Fixing New Jersey’s failing pension system is an economic necessity
New Jersey’s pension system is failing, and it is going to take a lot of good people down with it.
That sad fact adds a touch of poignancy – along with a dash of frustration – to the latest bad news on the state’s finances. The Mercatus Center, a think tank based at George Mason University, recently rated New Jersey’s state finances as the worst in the country.
While some of the data might seem obscure to non-accountants, the problems are all too straightforward – over-promising and underfunding. Successive administrations and legislative majorities of both parties have made overgenerous commitments, then failed to fund them, leaving a tab that the state’s future taxpayers cannot possibly cover.
New Jersey’s public pension crisis is a stark case in point. With more than $235 billion in unfunded liabilities – $26,000 for every man, woman and child – the state’s retirement system is among the worst in the nation. And while you’re reading this, the problem – decades in the making – is getting worse.
People are fleeing the state in search of lower taxes, better government and more economic opportunity. That’s bad for New Jersey families and businesses, but it’s also bad for state finances. Fewer state taxpayers means an even larger burden on those who stay behind.
The tenuous condition of state finances has been a driving factor behind 11 credit-rating downgrades over the past eight years. That means higher borrowing costs, further worsening the state’s fiscal picture.
The first public pension fund is expected to go broke in 2021. If we wait for that to happen, we all face higher taxes and cuts in funding for schools, roads and other priorities. Pension spending is already crowding out other priorities that are essential to New Jersey’s economic growth. The longer we delay, the worse it will get.
The fiscal 2017 budget documents prepared by the state Office of Management and Budget spelled it out clearly: “Expenditure growth is driven primarily by the State’s required public employee pension contribution, which represents an increase of $554.5 million over the fiscal year 2016.”
The grass-roots activists at Americans for Prosperity Foundation-New Jersey are raising awareness about the crisis and proposing solutions.
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One common-sense step to address the problem would be to end double-dipping, which allows government employees to “retire” from one state job, begin collecting a pension, then get hired to another government post and collect a salary on top of the pension.
Another reform would bring state government pensions into the 21st century. The private sector long ago began shifting employees to defined-contribution plans – 401(k)-style plans that allow workers to control their retirement assets – even as government stubbornly clung to defined-benefit plans, which leave employers in control and put taxpayers at risk. New Jersey should follow the lead of the private sector and some forward-thinking states that moved in this direction. We favor bringing in independent arbitrators to help negotiate reforms with state employee unions because no one-size-fits-all retirement system will work for all.
Undergirding the reforms should be a slimmer state budget that cuts special-interest spending and eliminates unnecessary programs. Raising taxes yet again is not a viable option. New Jersey already has one of the highest tax burdens in the country.
AFPF-New Jersey’s “Safeguard New Jersey’s Future” campaign has been beating the drum about this crisis, hosting events and educating residents about the threat posed to all of us by unfunded pension debt. The Mercatus Center report on the dreadful state of the Garden State’s finances only bolsters that argument – and increases our urgency.
Erica Jedynak is director of Americans for Prosperity Foundation-New Jersey.