By Senator Kevin O’Toole
New Jersey legislators spent the summer of 2006 searching for bipartisan solutions to a growing pension crisis.
It was one of the most exhaustive reviews of state policy on public employee benefits in the history of the Legislature.
We held 32 public hearings where hundreds testified. We reviewed thousands of documents.
The Joint Legislative Committee on Public Employees produced a 190-page report that highlighted 41 specific recommendations for restoring solvency to the system that taxpayers depend upon to provide retirement income to firefighters, teachers, and thousands of other public servants.
Lawmakers took on this task because we realized that failure to eliminate the multi-billion dollar deficit could result in soaring taxes and severe cutbacks in government services to future generations.
Three years later, it is beyond disheartening to see that our retirement plans are on shakier ground than ever before.
The pension deficit has ballooned from $20 billion to about $57 billion, or nearly twice the entire state budget. That’s not including the $75 billion that will be needed in the coming decades to pay for medical benefits for future retirees.
The growth in the shortfall is no accident.
Since 2006, the governor has refused to champion and in fact opposed many of the bipartisan recommendations that I and five other leaders of the Joint Committee on Public Employee Benefits unanimously approved.
Not surprisingly, only 11 of the 41 recommendations have become law, too few to make a significant dent in the pension problem.
These recommendations included common-sense steps such as bans on early retirement programs that send pension costs soaring and an end to dual office holding, which greatly increases the amounts paid out to elected officials from pension funds set up to compensate career government employees, not politicians.
These reforms aren’t cure-alls, but they are desperately needed first steps to restoring the pension system to solvency.
When the governor refused to back these measures, the results were both predictable and tragic.
Published reports say the depleted pension funds are paying out $300 million to $400 million more per month to retirees than they receive in contributions or earn from investments. That's $3.6 billion to $4.8 billion a year.
It's simple arithmetic to see that without an unprecedented stock market boom, the remaining pension funds could be exhausted in a decade as the number of Baby Boomer retirees drawing on the system grows.
The governor trumpets in speeches and ads that his budgets have added more money to our pension funds than all other governors combined over the last 15 years.
What he doesn’t say is that his contributions were woefully inadequate, even before the stock market crash.
Rather than take our advice from 2006 about avoiding early retirement programs, the governor actually used one this year to get temporary “savings” in the 2009 budget.
The governor didn’t find extra money to pay the pensions of workers who took advantage of the early retirement program, which will add tremendously to pension fund costs.
If the governor’s budget passes, this year may be the worst ever for irresponsible management of the state pension funds.
The state will not make $1.5 billion in required contributions, or less than one-fifth of what's needed. Local governments will be able to delay more than $500 million, or half their required contributions, in fiscal 2010.
The bottom line is that it is 99 percent certain that the pension deficit will be tens of billions of dollars higher when Governor Corzine leaves office than when he came in.
That doesn’t mean the situation is hopeless. A rebound in the stock market could easily shave a few billion dollars off the current deficit. An economic recovery in 2011 could free up cash that could be used to fund the pensions, if it’s not diverted to other programs as it has been for the past eight years.
But after nearly a decade of borrowing against our pension funds, New Jersey simply can’t rely on luck and half-measures to get us beyond this crisis.
The governor needs to join with Republicans in opposing any further deferrals of pension payments.
As part of the negotiations over possible layoffs and furloughs to balance the budgets, the governor also needs to demand that unions agree to sensible changes that bring pension benefits and all other forms of public employee compensation more in line with the norms in the private sector.
Along with those steps, the governor needs to dust off his copy of the 2006 report prepared by the Joint Legislative Committee on Public Employee Benefits.
The governor has said he is welcome to any suggestions that would help him balance this year’s budget.
He doesn’t have to wait for new ideas on how to rescue the pensions. They are available on the Internet in our 2006 report for anyone to see at http://www.njleg.state.nj.us/PropertyTaxSession/JCPE_final_report.pdf
The Legacy of Thomas Lifson
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If I remember correctly since I attended 30 of those hearings in 2006, then Assemblyman O'Toole was more interested in reducing public worker pension benefits as the main pension reform then actual reforming the avenues politicians take to increase their public pensions.
When both the State's Attorney General and the Office of Legislative Services presented research indicating that unilateral changes that decrease the value of the public workers retirees benefits would invalid or unlawful, O'Toole and his senatorial republican colleague were for throwing their hands up and stopping the hearings, again not wanting to modify any future part time to full time employee pensions (politician pensions).
Also Mr. O'Toole must remember that during the last 15 years he and his republican friends controlled either the Senate and or the Assembly and passed many of those budgets that did not include any state contributions into the Public Employees Pension Funds. I do believe a little is better the not any at all.
Mr. O'Toole stop "its his fault not mine" whine, there is enough blame to go around for both republicans and democrats. Start acting as a Stateman, and not a politician
When both the State's Attorney General and the Office of Legislative Services presented research indicating that unilateral changes that decrease the value of the public workers retirees benefits would invalid or unlawful, O'Toole and his senatorial republican colleague were for throwing their hands up and stopping the hearings, again not wanting to modify any future part time to full time employee pensions (politician pensions).
This is State law? Where? Because Federal law allows changes to pension eligibility. The Supreme Court of the US has consistently ruled in the past, until you are receiving the public pension(as opposed to being eligible)you do not have a 5th amendment right to a taking.
Dear Anonymous, I will give you the state website where the Joint Legislative Committee met on Public Employee's Pensions and Benefits. If you scroll down you will see dates of meeting with transcripts the 2nd meeting was the meeting that both the Attorney General Office and the Office of Legislative Services made their reports.
In fact if you scroll down to "resources" you can see both reports and why both offices believed that any unilateral change in a retiree or present public employee with 5 or more years of service would be held invalid, by both state and federal courts. These reports also include the proper legal citations and federal and state cases in point.
the Website is : http://www.njleg.state.nj.us/PropertyTaxSession/jcpe.asp
I don't make things up, like I said I was there for all but 2 of the state wide hearings.
It is not If you want to pay the pension as contracted. It is you are obligated to pay the contract.
I looked and guess what you may have been there but you did not read. The U. S Supreme Court has alreadyruled that until you are receiving the pension there is no contract. Below it states NJ Courts have ruled on the issue.
Of course in this state where a Governor can conspire with a private individual and then call it Executive Privlege anything is possible.
While the New Jersey courts have not had occasion to recognize a contractual right to a
public pension, a majority of jurisdictions now “take the view that public employees have
certain contractual rights in a public pension where a pension is part of the terms of
employment.” 60A Am. Jur. 2d, Pensions, §1175 (2003). The modern trend has “been to
protect pension rights on the theory that a state’s promise of pension benefits represents an
offer that can be accepted by the employee’s performance.” Transport Workers v. SEPTA
145 F.3d 619, 623 (3rd Cir. 1998). However, states differ “regarding the point at which
rights under public pension programs become protected from change where no right to modify
is expressly reserved by the employer.” Id.
Anonymous You failed to either read the entire report by OLS or just ignored the conclusion. However then Assemblyman O'Toole wanted a more detailed explanation which you can read on the same website the August 23, 2006 hearing When the following discourse between Assemblyman O'Toole and Peter Kelley from the OLS: "ASSEMBLYMAN O'TOOLE: Okay.
The last question, Chair -- I appreciate the latitude.
In your conclusion, Peter, you say -- and let me just quote the
first line: “In conclusion, it is our opinion that a law that has the effect of
detrimentally altering the retirement benefit of an active member of a Stateadministered
retirement system who has accrued at least five years, or a
retired member, would be unconstitutional as violative of the Federal and
State constitutional proscription.” My question is: In a larger sense, if by
altering the pension for current employees we are saving the pension system
and making it financially viable, could one argue in court that that would
not be detrimentally impairing, but rather shoring up their pension system? MR. KELLY: No, I don’t think that argument would be
successful. I think the State has the responsibility, under this contractual
right, that it conferred to pay the pension. And whether that would have to
be done with general revenues in the most dire circumstances, that’s still the
State’s responsibility under the contract. The only case, we believe, in
which the court would permit a modification to contract on those grounds
would be if the State was on the verge of financial destruction. And I think
that similarly would apply to the pension fund. The pension -- you know
it’s-- Depending upon how you assess the pension funds or look at them,
they’re either in good shape or not so good shape. I don’t think we’re at the
point now where a court would find them in sufficiently bad shape that it
would justify impairing the contract.
ASSEMBLYMAN O'TOOLE: Okay.
Thank you very much."
The only time the public pension can be modified without the acceptance of the public workers and retirees were if the state was facing bankruptcy. The bankruptcy courts would be forced to look at the state taxing powers as to weather or not it taxed the citizens beyond what the courts feel is maximum. If not it would tell the state to increase its taxes. Also all state owned assets which if you include the Turnpike, Parkway, and the AC expressway, you could be looking at as much as $40 billion in those assets alone. Additional state assets to be sold would be state owned buildings, state owned land including state parks (Island Beach, Washington Crossing state park, etc.) and "open spaces" land purchased with the green acres money, would have to be liquidated. These were examples of what would be done before NJ could get some protection against the pension plan it created for the public workers but failed to properly fund.
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