“What parent in his or her right mind would give a teenager unlimited use of an unlimited credit card?” RSI Board Leader and former San Jose Mayor Chuck Reed asks in his latest oped. “No parent I know. So we must ask what legislator in his or her right mind would give public-employee unions unlimited use of tax dollars to pay for unlimited public-employee pensions? You would think the answer to that would be ‘no one.’ Not so in New Jersey.”
The state Legislature has just approved Senate-Bill 3040 to turn over the police and fire pension system to the police and fire unions. Well, most of the system, anyway. The part of the system that pays for the benefits would still belong to the taxpayers. The public-employee unions would get to decide what benefits they want and how much to charge the taxpayers. The taxpayers get to pay the bill. The whole bill. Public employees want better benefits? No problem. The taxpayers will pay.
New Jersey’s public pension debt hit $49 billion last year, of which the state has assets enough to cover only 56.5 percent of the liabilities. Just this week New Jersey’s credit rating was downgraded for the eleventh time under Governor Christie. Moody's said the downgrade “reflects the continued negative impact of significant pension underfunding, including growth in the state's large long-term liabilities, a persistent structural imbalance, and weak fund balances.”
In turn, the State Assembly has decided to turn the $26 billion Police and Firemen's Retirement System (PFRS) over to the unions to manage. The board that will oversee the pension fund is made up of trustees dominated by beneficiaries, says Steve Malaga, a fellow of the Manhattan Institute.
But the new 12-member board would also have powers beyond managing investments, including the ability to decrease members' contributions into the fund, to reinstate annual cost-of-living adjustments that the state suspended, or even change the formula the system uses to calculate final pensions.
The only problem is that this has already been tried around the country and has helped create some of the nation's biggest pension fiascos, as workers and unions have managed pensions for their benefit, leaving taxpayers on the hook for huge losses. This is not the kind of reform that Jersey residents facing tens of billions of dollars in pension debt need.
“If you think legislators and governors have been irresponsible, too willing to give out sweet benefits and too unwilling to pay for them, you are right,” says Reed. “But legislators and governors at least have to face the voters from time to time. Instead, this bill would put people in charge of making decisions who never have to face the voters. People who have no interest in controlling the spiraling costs of existing or future benefits would get unlimited credit cards. New Jersey is set to jump from the frying pan into the fire.”
Former New Jersey State Treasurer Andrew Sidamon-Eristoff calls the move “a very, very bad idea.”
Let’s get real. $26 billion is one heck of a lot of money. The depressing history of public-pension fund scandals suggests the need for constant vigilance. Unchecked by the need to coordinate its daily functions with the Division of Investment, a separated PFRS will enjoy greater autonomy with less constructive scrutiny from the press and public. Moreover, it’s not at all clear what procedural, procurement, and anti-conflicts standards will apply to certain PFRS board functions, such as the selection of fund managers and providers of professional services. Forgive me, but I can’t help worrying.
In sum, S-3040 is a shameless special-interest power grab at taxpayer expense. The state Assembly will soon consider a companion bill. Out of respect for itself, if not the voters and taxpayers of this state, the Assembly should quietly deep-six this embarrassment.