New Jersey faces staggering long-term fiscal problems, with pension and health benefit liabilities, infrastructure, and other budget needs adding up to more than $200 billion in future program costs, according to a blue-ribbon budget study released Thursday.
The State Budget Crisis Task Force, cochaired by former Federal Reserve Bank Chairman Paul Volcker and former New York City Deputy Mayor Richard Ravitch, was careful to emphasize that New Jersey’s pending fiscal cliff represented years of bipartisan failure to address the state’s long-term fiscal needs. The panel credited Gov. Chris Christie and Democratic legislative leaders with reducing the size of the state’s pension liability and did its best to avoid “political questions” about what New Jersey needed to do to solve its future fiscal problems.
But Ravitch finally acknowledged what the report’s data clearly indicated: “My guess is that there will have to be more revenue to meet the basic obligations the state has committed to.”
It was the R-word, not the T-word, but it still runs counter to Christie’s commitment to cutting taxes and his oft-repeated position that “New Jersey doesn’t have a revenue problem, it has a spending problem.”
Actually, in the view of the task force, the state has both a revenue problem and a spending problem, as Richard Keevey, the former director of the New Jersey Office of Management and Budget who was the principal author of the New Jersey study, laid out in Trenton yesterday.
As a result of the state’s failure to make required pension contributions for almost 15 years, New Jersey’s unfunded pension liability totals $25.6 billion. And that figure would be $37.1 billion if the state did not enact legislation last year that suspended cost-of-living adjustments for retirees and required government workers to contribute more toward their pensions.
However, the legislation requiring the state to ramp up to full funding of its pension liability within seven years means that the New Jersey budget will have to allocate an estimated $5.5 billion for pensions five years from now. That's a $4.4 billion increase over the $1.027 billion dedicated to pensions in the current budget and would eat up much of the state’s expected revenue growth over the next five years.
The pension liability actually pales in comparison with the $59.3 billion unfunded liability for retiree health benefits for teachers, police, firefighters, and state and local government workers. New Jersey put in $1.445 billion for retiree health benefits just to cover current costs in this year’s budget, when it should actually have put in $4.917 billion to prevent the future cost of the liability from ramping up exponentially.
Ravitch noted that New Jersey’s retiree healthcare liability would go up if the proposed increase in age from 65 to 67 for Medicare eligibility being discussed by President Obama and Republican congressional leaders as part of their fiscal cliff negotiations is approved. That decision would shift the cost of providing health care coverage for 65- and 66-year-old state and local government retirees from the federal to the state governments.
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