug 26, 2014
NJ.com - Superior Court Judge Mary Jacobson’s split decision on New Jersey’s public pension funding shortfall (“Court rules pensioners have right to yearly hikes — Upholds obligation for cost-of-living increases, but keeps freeze in place,” June 27) was the obvious decision to avoid throwing the 2014 state budget into a constitutional crisis. The budget crisis was caused by the short notice from Gov. Christie that he would not be funding the pension fully for 2014, as required by law, and his administration’s overzealous projection for growth and revenues.
The downside of Judge Jacobson’s ruling is she judicially recognizes the concept that contractual obligations can be set aside on what she legitimized as “historic revenue shortfalls.” Many economists would argue the shortfalls were readily recognizable after the federal tax change in 2013, New Jersey’s continued sluggish economic performance compared to other states and the overly optimistic revenue forecasts by the administration.
Additionally, the judge’s opinion allows for self-manufactured revenue shortfalls by a governor to serve as a means to avoid contractual obligations. In other words, any governor henceforth need only project some unsupportable future revenue numbers and then pick and choose throughout the year which budget items he’ll really honor. In that respect, there really never is a balanced budget in effect on July 1, as constitutionally required. Upon exhaustion of funds, he only need cry “budget crisis!” to avoid contractual obligations. The judge has removed the legitimacy of the budget process that is the responsibility of the legislative and executive branch (directly accountable to the people) and created a judicially recognized escape clause to a constitutional requirement of a truly balanced budget.
New Jersey can have true and lasting pension reform with three simple steps.
1) Make 12 monthly pension installment payments rather than one lump sum pension payment, often at the end of the fiscal year.
The state’s pension obligation would be divided into 12 equal monthly payments, with the first payment due by July 31. In this manner, we would know immediately if there was a shortage and there would be ample time to correct it. The state makes monthly payments on office rentals, car leases, utilities, cell phones and many other goods and services. Pension payment obligations should be budgeted in the same monthly fashion to make them more manageable.
I ask Senate President Stephen Sweeney (D-Gloucester), and Senate Minority Leader Thomas Kean Jr. (R-Union) to co-sponsor a bill making monthly pension contributions by the state mandatory.
2) Cap the rate of future revenue projections.
The Legislature needs to pass a bill that limits the rate of revenue projections to a supportable figure, and no higher. That figure could be determined by an independent objective party, such as Moody’s, Eagleton Institute of Politics or an average of three such bodies. For example, if such credit rating services projected New Jersey’s economic growth at 3 percent for a given year, then that would be the maximum growth figure the governor and the Legislature could write into that year’s budget. This would help avoid the unsupportable projections of 8 percent or 9 percent growth, that is, two or three times that of other states, and subsequently causing a “budget crisis” at the end of the fiscal year when they don’t materialize.
Over the last four years, New Jersey has averaged slightly over 1 percent growth, never exceeded 3 percent and often lags behind the national average. Financial analysts agree that the current administration caused the budget shortfall by “overly optimistic” projections that it would collect far more taxes and also overprojected revenues in the last three years.
Sens. Sweeney and Kean should draft a bill to limit future budget revenue projections to clearly defined and supportable figures.
3) Honor the pension payment obligations of Chapter 78, passed in 2010.
The graduated payment schedule put in place under Chapter 78 should be followed to get the state back to full pension payments by 2018 and the overall pension funds on the road to recovery. This was the governor’s signature legislation and the fix to what he called “an unsustainable pension system.”
More than 800,000 current and retired public employees rely on the New Jersey pension funds to sustain them and their loved ones in their golden years. They have accepted increased contributions and reduced benefits. It’s time for the state to keep its side of the deal and to be honest in doing so.
Edward Buttimore is a former administrator in the New Jersey Attorney General’s Office, Criminal Division.