A Small Pension Win for Teachers but Truth In Accounting’s “F” Grade for NJ Shows Why NJ Cannot Afford More

Desperate to change the subject from wasting $45 million of members’ dues on former-NJEA President Spiller’s vanity run for governor, the NJEA is claiming a “huge” pension victory for teachers.  But the victory is small and incremental, and the NJEA’s touting it shows how badly the NJEA wants to show that they actually have teachers’ interests in mind after the Spiller scandal. The NJEA is pushing for much more substantial pension improvements such as richer pensions for half of current teachers and ultimately a reinstatement of annual cost-of-living adjustments (COLAs) for all pensions, but Truth In Accounting’s most recent ranking of the states shows why New Jersey simply cannot afford substantial pension enhancements. New Jersey came in 49th among the states with a debt-per-taxpayer of $42,500, mostly due to unfunded pensions and retiree health benefits. Despite the $47 billion Gov. Murphy has pumped into state pensions, they are still severely underfunded and can in no way bear the burden of substantial enhancements. Too bad Murphy kowtowed to the NJEA and neglected to use the $47 billion to reform the system.  Future governors will have to clean up the mess.

A small pension victory for teachers being touted as a huge one.  The NJEA is touting recently passed pension legislation as a huge win for teachers: an article on the NJEA website claims “Huge pension justice win for NJEA members.” In the aftermath of the $45 million Sean Spiller for Governor debacle, we can understand why the NJEA wanted to highlight political activity that actually achieved a result for members. But it wasn’t a huge win, it was a small, incremental win.  Prior to the new law, if a teacher stepped away from teaching for more than two years, she would be placed Tier 5 pension when she started teaching again. The new law changed that to more than 10 years, so that a teacher who had a Tier 1 pension and stepped away for less than 10 years would keep her Tier 1 pension. This is good for teachers as far as it goes, but it doesn’t go very far.  While undeniably a good result for those teachers, it’s not a large number of teachers. That’s why it passed with overwhelming, bipartisan support: it won’t cost the state (and taxpayers) that much money because it’s a relatively small amount to be added to the state’s pension liabilities and to the annual $7.2 billion state contribution.

And that’s not all the NJEA wants. But the NJEA also has much larger goals. It has launched what it calls its “Tier 1 for Everyone” campaign and claims to have enlisted 50,000 “Pension Justice Advocates” to lobby for moving all teachers into Tier 1 pensions.  The NJEA would also like to reinstate COLAs, which were stripped from all members in 2011 in legislation that saved the teachers pension fund (TPAF) from insolvency.  But these are much heavier lifts.  Gov. Murphy has bent his knee to the NJEA and pumped $47 billion into state pensions during his two terms, and Gov. Christie previously dedicated 78% of lottery proceeds to TPAF, but TPAF is still only 50%-funded (that is, it has about 50 cents set aside for every dollar owed to retirees).  Tier 1 pensions are substantially more generous than Tier 5 pensions (which were also created in 2011), and COLAs that kick in every year are very expensive. Both would add substantially to New Jersey’s pension liabilities and required annual pension payments.  The legislature would either have to increase its annual contributions accordingly — they already make up 12% of the budget — or see TPAF’s funded ratio go down, and the states bond ratings along with it. Unfortunately, New Jersey cannot afford these pension enhancements, and a new report shows why.

New Jersey ranks 49th among the states with $42,500 of debt per taxpayer.  Truth in Accounting has come out with its 15th “Financial State of the States 2024” report, and New Jersey came in 49th, with a debt burden per taxpayer of $42,500 and a “F” grade. 49th is actually an improvement from 50th last year, but New Jersey has been in the bottom five for 15 years in a row.  New Jersey has $157 billion in unfunded liabilities — mostly for pensions and retiree health benefits — which is a mind-boggling amount for a state with a $59 billion annual budget. That $157 billion will have to be paid by future taxpayers.

Sinkhole = Blue states; Sunshine = Red states. Here are the bottom five “Sinkhole States” with their debt-per-taxpayer amounts (the same five as last year):

• 46. California -$17,400
• 47. Massachusetts  -$25,400
• 48. Illinois -$37,000
• 49. New Jersey -$42,500
• 50. Connecticut -$44,300

For the record, here are the top five “Sunshine States” (and their surpluses per taxpayer):

• 1. North Dakota $55,600
• 2. Alaska $55,100
• 3. Wyoming $33,500
• 4. Utah $12,200
• 5. Tennessee $9,600

Notice a pattern? The Sinkhole States are all big government, big government-union, blue states and the Sunshine States are all the opposite.  Which brings us back to New Jersey.

The ugly truth: New Jersey does not have the money to add Tier 1 pensions or COLAs.  Here are the facts: Tier 5 pensions are inferior pensions and almost half of all teachers are stuck in them. All teachers (including retirees) do not have a COLA, which is crippling during inflationary times in high-cost-of-living New Jersey.  But the state cannot afford to rectify this situation.  We run structural budget deficits every year and already spend outsized amounts for state pensions and retiree health benefits.  Murphy’s pension payments of $7+ billion a year and generally strong investment returns have improved the funded level of New Jersey’s pensions, but as it is, the state will have to contribute $7+ billion a year for the next 25 years.  Adding Tier 1 pension liabilities — not to mention COLAs — would increase this budgetary burden substantially. New Jersey simply does not have the money.

All of which shows why Murphy’s kowtowing to the NJEA and dumping $47 billion of good money after bad rather than using that money to reform the pension system has left New Jersey in a very difficult position. As Murphy leaves office, he’s leaving a very big mess for some future governor to clean up.