chris christie pensions

Christie Vetoes Early Retirement Incentives for Teachers

Chris Christie used his conditional veto power to reject one portion of a broader bill that would make it easier for privately run schools to operate in New Jersey.

The portion of the bill vetoed by Christie would have given certain teachers–specifically, those likely to face layoffs in the near future–a range of perks to retire early. From NJ.com:

Gov. Chris Christie has rejected changes to the Urban Hope Act, specifically taking exception to language that would allow Camden public school teachers to retire early.

The change, he wrote in his conditional veto Monday, would put too much of a strain on an already floundering state pension system.

“The bill … authorizes early retirement incentives to certain school district employees, and may exacerbate the solvency of the pension system,” Christie wrote.

Christie asked the Legislature to reconsider the bill without the retirement incentives.

Specifically, the vetoed portion would have offered early retirement incentives to school employees in Camden, New Jersey.

The Urban Hope Act, if passed, would open the door for charter schools to operate in Camden. But the city has already had to lay off nearly 250 public school employees, and more layoffs are likely on the way.

That’s why public teacher’s unions negotiated the line item in the bill giving teachers a chance to retire early as opposed to being laid off. From NJ Spotlight:

The bill had included an expansive early retirement package that had irked some on both the Democratic and Republican sides.

Assemblyman Troy Singleton, D-Camden, had said the package was only fair in the face of expected layoffs and other cuts in Camden. The New Jersey Education Association supported the early retirement piece, but nonetheless opposed the bill overall.

But Christie called the early retirement package hypocritical at a time when the state is grappling with a pension liability crisis.

The bill now goes back to the Senate. If the legislature approves Christie’s changes, the bill will go back to Christie. He is expected to pass the bill if it stays intact.

Christie Says New Pension Reform Plan Coming

Back in 2011, New Jersey Gov. Chris Christie signed into law a pension reform measure designed to eventually fix the funding status of the state’s ailing pension funds.

A big part of that law was ensuring that the state gradually began making bigger annual payments to the System. But that part of the plan hasn’t worked out, as Christie decided this year to take the funds meant for the pension system and allocate them toward balancing the budget—a balanced budget is mandated by the New Jersey constitution.

The move was highly publicized and highly scrutinized. But Christie now says he is drawing up a new proposal for pension reform in New Jersey, and he is putting on a series of town hall meetings to introduce the plan. From NJ Advance Media:

Gov. Chris Christie came to the Jersey Shore today to kick off his “no pain, no gain” summer tour to introduce a pension reform proposal, but details of a plan were scant.

The governor promised to unveil a proposal by the end of the summer to tackle the state’s economic woes, promising that unless the Democratic-controlled state Legislature enact reforms, New Jersey is headed toward bankruptcy.

“We have to pare back benefits, that’s what we have to do,” Christie declared in Long Beach.

“You cannot raise taxes enough in New Jersey to pay for the pension hole that’s been dug over the period of time that these exorbitant benefits that have been promised to people,” he said. “No on in public office, believe me, myself included, wants to come out here and say ‘I have to pare back in public benefits.’”

Christie has said a specific plan is on its way — but it won’t be unveiled yet.

When pressed by a resident at the shore town hall to discuss his plan, Christie said his office is “looking at a bunch of different options right now,” but added it won’t be ready to be rolled out until the end of the summer.

“There are going to be some really difficult things,” he said. “There’s not a lot of places left to do things except to look at a whole different variety of ways to reduce benefits or to increase contributions by employees.”

Raising the retirement age again is also on the table for consideration, Christie said.

“But even then, the bottom line is that there will be a reduction in benefits,” he said. “It’s the only way to do this.”

It appears that details won’t be disclosed for the time being. The one detail that Christie seemed comfortable revealing was that New Jersey pensioners will be looking at smaller benefits moving forward. But come September, it will be interesting to see what Christie’s proposal consists of.

New Jersey Fund Rakes In Nearly 16 Percent Returns For Year

Amidst all the pension-related turmoil in New Jersey, a piece of bright(er) news: the state’s pension fund raked in double-digit returns for fiscal year 2013-14, which ended June 30. The fund returned more than double the actuarially assumed rate of return, although the S&P 500 returned about 25 percent over the same period.

From Bloomberg:

New Jersey’s pension fund return is expected to exceed 16 percent for fiscal 2014 on gains that include an unanticipated $6.1 billion, according to the state Treasury Department.

Data as of June 30, which exclude some investments reported on a delayed basis, showed returns of 15.9 percent, treasury officials said in a statement. The fund’s total value was $80.6 billion, up from $66.9 billion four years earlier. The state investment division will report the performance to its oversight council at a meeting tomorrow.

Interestingly, unions are now presenting the argument that the strong returns only further demonstrate the need for the state to make its full contributions into the system. From NorthJersey.com:

The impressive returns, however, highlight an argument from unions that New Jersey may have missed out on even bigger gains in recent years because state contributions into the pension fund have been reduced or cut altogether, including the payment Governor Christie slashed at the end of June. Christie said he cut that payment — from a planned $1.57 billion, to $697 million — to prevent tax hikes or funding cuts to schools, hospitals and other crucial services amid a $1 billion budget shortfall.

New Jersey’s actuarially assumed rate of return stands at 7.9 percent.

In New Jersey, the Pension Tension Is Rising

By now, you know the story: New Jersey Gov. Chris Christie’s plan to cut pension funding by $2.4 billion over two years has been met with controversy, outrage, a string of lawsuits and numerous legal questions.

The answers to some of those legal questions may come as soon as Wednesday, when Christie’s plan will see its first day in court.

But outside the courtroom, a new bill is gaining steam among state lawmakers—a bill that finally puts a tangible, short-term solution on the table. And even if it doesn’t come without its kinks, it’s the first plan that has been offered up to counteract Christie’s measure. (More on the bill below).

Meanwhile, more data is emerging on the true costs of Christie’s plan. Spoiler alert: the snowball effect is real, and it’s prohibitively expensive.

Cuts Bring Consequences, Now and in the Future

Every passing day brings a bit more clarity as to just how expensive Christie’s plan to cut pension funding by $2.4 billion would be. In a bond disclosure released by the state, the ramifications of the cuts are outlined in four points.

The proposed reduction in contributions…could have the effect of (1) delaying the phase-in of the State’s full actuarially required contribution, (2) increasing the amount of such contribution, (3) increasing the size of the UAAL and (4) decreasing the percentage of the Funded Ratio of the Pension Plans once the phase-in is completed.

Indeed, New Jersey can expect all four of those points to materialize, some sooner than others. And when you attach numbers to them, the urgency of New Jersey’s upcoming fiscal situation really starts to set in. If Christie goes through with his plan, here’s what New Jersey could be facing in fiscal year 2019:

The state’s actuarially required contribution would be $4.8 billion—for context, that sum would represent 26 percent of New Jersey’s general fund budget, based on 2012 expenditures.

The unfunded liabilities of the state’s pension plans would total $46 billion. Christie could decrease these liabilities by $4 billion if he scrapped his plan to cut contributions by $2.4 billion in 2015-16.

The funded ratio of state plans would drop to 48.25 percent. The funded ratio sat at 67.5 percent in 2011.

Rest assured, Christie has seen these numbers—they came from his own financial team.

A New Bill Emerges in the Legislature

On Monday, news broke that New Jersey state legislature had agreed on an alternate budget proposal that would raise enough revenue to cover the state’s full contribution to the pension system, a payment that Christie’s plan had drastically cut.

Sources inside the legislature told the Star-Ledger that Democrats in the state Senate and Assembly had reached a deal to raise more than $1.3 billion in revenue—money that would cover the state’s full annual contribution of $2.25 billion to the pension system. Christie’s plan had cut that payment down to just $681 million.

The revenue would come from tax increases on high-income earners and businesses, among other things. From the Star-Ledger:

Under the Democrats’ budget:

• The marginal tax rate on income above $1 million would rise from 8.97 percent to 10.75 percent, retroactive to January of this year, netting $667 million.

• The corporate business tax would rise from 9 percent to 10.35 percent, yielding $375 million.

• The Business Employment Incentive Program (BEIP) of tax abatements would be suspended for a year, freeing up $175 million.

• A tax hike on income between $500,000 and $1 million that Sweeney had proposed would be scrapped, as Prieto suggested.

In addition, some new taxes or fees Christie proposed would be folded into the Democrats’ budget, such as a penalty for making bad electronic payments ($25 million) and a move to subject all online retailers to the state sales tax ($25 million).

Taxes Christie proposed on electronic cigarettes and the Urban Enterprise Zone program would be cut out of the budget under the Democrats’ deal.

Of course, the deal doesn’t come without its hitches. Despite the bill’s focus on raising revenue, it actually earmarks more money toward several of the areas that Democrats lost out on in the last budget dealings: the new bill restores funding for the Earned Income Tax Credit, nursing homes, legal services for the poor, and women’s health care centers.

Those are all items that deserve funding, but their inclusion makes the bill much less politically palatable to lawmakers on the other side of the aisle. Of course, it was already unpalatable to politicians who, on principle, oppose tax increases.

Indeed, state Republicans are none too happy about the proposed measure.

“It would be suicidal to…New Jersey’s economy,” said Assemblyman Declan O’Scanlon (R-Monmouth) during a Monday morning press conference.

The Democrats would likely be able to overcome Republican opposition. They hold 48 seats (60 percent) in the General Assembly, and 24 seats (60 percent) in the Senate.

The Senate and General Assembly are holding hearings on the bill Tuesday, and the measure is expected pass by vote through the two houses by Thursday.

Still, the chances that the bill becomes law in its current form, or at all, are slim. That’s because the buck stops with Gov. Christie, who has line-item veto power and has repeatedly states he will oppose any tax hikes on wealthy individuals or businesses.

Lawmakers have until July 1 to pass a new budget.

Photo by Jim Bowen and Marissa Babin via Flickr Creative Commons License

Reaction Roundup: Christie Draws Flack for Pension Put-Off

Facing a $1 billion budget deficit, New Jersey Gov. Chris Christie made the bold decision last week to reverse course on his previous pension reform efforts and divert the state’s upcoming pension contributions into the general budget to help cover its budget shortfall. All told, Christie will take $2.45 billion out of his state’s pension system over the next two years.

Journalists, politicians and commentators had much to say on the matter. Here’s a roundup of the most important reactions from around the country:

Wendell Steinhauer–President of the New Jersey Education Association:

“This much should be abundantly clear to every New Jersey resident: Gov. Christie is much better at making pension promises than keeping them. As a candidate, he pledged to educators that ‘nothing about your pension is going to change when I am governor.’ He broke that promise in 2011 when he signed a law that reduced pension benefits even for current retirees. In signing that law, he made a new promise that the state would slowly return to responsible pension funding practices by phasing in its contributions at a rate of 1/7 per year. Now he says he intends to break that promise, too. Gov. Christie’s illegal, irresponsible and reckless proposal to further delay a return to sound pension funding practices will irreparably harm New Jersey and cannot be allowed.” Click to read more.

Bob and Barbara Dreyfuss–The Nation:

“When Christie announced in May that he was unilaterally canceling more than $2.4 billion in state contributions to the public employee pension fund, he tore up his signature legislative achievement, a pension reform plan that he had hoped would be the basis for his run at the White House. On the one hand, that law was supposed to show his ability to work across the aisle to enact hard budget choices, since the legislation—which slashed benefits, hiked employee payments and raised the retirement age—had been rammed through with the help of a few Democratic party bosses allied to Christie. But it was also supposed to show Christie’s ability at sound economic stewardship by putting the state pension system on a sound footing. It might have done that, by 2018—had not Christie decided to take the money to balance the state budget, rather than raising taxes. (Raising taxes is poisonous for the chances for any GOP standard-bearer, in today’s toxic Republican party climate.) But shredding his great legislative achievement may now have also doomed his chances at being president.” Click to read more.

Barry Chalofsky–Times of Trenton:

“For four years, most of New Jersey’s economic problems were blamed on former Gov. Corzine. Now we are starting to see the governor blame public retirees’ pension and health benefits as the cause for the unfunded liability in the pension system. In 2011, when the pension reform act was passed, the governor took credit for restoring the pension plan. Now, only three years later, these reforms “are not enough.” The governor has made a lot of claims about the “New Jersey comeback,” but the reality is that we have one of the highest unemployment rates in the country (38th out of the 50 states, according to the U.S. Department of Labor) and have created far fewer jobs – only about half the jobs lost in the recession. Our overall economic growth, the engine that drives prosperity, is nowhere near as powerful as that of other states. Why? Because the governor has refused to see reality and finds more comfort in blaming others. But maybe there is more to the pension liability than the governor is admitting to.” Click to read more.

Charles Lane–The Washington Post:

“The conventional wisdom about New Jersey Gov. Chris Christie’s political fortunes is that he still has a shot at the 2016 Republican presidential nomination — if he can just get past Bridgegate, the scandal over his aides’ allegedly politically motivated partial closure of the George Washington Bridge last year. In that regard, Christie’s fortunes have arguably improved since the memorable January news conference in which he condemned his aides but denied advance knowledge of their wrongdoing. No one has yet produced a “smoking gun” to disprove his version; polls still put him in the top tier of GOP contenders; and he’s resumed fund-raising for Republican candidates in 2014, with an itinerary that includes Iowa, New Hampshire and South Carolina. Alas for Christie, his problems go deeper than Bridgegate: Specifically, he’s governor of a state that may not actually be governable.” Click to read more.

Editorial Board–The Express Times:

“Faced with a $1 billion budget deficit, Christie decided to rob the pension-payment schedule of $2.43 billion over the next two years to meet current expenses and balance the budget. There’s little need to explain that New Jersey, like Pennsylvania, is rolling the dice in a game that threatens to impoverish future generations and diminish public services and jobs. As Christie announced his 180-degree turn on Tuesday, credit agencies warned of another downgrade in the state’s bond rating. On Wednesday, public unions followed through on a promise to sue to ensure the state makes its annual pension payments. Christie said the state can’t keep paying for “sins of the past” — and on that narrow point, he has a wholly defensible argument. But much of the current deficit — an $875 million shortfall in revenue — was caused by overly optimistic budgeting by the administration, coupled with a change in federal rules that reduced income tax projections.” Click to read more.

Photo Credit: Bob Jagendorf via Wikimedia Creative Commons