Constitutional Amendment on Pension Funding

statehouseWhat you will probably hear. What you should know.

 

As plans move forward in the Legislature for a constitutional amendment to require regular, responsible pension funding, many of the same people who helped create our current pension mess are trying to stop our efforts to fix it.  They are using scare tactics and misinformation to mislead voters about what is really at stake and what will happen to New Jersey if we don’t act now. New Jersey residents deserve the full truth, not just the cherry-picked “facts” and inflammatory rhetoric that Gov. Chris Christie is likely to use in his budget address.

Here’s what critics are saying about using a constitutional amendment to solve New Jersey’s pension crisis…and why they are wrong!

They say: Paying for pensions will require large tax increases(Christie)

The truth:

  • “The specter of massive income or sales tax hikes is the ‘Big Lie’ of pension reform.”  (Magyar)
  • “Senate Republicans recently released a seven-year budget based on projections from the non-partisan Office of Legislative Services showing that with normal revenue growth of 3.34 percent a year, the state could ramp up to full funding of the pension system with no new taxes.” (Magyar)
  • The cost of making full contributions now is billions less per year than the cost of waiting and paying pension benefits directly out of the state budget down the road. (Magyar)

They say: “Public pensioners would be a special class of citizens.” (Christie)

The truth:

  • Public employees get nothing new or additional out of the amendment.
  • Under the 2011 pension and benefits reduction law, public employees gave up $120 billion over 30 years in the form of increased payments and decreased benefits.  (Christie)
  • That’s “an average of $4 billion a year—by requiring public employees to pay thousands of dollars a year more toward their pensions and health benefits, raising the retirement age, and eliminating cost-of-living increases for retirees for decades.”  (Magyar)
  • Public employees only get the pension benefits to which they are already legally entitled, and which the courts agree must be paid.  (Magyar)

They say: New Jersey public employees have “gold-plated pensions.” (Christie)

The truth:

  • “And while health benefits for public workers in New Jersey are generous, the pension benefits at the core of this debate rank as modest, not ‘gold-plated.’” (Moran)
  • In 2014, a study by New Jersey Policy Perspective rated New Jersey’s public pensions 95th out of the country’s 100 largest public pensions for the generosity of benefits provided.  (New Jersey Policy Perspective)
  • Under the 2011 pension reduction law, public employees are paying more (contributions are increased by 36 percent) for reduced benefits. (Chapter 78)

They say: Public employees should be forced to make more “concessions” before getting this “guarantee.” (Mulshine)

The truth:

  • Under the 2011 pension and benefits reduction law, public employees gave up $120 billion over 30 years in the form of increased payments and decreased benefits.   (Christie)
  • That’s “an average of $4 billion a year—by requiring public employees to pay thousands of dollars a year more toward their pensions and health benefits, raising the retirement age, and eliminating cost-of-living increases for retirees for decades.”  (Magyar)
  • The average public employee is already required to pay 21 percent of the cost of his/her health care premium. (Magyar)
  • Public employees are paying much more for pensions as well.  Under the 2011 law, the employee contribution for PERS and TPAF members will increase by 36 percent by 2018. (Increase from 5.5 percent of salary to 7.5 percent.) (Chapter 78)
  • Despite larger contributions, public employees’ pensions are dramatically reduced, even for current retirees, with the elimination of the cost of living adjustment (COLA).  New employees also have to work much longer and receive a lower pension for their service.  (Chapter 78)
  • “Granted, this is beyond unfair for about 10 reasons.  Public workers didn’t cause this crisis, for one. The governor’s own commission concluded that the biggest reason we are in this hole is that the state has skipped its payments for so long. The real villains are the politicians who shorted these funds, including Christie.” (Moran)

They say: Passing this amendment “will be digging our huge budget hole even deeper.” (Declan O’Scanlon)

The truth:

  • New Jersey can’t afford NOT to make the payments. It would have been much less expensive to simply follow the 2011 law.  But since we didn’t, we have to deal with today’s reality.  It will never be cheaper to fix this problem than it is right now.
  • “Every day we fail to act, the hole gets $10 million deeper.” (O’Scanlon)
  • “I accept that we must meet our current obligations.” (O’Scanlon)
  • The annual cost of making full pension payments to meet our current obligations has increased by $1.2 billion since 2011 due to Gov. Christie’s failure to make the legally required payments.  (Magyar)
  • “Gov. Chris Christie’s failure to make the agreed-upon payments will cost New Jersey taxpayers $30 billion more in future pension costs. And while there is plenty of blame to go around, the governor has now underfunded the pension system by $17.5 billion over his first six budgets—twice as much as Democratic governors did in the preceding six years.” (Sweeney)
  • Payments have been skipped or reduced in the past, much like making a lower payment on a credit card bill.  “But, as with consumer debt, the skipped or reduced pension payments add significant extra costs over time.” (Michael Symons)
  • If we continue to skip payments and allow the funds to go bankrupt, pension payments will have to come directly from the state budget.  That would cost an estimated $8.3 billion per year in 2026, rising to $10 billion in 2035. (Magyar)

They say: Gov. Christie has paid more toward pensions than any previous governor. (Christie)

The truth:

  • That is technically true, but not very accurate.
  • “Over a 14-year span, Republican governors underfunded the pension system by $2.6 billion, then Democratic governors did so by $10.2 billion. The Christie administration promised to fix the problem, but instead made it worse by underfunding the pension system by $17.5 billion in its first six years—and a projected $23.7 billion by the time the governor’s term ends in January 2018.” (Magyar)
  • Gov. Christie’s failure to live up to the funding requirements of Ch. 78 will cost the state billions in additional payments. (Magyar)

They say:  The state doesn’t collect enough money early in the year to make quarterly payments (Christie)

The truth:

  • New Jersey already makes many payments (school aid, municipal aid, etc.) throughout the year, and can use the same strategy with pensions.
  • In the private sector, poorly funded plans are required to make quarterly payments. (New Jersey Spotlight)
  • “The Democrats, led by Senate President Stephen Sweeney (D-Gloucester), have compared their proposal to a homeowner trying to get ahead on their mortgage. Making quarterly payments would allow the state to capture investment gains throughout the fiscal year, proceeds that could reach over $8 billion over the next three decades, they say.”  (New Jersey Spotlight)
  • “Making payments on a quarterly basis would save taxpayers $8.5 billion over the next 30 years and cut the unfunded pension liability by an additional $4.9 billion, based on the current 7.9 percent projected rate of return.” (Sweeney)