Pension Tension: Christie and the Public Retirement Fund

Following past governors, Christie reduces payment to public-employee retirement fund.

New Jersey’s pension system is a mess. At deadline, Governor Chris Christie had signed a $32.5 billion state budget for the coming fiscal year that reduced the scheduled $2.25 billion payment to the public-employee pension fund to just $681 million.

In doing so, Christie was following the lead of multiple governors who for years opted not to pay into the state’s pension system, arguing that the money just wasn’t there. When he ran for governor the first time in 2009, Christie promised to deal with the pension dilemma. But the situation has only gotten messier. Yes, together with the Democratic legislature, Christie made important strides on pension reform by having public employees contribute more into the system. At the same time, the state agreed to kick in billions of dollars to make up for missed payments.

Now Christie says the state’s expected revenue growth has fallen short, and even though he would like to make the promised payments, once again the money is just not there—unless we want to make brutally painful cuts to public schools, environmental programs and higher education (to name just a few targets).
The Democrats and, predictably, the public employee unions, went ballistic on this latest development. The Democrats proposed a pair of bills that would raise taxes on high-income earners and impose a corporate surcharge in order to fund the pension payment. Christie stood firm and vetoed those measures. He even had the support of the judiciary, thanks to Superior Court Judge Mary C. Jacobson, who ruled June 25 that Christie could use his emergency powers to reduce pension-fund payments.

So, what now?

“The challenge the entire state faces is finding a way to pay for the years of neglect,” says Steve Malanga, senior fellow at the Manhattan Institute for Policy Research, a conservative think tank.

Unfortunately, holding back payments in the short term only makes the long-term challenge worse. States generally spend less than 5 percent of their taxes on pensions. For New Jersey to catch up with our pension obligations, we would have to endure years of sending an estimated 15 percent of tax revenue to the pension fund, Malanga says.

“Legislators in Trenton need to realize that dealing with this involves budget priorities that are very different from the past,” Malanga says. “There simply isn’t enough money to go around to pay off this debt and continue spending money the way the state has previously.”

Christie hopes to deal with the situation by requiring current public employees to pay more into the system and by cutting future benefit payments to retirees. Malanga agrees that these moves should be part of the solution. But that’s just the beginning.

“It’s not politics, but math,” Malanga says. “Trenton needs to focus not merely on its own budget, but on the budgets of municipalities and school districts. Jersey—as well as many other states—have solved their budget problems in the last few years by cutting aid that goes back to local government. More such cuts are likely.”

As for raising taxes, Malanga says: “New Jersey already has among the highest tax rates in the country, so the emphasis should be on growing tax collections through a more vibrant economy, not higher tax rates.”
Christie and the Democratic Legislature agree they can’t keep kicking the can down the road. But agreeing on how to solve this crisis is another story.

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