How You Can Start and Operate a Soup Kitchen

Mission Possible: How You Can Start and Operate a Soup Kitchen

State should honor pension pledge to its public workers and retirees

New Jersey faced a shortfall of more than $800 million for the budget period that ended June 30, and another $1.2 billion shortfall for this fiscal year. In an effort to close the budget gap, the governor reduced the state’s payment to the state pension fund by nearly $900 million - to $696 million from $1.6 billion.

Gov. Christie argued that he had no choice, given the “historic revenue shortfall.” In April, the state experienced a $650 million drop in income tax revenue. Superior Court Judge Mary Jacobson agreed that the governor had acted properly “in light of the staggering budget shortfall, to protect the general welfare of the state of New Jersey.” She left open the question of whether he can reduce next year’s contribution to $681 million from the $2.25 billion that was previously agreed to.

In her decision, Judge Jacobson said, “I don’t think it was an easy decision for the governor to make.” Her rationale for upholding the governor’s decision was that she bought the governor’s argument that the only alternative to not meeting the 2011 public employee pension law was “severe and immediate impact on vulnerable populations” and this outcome would be worse than underfunding the pension system. In rendering her decision, Judge Jacobson did not consider the possibility of seeking additional revenue streams or reducing corporate tax breaks to fund the pension payment.

Some believe that Judge Jacobson did the only thing she could. Had she not allowed the freeze in pension payments, she would have thrust New Jersey into a constitutional crisis the likes of which we have never seen, since balancing the state’s budget at the end of the fiscal year is a constitutional requirement in New Jersey. Those who take this view argue that the lower-than-expected revenue figures were caused by failed Obama administration economic policies that slowed the New Jersey recovery.

Those who disagree with Judge Jacobson’s decision think she was played like a drum by Gov. Christie. They think the budget deficit is the direct result of the governor’s pie-in-the-sky budget projections – which they believe he knew from the get-go were unobtainable. Those who take this position believe the budget revenue shortfall was self-manufactured. They point out that the administration’s 2014 revenue estimates was $335 million higher than that of the Office of Legislative Services, whose head, David Rosen, has been labeled by the governor as the “Dr. Kevorkian of the numbers.”

Critics of Judge Jacobson’s ruling note that this is not the first time the Christie administration has overestimated revenue. Bob Williams, president of State Budget Solutions, a nonpartisan organization that advocates for solutions to the state budget crisis, wrote that “revenue projections over the last three years have been short of Christie’s projections by billions of dollars. Instead of balancing the budget, the governor has relied on ‘one-shot money’ and not fully funded the annual required contribution to pensions.”

We have an obligation to fulfill the terms of the public employee pension law. Kicking the can down the road will make it far more likely that we will be unable to meet our state’s dire $90 billion in unfunded pension and health liabilities, because the pension system will not only lose the contribution, but also ongoing interest on it. According to the governor’s recently formed special pension study commission, New Jersey is the fourth-worst state in the nation based on the percentage of its pension obligation that is left unfunded.

Instead of slashing $2.4 billion in pension payments, the governor should have balanced the burden by either imposing a modest temporary surcharge on corporate business taxes, trimming the $1.5 billion in tax breaks given to a handful of New Jersey companies and/or leveling a temporary “millionaire’s tax” on those who earn more than one million dollars in order to honor the pension payment obligation of Chapter 78, passed in 2011.

To secure the long-term solvency of our public employee pension system some changes need to be made to reflect increased life expectancy. Although increased longevity is beneficial to those who live longer, it poses serious financial risks to defined-benefit pension plans (a plan that provides employees with specified pension payments, generally based on an employee’s age at retirement, number of years worked and pre-retirement earnings).

The following changes in the public pension system for new employees should be considered: converting to a pension plan that combines elements of defined-benefit and defined-contribution plans such as a 401(k), increasing the minimum vesting period from 10 years to 15 years and moving the retirement age from 65 with at least 30 years of service to either 67 or one that matches Social Security’s full retirement age.

New Jersey made a sacred pledge to more than 800,000 current and retired public employees to begin to restore the solvency of our state’s pension system by making full pension payments by 2018. Our state’s employees are fulfilling their part of the bargain by increasing their contribution and accepting reduced benefits. A deal is a deal and should not be abrogated by a governor or by a Superior Court judge.