Moody’s: Christie’s Pension Proposal Comes With Risk For Schools

A plan to overhaul the New Jersey pension system – first proposed in February by the Pension and Health Benefit Study Commission, and later endorsed by Gov. Christie – could put undue burden on the state’s school districts, according to a new report from Moody’s.

Details on the reform proposal, from NJ.com:

[The reform] proposal […] would freeze the existing pension plan and shift workers onto less generous retirement and health care plans. While the state, which pays for school employees pension and health benefits, would continue to pay for the current system’s existing debts, school districts would have to assume the costs of the new system and retirees’ health care.

Under that proposal, the districts’ new costs would be offset by the billions of dollars saved from reducing public employee health benefits paid by school districts and municipalities from “Cadillac” plans to plans on par with the private sector.

And here’s what Moody’s had to say, from NJ.com:

If the savings doesn’t pan out, the proposal could burden school districts that have few options but to raise taxes, cut costs, borrow money or spend their reserves to pay the tab for teacher pensions, Moody’s said.

“According to the proposal, districts would not be financially affected because any tax increases necessary on their side would be more than offset by tax reductions at the local government level, thus making it at least cost neutral,” the report said. “There is, however, no mechanism currently in place or proposed to compel municipalities and counties to either share the savings or reduce their budgets in step with the savings.”

Moody’s said it’s also unclear “how the various local government entities would rebalance these shared savings over time as health care and pension costs rise.”

Read the Moody’s press release here.

Photo By Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons