New Jersey’s public pension and benefit system is a looming disaster that threatens the future of our state.
New Jersey taxpayers are on the hook for total unfunded liabilities totaling $190 billion. Our entire annual state budget is only $38 billion. Our public pensions are only 38 percent funded – the worst in the nation and the most at risk for insolvency. The state’s largest pension fund, the Teachers’ Pension and Annuity Fund (TPAF), is only 26 percent funded. With its high investment return assumptions and risky portfolios, it is extremely vulnerable to a market downturn, which could lead to the full depletion of its assets in ten years. TPAF would then have to be funded by budget appropriations, which would result in a fiscal train-wreck for the state.
Even without a downturn, New Jersey’s fiscal future is bleak. By FY2024, retiree benefit costs will reach $11 billion, or an unsustainable 26 percent of the state budget. Given New Jersey’s persistent structural budget deficits, meeting these projected costs will require either massive tax increases or drastic cuts in services, or likely both.
This is why the Mercatus Center ranks New Jersey dead last in long-term solvency and why New Jersey has the second-worst bond rating of any state (after broke Illinois).
How did New Jersey get into this perilous position?
The New Jersey Education Association (NJEA) predictably blames it all on the state: “The state’s failure to fund its share of pension costs is the only reason for [the] pension crisis faced by the state.”
This is false.
Using its enormous political clout over decades, the NJEA deliberately constructed a pension system that permitted maximizing both salaries and pensions while minimizing contributions. As NJEA President Michael Johnson said in 1998: “Our excellent pension system . . . [is] the result of hard-fought legislation and politics.” Teacher pensions were systematically underfunded, leaving taxpayers the tab for the shortfalls.
The NJEA also used its clout to gain “Platinum-plus” health benefits for its members – the most generous in the nation – at little or no cost to them, thereby placing another substantial burden on taxpayers.
The incontrovertible facts show that the NJEA—the most powerful political force in the state—had a direct and leading role in creating New Jersey’s pension and benefits crisis. They show that the NJEA consistently pushed for enhanced benefits while depleting the assets that supported them. They show that the NJEA was well aware of the importance of funding pensions and yet participated in schemes that persistently underfunded them. They show that the NJEA blocked five separate major reform efforts that might have shored up the system before it was too late. And they show that prior to 2015 the NJEA chose not to use its clout to hold lawmakers accountable for underfunding pensions.
All the while, the pension’s condition worsened. Now that this broken system has become unsustainable, the NJEA wants to deflect the blame onto the state and stick New Jersey citizens with the ruinous consequences.
When the state hits a fiscal wall and all New Jersey suffers, New Jersey citizens must remember that the primary blame rests with our most powerful special interest, the taxpayer-funded NJEA.