A retired police officer called in to Chris Christie’s monthly radio segment Wednesday night and accused Christie of “hurting the working man” with his pension cuts.
Christie shot back at the caller, accusing him of “spewing union talking points.”
Christie said of the caller: “You have a union-based political agenda…you guys crack me up.”
Watch the video of the exchange above.
New Jersey’s next gubernatorial election is still three years away – but Christie’s potential Democratic challengers are already meeting with stakeholders and gearing up their pension policies.
Those potential challengers include Senate President Stephen Sweeney, Assemblyman John Wisniewski, former U.S. ambassador Philip Murphy and Jersey City Mayor Steve Fulop.
They all have one thing in common: they believe pensions will be a big issue in the 2017 election, and Christie will be on the wrong side of it.
From NorthJersey:
Although the contest is still three years away, several Democrats are already conducting a fierce, behind-the-scenes pre-primary.
And, for the time being, the best way of wooing unions representing police, firefighters and thousands of government workers appears to be to trumpet one of labor’s bottom-line demands: Unless Governor Christie reverses course and makes his promised payments to the pension system, any further discussion of more changes, including a call to scale back workers’ benefits, is dead in the water.
“The employees are paying their share, [Christie] should do the same,’’ said state Senate President Stephen Sweeney.
Christie’s reform push — a public tour over the summer and creation of the 10-member panel of experts who issued last month’s report — looks like it may run smack into the Democratic Party’s solidarity with public employee unions.
That unity will most likely be seen in the Senate, where Sweeney, a Gloucester County Democrat, has the power to derail Christie’s agenda when it suits him. Sweeney has cooperated with Christie on a whole range of deals — including the hotly contested 2011 reforms that forced public workers to pay more for pension and health care benefits, raised the retirement age and cut cost-of-living adjustments. Sweeney is not cooperating this time.
Other potential Democratic candidates in the 2017 race are also lining up behind the union position.
“We have no credibility as a government unless we stand up and meet our obligation to the pensioners,” said Philip Murphy, who served as a U.S. ambassador to Germany and led the Democratic National Committee’s fundraising from 2006 to 2009. “I think it’s very hard to go back to the well until the state can prove that it’s a reliable partner in this.”
Assemblyman John Wisniewski, D-Middlesex, who opposed the first round of benefit changes in 2011, also toed the union line. “Why would anybody believe assurances about any new set of promises about the pension fund when the promises that were made under heavy skepticism to begin with have not been lived up to?”
Unions were angry when Christie cut the state’s pension payments and used the money to plug budget shortfalls elsewhere. Union leaders said that workers were doing their part by contributing money, but the state was shirking its responsibility. From NorthJersey.com:
“We can’t take anyone seriously who talks about fixing the pension system without putting in additional resources,’’ said Ginger Gold Schnitzer, director of governmental relations for the New Jersey Education Association, the powerful teachers union. “It’s ridiculous to think a pension system can survive without regular [state] contributions. Our members have made those contributions.”
According to a recent report from the New Jersey Pension and Benefit Study Commission, the state if shouldering $37 billion of pension liabilities. That number has tripled since 2005.
Fixing New Jersey’s pension system has been the talk of the state lately, and as far as ideas go, all the usual suspects have been proposed: cutting benefits, making full actuarial contributions, transferring new hires into a 401(k)-style plan, etc.
One idea that is rarely discussed is the creation of a model similar to New York: the appointment of a comptroller to oversee and have authority over the pension system.
Under this model, the comptroller would take significant authority out of the governor’s hands regarding pension matters.
This hypothetical comptroller, if he wished, could have overridden Chris Christie’s decision to cut the state’s pension payments. More analysis from NJ Spotlight:
While New Jersey governors and legislatures have been cutting, skipping, or underfunding pension payments for the past 20 years, New York does not have a similar pension crisis because its elected state comptroller has the power not only to set the actuarially required pension payment each year, but also to require Albany’s governor and Legislature to fully fund it, according to a senior Moody’s Investors Service analyst.
New York State Comptroller Thomas DiNapoli is required to calculate the state’s pension payment by October 15 to give the governor’s office and legislative branch sufficient time to include his calculation in the budget for the fiscal year that begins the following June 30. That amount is then required to be paid into the state’s pension systems on or before March 1 — three months before the end of the fiscal year.
“In New York, the state comptroller is responsible for the entire pension system,” Robert Kurtter, Moody’s Managing Director for U.S. Public Finance, explained at a forum on pension funding at Kean University last week. “The comptroller’s power to require full pension funding has been litigated and upheld by New York’s highest Court of Appeals.
“The New York Legislature tried to underfund the actuarially required contribution, but couldn’t,” Kurtter said. “It’s a two-edged sword for New York. Their unfunded liability is low, but they don’t have a choice, even when revenues are down.”
The soundness of New York’s pension system is one of the principal reasons that the state enjoys a AA1 bond rating from Moody’s — one of 30 states in the top two rating categories — while Illinois and New Jersey are the nation’s fiscal basket cases, the only two states with lower-tier single-A bond ratings. While New York was upgraded this year, New Jersey’s bond rating has been downgraded a record eight times under Gov. Chris Christie.
But creating a comptroller position and giving it authority is a politically tricky process – because it involves not only amending the constitution, but also taking away significant power from the state’s governor. From NJ Spotlight:
New Jersey’s governor has more power over state spending than any other governor. New Jersey’s governor has unilateral authority to determine the revenue projections that determine the size of the budget — which Christie has consistently overestimated, as previous governors have when it met their political needs.
New Jersey’s governor also has the ability to make midyear budget cuts without seeking legislative approval — as Christie did when he retroactively changed the pension formula in March and cut $900 million in Fiscal Year 2014 pension payments in May.
Adding an elected state comptroller or state treasurer or establishing an ironclad requirement that the state make its actuarially required contributions to the pension system annually would require a constitutional amendment. The Democratic-controlled Legislature would need the governor’s signature to pass a new law, but not to put a constitutional amendment on the ballot — a strategy it used to bypass Christie on the minimum wage last year and on guaranteed funding for open space this fall.
Last spring, Christie cut $2.4 billion in payments to the pension system and diverted it to help balance the state’s general budget.
Gov. Chris Christie has shielded his state’s pension system in recent weeks from allegations of conflicts of interest by asserting one thing: the State Investment Board doesn’t have input in pension investment decisions, it only loosely oversees them.
But new documents obtained by the International Business Times suggest that the Council does have an active hand in guiding pension money.
David Sirota writes:
The minutes of the State Investment Council (which Christie appoints, and whose official mission is to “formulate policies governing the investment of [state] funds”), show his appointees not only oversee the state’s due diligence reviews of specific managers but also offer guidance to New Jersey Treasury Department officials about managers. Christie appointees at times cast votes on specific investments and have spearheaded the recruitment and subsequent appointment of the official who runs the state’s Division of Investment.
According to minutes of the State Investment Council, most of New Jersey’s investments in private equity, hedge funds, venture capital and other so-called alternative investments are reviewed by Christie appointees on the Investment Policy Committee (a subcommittee of the State Investment Council). Typically, the minutes show State Investment Council Chairman Robert Grady reports the committee “discussed the investment and was satisfied that the due diligence that was performed was adequate and appropriate.”
Grady was appointed to the council by Christie. He also serves as the Chairman of the Governor’s Council of Economic Advisers, and state documents show he was in regular contact with Christie administration and campaign officials. The governor has described him as a longtime friend.
The State Investment Council debates the merits of specific investments in open session, offering advice to Department of Treasury staffers about the specific money manager being given a New Jersey pension contract. Because the council has influence over the selection of specific managers, Grady and another Christie appointee, real estate investor Jeffrey Oram, have recused themselves from deliberations that involve managers to whom they might have a financial connection.
The documents also reveal a few examples of members explicitly voting to approve (or disapprove) big investments with money managers. From the report:
– On Dec. 8, 2011, Grady spearheaded a proposal to invest as much as $1.8 billion of New Jersey money in the Blackstone Group. State records show “a motion was made by Chair Grady to approve the Blackstone investments,” the motion “was seconded by Council Member Oram,” and the investment in Blackstone was subsequently approved on a 7-2 vote. As IBTimes previously reported, Grady’s private firm was investing in one of the same Blackstone funds though Grady did not disclose that at the time of the vote.
– On July 21, 2011, the council voted on a quarter-billion-dollar investment in Blackstone Resources Select Fund. After a debate, the council voted against a motion to halt the investment.
– On June 11, 2011, the council voted to approve a financial maneuver to facilitate a specific transaction with a firm called RLJ Lodging Trust.
In addition to overseeing and voting on specific investments, Christie appointees oversee the appointment of the state official who runs the state’s Division of Investment.
Christie yesterday offered his first extensive defense against conflict of interest allegations.
Photo by Truthout.org via Flickr CC License
Journalist David Sirota has written a series of reports since over the last five months detailing the possible conflicts of interest and pay-to-play violations under the surface of the New Jersey pension system.
On Monday, Christie gave his first extended response to the allegations and denied them categorically. From Politicker NJ:
“There’s no appointed people in my administration that make those decisions,” Christie responded when asked about the allegations, reiterating an earlier defense of his administration and brushing off the accusations as innaccurate. “Those decisions are all made by folks in the Department of Treasury who are career employees. And the appointed folks on the pension board, both Republicans and Democrats, don’t make decisions about individual investments.”
[…]“So all of those are just factually incorrect,” Christie said. “Nobody in my office had any input or discussion in any way with anybody from Treasury or the pension board for that matter about how we invest our pension funds.”
He also said “nobody should be complaining” when it comes to the state’s pension fund, lately burdened with millions in underfunded liabilities, given a high rate of anticipated returns– 7.9 percent — on the fund’s investments.
“And over my fours years as governor we’ve made 12 million over the 7.9 percent,” he added. “So the investments have gone very well.”
A major New Jersey union filed an ethics complaint against the pension system earlier this summer. The union said in the complain that the chairman of the State Investment Council “violated the Division’s own rules barring politics in the selection and retention of such funds and investments, and has further created an appearance of impropriety.”
New Jersey Senate President Steve Sweeney (D-West Deptford) offered up a new idea for pension management during an interview on Monday: let unions manage their members’ pensions. The verbal proposal was short on details, but it would certainly be a dramatic change.
From NJ Biz:
“I think we need to turn the pensions over to the unions, where they’re responsible for managing it,” he said. “I think that they would be willing to do that if there was a funding source that made the payments.”
Sweeney said having the public worker unions manage their own pensions would put the unions in a position to succeed — or fail —on their own.
Sweeney says unions, not legislators, would have a better handle on how to manage their workers’ pensions and “should control the future of their retirement.”
“If they screw up the investments, they’re responsible,” he said. “Just because they would manage it, doesn’t mean they’d screw it up. In fact, they’d probably manage it better because there would be no politics in it, because it would be completely removed from politics.”
Sweeney, noting that it was the first time he had publicly voiced the idea, did not offer any additional insight on implementation strategy or plans to formalize the proposal.
Several union leaders, including the director of New Jersey’s largest public union, said the idea was interesting but hard to evaluate given the lack of details. From NJ Biz:
Hetty Rosenstein, state director for the Communications Workers of America, New Jersey’s largest public union, was intrigued by the idea, adding that she was in favor of more “genuine oversight” of pension management. But what that would actually look like under Sweeney’s proposal is yet to be seen, she said.
“Without more details, it’s difficult to respond,” Rosenstein said.
Steve Baker, associate director for public relations for the New Jersey Education Association, the state’s largest teachers union, declined to comment without first having more information.
Gov. Christie’s office hasn’t issued a statement or given a comment on the idea.
The Daily Record released a scathing editorial today denouncing the efficacy of New Jersey’s Pension and Benefit Study Commission and the motives behind its creation.
The editorial claims that Christie put the panel together to act as a political shield when he eventually cuts worker benefits – which Christie has said will be a major part of the reforms that will eventually be proposed.
From the editorial:
Union and Democratic leaders are already denouncing the commission’s report as a sham designed from the start to do little more than bolster Christie’s claims that benefit cuts are the only answer. We can’t blame them. Remember how eager Christie was to declare success when a reform agreement was reached in 2011? That supposedly set New Jersey’s pension system on the road to solvency.
But now we’re being told it’s not even close. What’s happened since then? New Jersey’s economy has continued to lag on Christie’s watch. The governor then reneged on one of the state’s pension payments into the system that was part of that original agreement. That only exacerbated the long-term financial burden and — not coincidentally — furthered Christie’s own argument that more benefit cuts are unavoidable.
This is yet another case of Christie putting his own presidential ambition over the interests of New Jerseyans as he bows to national conservatives. The right wing doesn’t like unions, and will applaud any effort by governors and other elected officials to gut union influence. Slashing and burning public-worker benefits is a means to that end, and Christie is carrying out that task with dedication.
[…]
…When the commission delivers its recommendations, expect Christie to repeatedly cite them as “bipartisan” evidence of his wisdom in support of whatever cutback plan he puts forth. Democrats will ridicule the entire process as merely serving Christie’s will. And we’ll be no closer to arriving at some important decisions, in large part because Christie isn’t much worried about what New Jerseyans think anymore. He’s got bigger plans.
Read the rest of the editorial here.
The chairman of the New Jersey Pension and Health Benefit Study Commission, the panel assembled by Chris Christie to address the state’s pension problems, has published a column today in the New Jersey Star-Ledger.
In it, Thomas J. Healy writes about the “bitter truth” about pensions that people will have to swallow: that Christie’s previous reforms “did not come close” to fixing the problem and now the options for fixing the state’s pension system “are uninviting”.
From the column in the Star-Ledger:
It’s time for New Jerseyans to swallow some bitter truth about our state’s public employee pension and health benefit systems.
The commitment of elected officials over two decades to offer benefits that were unaffordable, coupled with the failure of the state to make required pension contributions when they were due, has landed New Jersey on the edge of a gaping fiscal cliff. Unless the crisis is dealt with firmly and comprehensively, it is certain to become more dire in the period ahead.
[…]
Concerted efforts have been made during the past 10 years to fix the problem. However, significant pension plan reforms in 2010 and 2011 have not come close to correcting two decades of underfunding by both Democratic and Republican administrations in Trenton.
Fortunately, awareness of the need to actively address the problem cuts across both parties. Former Gov. Jon Corzine has acknowledged that “current benefits are financially unsustainable.” And, in the course of naming a 10-member bipartisan commission on Aug. 1 to study the problem and recommend possible long-term solutions, Gov. Christie warned that “if we don’t do more, and we don’t do it now, the state will be forced to make harder choices in the future.”
While this bipartisan understanding is helpful, it doesn’t diminish the complexity of the job ahead, as outlined in the just-released status report of the New Jersey Pension and Health Benefit Study Commission. Indeed, the options for making the public employee pension and health benefits systems fiscally viable are uninviting. Employees have already made concessions, and a tax increase of the size necessary to fund the escalating cost of benefits (in a state which already has one of the highest tax burdens in the nation) is unrealistic. So is any effort to divert revenues from an already tight state budget.
The commission’s second report will propose specific recommendations for reforming New Jersey’s pension system.
The first report, which came out last week, presented an overview of the fiscal situation surrounding pensions but didn’t provide ideas for reform.
Over at Bury Pensions, actuary John Bury covers New Jersey pension developments as close as anyone. And there’s been a lot to talk about lately, as the New Jersey Pension and Health Benefit Study Commission just released their first report last week.
But what wasn’t in the report is just as important as what was. While the report served as a great primer on how New Jersey’s pension mess came to be, it fell short on some counts.
Here’s John Bury’s take on what was left out.
__________________
By John Bury
The report did a good job of piecing together available public information but anyone could have done that. What this panel of experts was supposed, and failed, to do is bring their knowledge of the truth of the situation to the general public. Perhaps some did not possess that knowledge and others who did wimped out but here is what should have been in the report:
Actuaries lie
A 54% funded ratio and $37 billion shortfall for the state portion of the New Jersey pension sounds bad enough but people should be aware that these figures are generated by actuaries whose sole responsibility to their politician clients is to keep contribution amounts low. Ask yourself how a plan returning 16.9% in trust earnings when it is assuming 7.9% worsens their shortfall. It’s primarily because of a flaw in basic actuarial math which is not being adjusted for since getting it right is not what public plan actuaries are paid for when right means higher contributions. Then there is the smoothing canard that the panel completely ignores, quoting the $44 billion actuarial value of assets as real rather than the $39.5 billion market value.
Politicians cheat
$14,9 billion in skipped ARC payments under Christie in cahoots with the legislature who not only get to decide how much they put in but they also get to brag that their selected mini-contributions are the full statutorily required amounts though they get to define what is statutorily required.
Benefits are protected
Hinted at on page 18:
One of the reasons the reforms described above have had little impact on the unfunded liability is that many of them do not apply to all current employees.
And the reason many recent reforms are not applied successfully (witness the COLA fiasco) is that Christie Whitman in 1997 exchanged constitutional protection of those benefits for the ability to reduce contributions to a desired level (i.e. nothing). That needs to be admitted and reforms must include either paying for all those promised benefits in full or coming up with some strategy to get public employees to agree to reduce their benefits voluntarily.
Hybrid plans won’t work here
Though a Defined Contribution plan is the only type of plan that governments, run by political considerations and without independent funding discipline, should be allowed to sponsor moving new employees into these plans would only worsen the underfunding since a valuable input into the ponzi scheme New Jersey currently runs (employee contributions) would be shut off and new hires who are typically younger could wind up getting even higher benefits than under an age-weighted defined benefit system. In the private sector the shift to cash balance plans worked because older employees could be forced (or tricked into) accepting them. It would take a massive amount of ‘creativity’ and will to work the same magic in the public sector where employees have more leverage and politicians are not bargaining with their own money.
It came a little behind schedule, but the New Jersey Pension and Health Benefit Study Commission released its preliminary report yesterday.
This first report was all about identifying and detailing the causes and current state of New Jersey’s pension funding shortfall. As such, no recommendations were made for fixing the system.
Although the report, notably, did not name Chris Christie, it did lay a portion of the blame on politicians for creating the pension mess. From NorthJersey.com:
The report in part blames politicians for failing to properly fund the pensions and siphoning surpluses during robust years resulting in a $37 billion unfunded liability in the state pension funds.
“While high benefit levels are one driver of unfunded liabilities, the lack of state contributions is a critical contributing factor,” the report states. “Put simply, if the state cannot find the economic means and discipline to consistently fund its pension obligations, the system will fail. The funding decisions over the last twenty years are telling examples of bipartisan contribution to fiscal distress.”
The report also said that Gov. Christie’s 2011 pension reforms didn’t sufficiently address the system’s problems.
Matt Arco of NJ.com put the report’s talking points more succinctly:
1. The looming unfunded liability is massive
2. Retiree health care costs are massive (and unpaid for)
3. Blame can be spread across the board
4. Failure to fix the problem will cost millions more
5. The 2011 reforms weren’t enough
The full report can be read here.