Bad pension ideas migrate to desperate NJ
For two decades NJ has been a repository of some of the worst government pension practices in nation. Now in a desperate attempt to find answers to its huge pension problems, policy makers seem willing to consider bad ideas from elsewhere, perhaps reflecting how little the state understands about how it got into its mess in the first place. The latest notion, if this article can be believed, is that neighboring NY managed to avoid similar problems thanks to its comptroller’s office, which somehow kept the state out of pension trouble. This ignores the fact that a recent NY comptroller went to jail after using the pension system in a pay to play scheme and the current one is allowing over-burdened municipalities to punt on their pension obligations. Exactly what Jersey needs!
NY State pensions are better-funded than Jersey’s. If there is a key reason why that is the case, however, it is not that the comptroller has been a model of fiduciary responsibility, but that a NY union decades ago sued to enforce pension discipline in the legislature and governor. A far as I can tell, until the recent union lawsuits against Christie, Jersey unions did nothing of the kind.
The early 1990s NY case brought by the CSEA, which E.J. McMahon describes at the bottom of this post, not only prevented Cuomo (Mario, not Andrew) and the legislature from engaging in a specific pension gimmick (similar to a one that NJ adopted in 1994, as I explain in section one of this study), but the court decision also established the principal that the state’s constitution demands full funding of pensions. In overturning the NY bill signed by Cuomo, the court said:
Said legislation allows employers to deplete moneys in the existing pension fund by reducing the amount of employer contributions.
That, the court ruled, was unacceptable.
One result of this has been that NY pension funds are far better funded than those in many states, including NJ. However, the level of benefits that NY provides has also kept driving pension costs higher. This is where DiNapoli has acted in exactly the wrong matter.
He’s allowing a dubious “amortization” program which has encouraged the state and more than 100 municipalities to forgo some $3.3 billion in pension contributions in the past three years. Many of these municipalities, as I explain here, are economically distressed upstate communities with little economic growth, so it’s not clear how they will pay this money back on top of their regular pension commitments.
Since this plan merely “defers” contributions rather than reducing them through some dubious pension accounting, I suppose it might be considered legal despite the 1993 NY court of appeals ruling, though the idea hasn’t been tested in court. But the crucial point for those who think a comptroller might have kept NJ out of trouble is that DiNapoli is using the power of his office over pensions to allow governments to kick the proverbial can down the road.
Meanwhile, there has been much discussion in NY over the wisdom of granting one elected official power over pensions, ever since Alan Hevesi and a bunch of his cohorts got nailed for corruption associated with their ability to hand out contracts for management of the state’s pension fund investments. The conference in NJ that discussed the wisdom of a comptroller-run state pension systems appears to have neglected to mention Hevesi. At least the article about the conference never mentions him being discussed.
To backtrack for a second,Jersey residents might wonder why the state’s government unions never sued to stop the kind of machinations with the state’s pension funds. I can’t answer that, though history shows that the unions were sometimes willing co-conspirators in the pension chicanery. As Democrat and Senate President Steve Sweeney wrote in a 2010 Star-Ledger editorial:
When former governor Christie Whitman passed her pension bonding scheme, some unions worked with her on the back-end to get their own members’ retirement age dropped to 55 and their pension contribution dropped 40 percent. State union leaders never batted an eyelash in 2001 when the governor and Legislature boosted pensions 9 percent without offering any means to pay for it, and then negotiated a 40 percent decrease in their members’ pension contributions — things they knew the system could not sustain. The union leaders need to take off their blinders and stop ignoring their own complicity in this problem.
Maybe the NJ unions would not have succeeded with a lawsuit demanding more rigorous funding because the NJ constitution does not offer workers as strong protection for pensions as the NY constitution does. But as Sweeney suggests, it doesn’t seem like NJ unions were interested in enforcing pension discipline because it would have undercut their focus on getting as much as they could, perhaps because they figured that no matter what happened, their pensions would be protected. NJ workers now fretting about the future of their pensions might aim some of their ire at their former leaders.