The trouble approaching New Jersey union members
“Retirement” will become a thing of the past…
New Jersey took a credit hit in November when S&P downgraded its credit rating. Now, it’s looking over New Jersey’s recently proposed budget and giving it the stink-eye, too. All because of New Jersey’s colossal pension debt.
Christie’s proposed spending plan for fiscal 2018, which starts July 1, would leave the state with small reserves and “some vulnerability to potential revenue shortfalls,” analysts David Hitchcock and John Sugden said Thursday in a report. Future budgets “look much worse,” according to S&P, which reduced its credit rating on the state in November to A-, the fourth-lowest investment grade…
“Underfunding in any year ratchets up future state liabilities, in effect pushing back the tide, as New Jersey comes closer to the day when it will be left with no choice but to confront its very significant retirement obligations,” the analysts wrote.
So here are the facts: New Jersey’s pension fund is staring down a $135.7 billion shortfall. That means it needs to make a $136 billion payment right now just to keep the fund growing at its assumed interest rate to pay out all the lavish pension promises the state has made to unionized workers.
Until then, New Jersey is, like the Federal government, facing unfunded liabilities valued at over $100 billion.
CLOSE, BUT NO CIGAR
Instead of making a $136 billion payment this year, the governor has proposed just a $2.5 billion payment. It seems tiny, I know. But here’s the thing, it’s larger than last year. In fact, Governor Christie, since being in office the last 7 years, has doubled the payments made by all governors in the 16 years prior to his taking office.
But it’s not nearly enough. It’s still less than $9 billion over the last 7 years.
Pension funds all over the country are hobbled. That’s because nobody can afford them anymore. They are going up in smoke, and the politicians are sensing this. If the fund is going to tank anyway, why keep funding it? Why throw good money after bad?
Besides, there are lots of other goodies that the politicians could use that money for, if it didn’t have to go towards keeping a pension fund from sinking. People are generally short-sighted. They cannot see too far into the future. It is easier to focus on the here and now, and forget about the future.
The proof that cities, counties, and states can no longer afford the pension funds is evident. Either the politicians want to cut their contributions, which everyone agrees is suicidal because the pensions are already underfunded. Or else, they are trying to increase the funding, like New Jersey is doing, but their Herculean efforts are still dismissed as too little, too late.
NOT JUST JERSEY
This is the debate going on in Jacksonville, Florida. The politicians want to cut contributions to the Police and Fire Pension Fund. They want to spend that money on other things:
He said the proposal will make it easier for [Mayor] Curry to get money for costly undertakings such as deepening Jacksonville’s ship channel, but reducing pension contributions in the coming years risks long-term harm to the city’s finances because its pension debt will keep growing.
“It makes him look good now, but this is putting off — very dangerously putting off — a problem now for a problem 20 to 30 years from now,” Tuten said, adding Curry won’t be in office to deal with the financial fallout…
Curry’s plan would shift a big chunk of the city’s pension tab to the period after the half-cent sales tax for pension cost starts flowing [around 2031]. Until then, the city would reduce its pension contributions, freeing up tens of millions of dollars a year for other needs. The exact amount remains to be seen because Curry has not yet put forward the details of how the financial arrangement would work.
Pension cuts are coming all over the country. Politicians see it. Voters see it. Union workers see it. Retirees see it. They just don’t think it’s going to happen to them.
It happened to the Iron Workers Local 17 union in Cleveland at the beginning of the year. Some of their retirees saw cuts of 60% to their monthly payment. The average cut was 20%.
This is just the beginning. Retirement is a myth. Except for about two generations in the history of mankind, it always has been.