Chris Christie's Biggest Problem

It was supposed to be New Jersey Governor Chris Christie’s crowning achievement, one he fought hard for and campaigned on—stopping N.J.’s growing pension crisis.

No more can kicking, no more excuses, no more socking it to state taxpayers with budget flim-flam and cooked books. Instead, a new law the governor supported and signed into law in 2011 would reform state worker pensions once and for all. The law mandated all future New Jersey governors must stick to their guns and pay the required amount into state workers’ pension funds.

The governor then repeatedly held up New Jersey as a model for the nation on pension reform, and took credit in subsequent speeches for saving the state’s pensions.

“Today, our pension system is on a path to restored health,” the governor said in his 2013 address to the state, adding, “Our pension system is alive as a result” of reforms.

But again the 180 degree turn. Gov. Christie’s administration essentially “now claims that the reforms are unconstitutional and that he need not meet the pension funding obligations,” says Bob Williams, state budget expert and president of State Budget Solutions.

In a pretzel twist of logic and irony, the Christie administration now argues in court that the state’s constitution bars officials from signing off on paying off large chunks of pension debt that is owed without getting specific approval from state voters. On top of that, it now argues the state can’t dictate to future lawmakers on how to spend money.

Which is why New Jersey’s latest budget has just a $1.3 billion contribution to its pension fund, equal to less than a third of the funds necessary, and much less than the 71% that the 2011 state law supposedly mandated.

A state Superior Court judge ruled late Monday that New Jersey must stick to the 2011 law and make the full contribution, $3 billion, in the new budget starting July, plus pay an additional $1.57 billion over the next four months. Gov. Christie blasted the court for upholding the law that helped him get elected: "We do not need any court to tell us we have a serious problem.”

The pension controversy is now a millstone around the governor’s 2016 GOP presidential ambitions. New Jersey’s unfunded pension liability stands at about $37 billion, the fourth-highest in the nation. Under new accounting rules the liability nearly triples to $83 billion for pensions, which the governor has said is three times the size of the annual state budget. To pay for that shortfall, “every family in New Jersey would have to write a check for $12,000,” the governor has said. The state also faces $53 billion in unfunded health care liabilities.

However, over his five-years in office, New Jersey will have contributed just $2.9 billion towards government employee pensions. As the state’s Pension & Health Benefit Study Commission's Status Report notes, the governor has not put in the required $14.9 billion into the state pension funds, says Edward Buttimore, former Administrator of Investigations in the New Jersey Attorney General's Office, Criminal Division.

Buttimore added: “In fact, Gov. Christie's $14.9 billion skipped pension payments eclipses the $12.8 billion combined missed payments of his five predecessors over a 15-year period from 1996 to 2010. That was a pretty important fact that he omitted from his State of the State address.”

Who gets stuck with that bill? Taxpayers, who also will have to foot the costs for the interest owed on the $14.9 billion that were not put into the pension system. If all else fails, state sales and income taxes could rise—they are already among the highest in the nation.

Last year the governor dialed back on his statements the pensions were rescued: “Never did I say in 2011, even when we signed the reform, that this was it, that we had completely fixed the problem.” The governor added: "Compared to the governors around the country who have done nothing on pensions and health reforms, I think I'm doing just fine."

However, that may not be enough to appease New Jersey union bosses and state Democrats, who are now blasting Christie for reneging on his vow to make the pension system whole again, complaints sure to surface in the 2016 race.

Moreover, while Governor Christie said he had recently struck a deal with New Jersey’s teachers to put their pensions on the road to reform, the teachers have said they have yet to endorse any of his proposals, and in fact its biggest lobby group says there is no agreement, Williams notes (see here: http://www.njea.org/news/2015/02/24/njea%20no%20agreement%20on%20pensions).  

New Jersey is an example of what is going on nationwide. It’s a world from which fiscal probity has fled, reform made intractable by elected officials buying votes and using state pension funds to fill in budget gaps. State officials treat their pension funds as honey pots for their pet projects, despite their “shocked, shocked” routine that the pot is dry. Credit rating agency Moody's has estimated that the U.S. public pension gap has already tripled to at least $2 trillion in just ten years’ time.

Likewise, in Washington, DC, federal officials regard Social Security not as a savings program, but as a spending program, as one analyst noted, with funds spent already and IOUs sitting there in the form of Treasury notes.

Meanwhile, the country faces a retiree population growing at a faster rate than the working population. As the baby boom becomes a senior boom, and as the demographic fiscal cliff looms, state officials continue to act like their pension fund crisis was created by extraterrestrials on Mars.

New Jersey’s latest plan calls for state workers to pay what private sector workers pay for their health care plans. The state would also freeze existing pensions and switch state workers into a "cash balance" pension plan.

In return, state workers would get a brand new amendment to the state’s constitution guaranteeing that New Jersey must make required pension payments.

But that may not be enough. As Williams points out, already, “Fitch Ratings has taken aim at New Jersey’s [pension] calculations, criticizing the assumptions that paint a rosier picture than truly exists.”

He adds that Fitch reports New Jersey faces “much higher calculated liabilities and much lower ratios of assets to liabilities in fiscal 2014, at 27.9% for state employees and 28.5% for teachers.” Meanwhile, “their funded ratios a year ago were 49.1% and 51.5%, respectively, under the old GASB standards,” Williams says.

Moreover, under “Gov. Christie, New Jersey has been downgraded eight times by Wall Street credit rating agencies and is now the second-lowest rated state behind anemic Illinois,” Williams says. “It is clearly past time for New Jersey’s governor and legislature to stop using gimmicks to balance the budget and fund 100% of the annual required contributions to pensions.”