Our March Madness: Pension Games

BY: MICHAEL P. RICCARDS

In New Jersey, March Madness rarely means following the competition in the NCAA basketball finals. It is more a description of the state’s budget battles.

One of the most refreshing aspects of the first year of Jon Corzine’s governorship was his willingness at first to tackle problems that had been allowed to stack up. The most important was the serious underfunding of the state pension system. He emphatically attacked his predecessors of both parties for neglecting the obligation of the state and its communities to pay for the long-term liabilities of the pension fund. To rectify that he courageously proposed major increases in tolls, and dedicated revenues to the pension fund and to road construction.

Despite resistance around the state, I personally called this “strong medicine for a very sick patient.” I continued to support Corzine’s argument long after the Democratic leadership in the state Senate walked away from the proposal. I supported it not because I love high tolls. I don’t. But finally we had a governor who was serious about getting our budget back in shape.

Sometime later I looked at the state’s pension system in a Hall Institute report; the system once controlled $86 billion or so in resources, and I was startled at its depreciation. It is now $59 billion or so.

When I raised some modest points for reform, I was surprised at how defensive those responsible for investing or interpreting the investment strategies became. No one wanted to deal with the issue of gross underfunding. The administration has argued that all pension systems are down, some more than New Jersey’s, and that under Corzine, the state has contributed more money, $3.4 billion, to the pension system than previous administrations did in the previous 15 years.

Corzine saluted himself for beginning repayments, and I agreed that he deserved credit. Unlike his predecessors, he did not say at first that tough times or the need to balance the budget prevented him from meeting his obligations. But as the economy tumbled, Corzine decided to follow the old wisdom: For this coming fiscal year he proposed decreasing the state’s contribution by $895 million from the previous year’s $1.1 billion contribution.

Corzine used that money to balance a very tight budget in a very bad year. And, he introduced the idea of allowing the towns and school districts to delay their payments to the public employee pension system. He proposed a phased-in, three-year grace period, but the Legislature made it only one year and is requiring some approval for the deferrals by any jurisdiction. The Trenton Times quotes Sen. Bill Baroni, R-Mercer, as saying that such a change is an addition to a “shameful legacy.” Corzine’s budget also decreases aid to schools by $94 million, mainly by deferring pension contributions for school employees.

The state is back where it started, except that the value of the pension fund has tumbled seriously in the last several years. For some strange reason, in his budget address, the governor criticized once again his predecessors for what he had just proposed. But, this time the situation was really serious, he rationalized.

The situation is certainly more serious than it has been in the past, but the financial necessity argument is an old, worn-out justification, as the governor consistently reminded us when he was in campaign mode. One of the reasons that we are facing such a deficit is that for three years (and before that) we have not made the hard decisions on reorganization, locality mergers, combination of fire districts, and cost controls in education.

Corzine is proud that he is raising support for education, but our public boards have not dealt with student achievement in the public school. Nor have they dealt with the problems of workload at the state colleges and universities.

Amid all this economic suffering in the state, can professors still be teaching 6 to 9 hours a week as a full-time load for 30 weeks a year? Should we watch as the employment fund is seriously strained, while teachers get their cost-of-living and salary-guide increases? Can we have the same number of school districts, municipalities and fire districts as we did in flush times? The fragility of reform efforts has left us with few choices.

An unfortunate byproduct of President Barack Obama’s bailout packages is not only do they allow financial institutions and the automotive industry to accept minimal changes – they subsidize the states and cities to keep them from making the tough choices in workloads, entitlements and work rules. If we don’t make them now, we never will. If we don’t stand up for the pension funding, we never will.

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