State Pension Reality Check

Cross-posted at PolitickerNJ.

Numbers matter. Poll results, budget deficits, health statistics. Attach a number to any issue and it becomes reality. But sometimes a reality check is in order.

When this year’s budget was first unveiled, the administration touted the closure of a nearly $11 billion structural budget gap. There was some debate over that claim because it involved spending that had not been appropriated for years. The front office switched gears later in the budget process and focused on the their reduction of state expenditures by $3 billion from the prior year – a widely accepted fact that is certainly worth crowing about.

The grander claim of an $11 billion deficit solution continued to surface, though, driven perhaps by the national media’s interest in New Jersey’s Republican governor. I believe such a claim is basically “untrue,” because it implies that the structural issues contributing to this gap have been solved. They haven’t.

Indeed, a recent analysis by the non-partisan – and well-regarded – Office of Legislative Services estimates that next year’s budget deficit could top $10 billion. They arrive at that conclusion by looking at the same “on-the-books” programs and obligations that were used to estimate the current year’s $11 billion gap. So, it was more than a little interesting when Governor Christie said the OLS numbers were “completely fake.”

State treasurer Andrew Sidamon-Eristoff clarified the administration position. He said the OLS figures were “wildly inflated” because they assume “that New Jersey is going to return to its spending habits of 2008 and 2009. Those spending commitments were frankly unsustainable and out of control.”

The treasurer added that all parties “need to come to terms with the fact that fiscal ’11, the budget plan that we just adopted, represents a new baseline for New Jersey.” Fair enough.

The problem is that OLS includes those commitments in its fiscal analysis because the programs are still on the books, a fact that the treasurer implicitly conceded in a later interview.

The OLS numbers are a reality check. Those statutory obligations still exist, which the governor was asked about in his first national Sunday morning television appearance on ABC’s This Week.. Specifically, host Jake Tapper asked Governor Christie whether he wiped these programs off the books via “executive fiat.”

Regarding the pensions, the governor said that he was “going to go after current employees” this fall. Ah – a new reality.

It is no secret that the pension obligation will continue to grow, even after a required $500 million contribution is included in next year’s budget. Furthermore, there is mounting evidence that the state will never be able to meet its retirement obligations for current employees. [Jason Method’s piece in the Asbury Park Press on this is a must read.]

The governor has signaled that he is going to tackle this head on before the next budget. The fight is not going to be easy, but win it and the OLS deficit estimates will almost certainly come down. Until then, the numbers are anything but “fake,” especially to the workers who expect to receive these benefits and to the generations of taxpayers who would have to foot that bill.