New Jersey’s Pension Nightmare

November 19, 2016

New York Post - New Jersey is in serious trouble: For the 10th time since Gov. Chris Christie took office, Standard & Poor’s last week downgraded the state’s credit rating.

This, after it had already changed its outlook for the state from “stable” to “negative.”

The moves will speed up Trenton’s fiscal death spiral by boosting borrowing costs, which will make it harder to make ends meet and address the state’s long-term “structural” budget gap.

The heart of the problem? Pensions owed to state workers.

“We base the downgrade on our expectation that state budget pressures will intensify,” says S&P analyst David Hitchcock. The agency foresees a worsening of the Garden State’s “sizable structural budget imbalance, driven primarily by pension underfunding.”

How did it happen? For decades, the Trenton pols made unaffordable retirement-payment promises to the powerful public-sector unions — and never bothered to set aside enough money to cover them. (For a similar scheme, watch “The Producers.”)

Now the state labors under the biggest gap in America ($136 billion, up from $113 billion in 2014) between its pension-fund assets, $81 billion, and the $217 billion it will owe retirees.

Consider: A recent S&P report put Jersey’s per-person pension debt at nearly $11,000; the national median is $806.

So dire is the situation that some analysts think it’s now impossible for the fund to catch up — ever. And it’s easy to see why: For starters, even if the fund’s investment returns soar wildly, the $81 billion in assets aren’t enough to produce sufficient growth. Especially as Trenton continues to make more unaffordable commitments to new state employees every day.

For another, Jersey’s $35 billion budget is in no shape to cough up anywhere near enough to fill the hole. A treasury official notes Christie came up with $1.9 billion for the pension fund this year, the largest bump in history. But even that won’t do.

Meanwhile, the gov hasn’t even been able to keep up with the pension-fund rescue plan he worked out in 2011 — and who knows if even that would’ve worked?

The future looks bleak, with painful tax hikes, budget cuts and pension rollbacks seemingly inevitable. It also points to some form of restructuring of the fund, curbs on new pensions and a shift to some form of a 401(k)-style system.

Jersey’s finances recall the joke about the retailer who loses money on every sale but claims to make it up in volume. The sooner Trenton gets past such thinking and starts work on a true fix, the less pain Garden Staters ultimately will endure.