New Jersey's Pension Problem: Part Deux

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Governor Christie has presented the largest budget in New Jersey state history. The $34.5 billion spending plan has no tax increases and the largest payout yet for pensions. The governor called those growing costs a "looming crisis" for the state, and has pledged to tackle it. Let us explain.

Q: What's the problem with pensions in New Jersey?

A: Back in the '90s, the state started diverting money from its pension system to fund other things. When the tech bubble burst, the pension fund value plummeted. At about the same time, the state agreed to bigger payouts for retired workers, while only making sporadic payments to the fund. Less money available, more benefits to pay — equals potential bankruptcy.  Hence, Gov. Christie's "looming crisis."

Q: But didn't Gov. Christie fix that problem with his pension reform bill?

A: In 2011, he and the legislators agreed to reform the pension system. They said the state would make bigger payments into the system every year. In return, the retirement age for some workers got bumped up to 65, and workers had to pay more for their pensions and health benefits.

Q: Wait, the pension payment the governor is complaining about is actually the result of that deal he made with legislators?

A: Yes, although Democrats say he actually owes a bit more this year than he's planning to spend. But in general, that 2011 pension deal is something the governor has said he's proud of — even though now he's saying the pension system is still broken. So, according to the law he signed, the state is going to have to pay more toward pensions in the years to come, to the tune of $5 billion in 2018.

Q: How big a deal is this?

A: Big. In December, Moody's downgraded New Jersey's outlook to negative, saying the pressure of these pension costs were part of the reason. Last month, the Mercatus Center at George Mason University put New Jersey dead last in the nation for fiscal health, citing New Jersey's crushing debt.

Q: So what is Governor Christie proposing?

That's the million dollar, or billion dollar, question. Christie didn't offer any answers in his speech. His budget doesn't show any additional revenue from changes to pensions or benefits. And his spokesperson said he's going to work out the details with the legislature later this session.

Q: And what's been the response?

Democrats in the legislature are skeptical. They say the governor needs to give the plan time to work and that the budget pressure stems from broader economic problems that the governor doesn't want to acknowledge, like high unemployment and a sluggish recovery from the recession. 

Hetty Rosenstein, who heads the state's largest union of public employees, says Christie is just throwing "red meat" to national Republicans who favor scaling back retirement costs for municipal workers.  "He’s like, 'Let me see whether or not I can deflect from my own problems by raising up the usual bad guys, the public employees,'" she said. "So now we’ll all talk about pensions and those costs and we won’t talk about Bridgegate, and we won’t talk about Sandy."