New Jersey’s finances are a mess. Despite years of massive taxation, officials can barely pay the interest on its $48 billion in debt. And the state faces a $152 billion shortfall in funding government worker pension and retiree health benefits, a hole that gets deeper each year.
Raising taxes year after year no longer works. With the tax burden already the highest in the nation on businesses and the fifth highest on residents, tax increases just put New Jersey’s economy further behind. That shrinks state revenues.
The state’s debt and government worker pension and health coverage obligations are already crowding out other spending such as on transportation and education.
Senate President Stephen Sweeney, D-Gloucester, Salem, Cumberland, accepted responsibility this year for working toward fiscal responsibility, appointing a panel of 25 policy experts to develop potential solutions. In August, the Economic and Fiscal Policy Workgroup suggested many reforms, including putting state workers in health plans rated “gold” under Obamacare — which actually would save a lot of money.
The single biggest savings, though, would be to transition state workers to a hybrid retirement benefit, with a pension for the first $40,000 of their earnings and a 401(k)-style account with a guaranteed return for income above that.
In an era when private employees typically don’t get any pension, this hybrid would still be a benefit level far above what workers outside government receive.
Since the report, Sweeney has been making the case for these reforms to officials and organizations all over the state.
Last month, he met with leaders of the Greater Atlantic City Chamber and the Chamber of Commerce of Southern New Jersey about the “Path to Progress” report. He also has met with county and local officials in Bergen, Gloucester, Hunterdon, Somerset, Sussex and Warren counties.
As he was showing how making some difficult decisions now can avoid a great deal of pain tomorrow, a new report from credit-rating agency S&P Global confirmed the dire situation of New Jersey’s pension funding.
S&P found: • New Jersey has the second worst pension funding ratio in the nation (ahead of only Kentucky), having set aside just 35.8 percent of the money needed to cover extravagant promises by past politicians. Its unfunded pension liability is $115 billion. • The state is dead last on progress toward funding even the bare minimum of its growing pension costs. Gov. Phil Murphy is following former Gov. Chris Christie’s schedule that won’t make a full pension payment until 2023, with the liability growing until then. • New Jersey residents also face the nation’s highest obligation per person for money due to retirees and debt holders.
The rating agency warned that although this year’s strong stock market performance (until this fall’s correction) has given the state’s pension investments a better return, “another recession could deliver a damaging blow.”
Instead of waiting for that crisis, state officials should reform its finances and spending now. Sweeney is right that a more efficient and effective state government would “deliver savings to taxpayers and contribute to the economic strength of the private sector.”
Ordinary New Jersey residents stand to benefit the most and should support his effort on their behalf.