Bloomberg’s cheap shot at Christie on pensions

I generally try to remain agnostic about whether the media politically lean one way or another, and whether the press has it out for certain politicians or not. Still, a piece that ran on Bloomberg today entitled “Pension Promise Broken by Christie Affirmed Across U.S.” is so misleading that I assume the reporter who wrote  it either understands little about what states and municipalities are (and aren’t) doing about pensions,or simply wanted to publish a cheap shot at Christie, who deserves criticism but is hardly alone in coming up short at addressing his state’s pension woes.

Indeed, the three governments that the piece cites as affirmative contrasts to NJ–California, Illinois and Detroit–are especially bad examples of how to deal with your pension problems. Perhaps worst are the other states and governors that Bloomberg and rest of the media are ignoring as these states also, like Jersey, backtrack on commitments to fix their pensions.

Let’s start by remembering what NJ did in 2010 and 2011, which were the first two years of the Christie administration. In cooperation with a Democratically controlled legislature, Christie enacted reforms (outlined in section two of this report) which raised the retirement age for new workers, dropped the percentage of final salary that workers receive as pensions, required workers who are members of the state’s various pension funds to increase their annual contribution to the own retirement, and suspended annual Cost of Living Adjustments (COLA) for retirees.

At the time, and even today,that legislation represented some of the most substantial reform to pensions enacted by states and large municipalities. Still, as any number of us pointed out, 20 years of pension neglect in NJ meant that those reforms likely wouldn’t be enough. To this day the state’s pension problems, as I say in the posting below, remain formidable.

But few other places have done as much, including particularly California. What’s especially misleading  in the Bloomberg piece is the suggestion that Jerry Brown’s new plan to deal with underfunding of Calstrs (the state’s teachers’ pension fund) represents an affirmative contrast with NJ. Calstrs needs about $5 billion more annually. Brown proposes to begin chipping away at the problem by sending a laughable $73 million (!!!) in additional funds from the state budget next year to Calstrs, and allowing school districts to take seven years to gradually double their payments into the system. According to Contra Costa Times columnist Dan Borenstein, Brown’s bailout plan is so weak that the system’s debt will continue growing for another 12 years.

So, let’s see. Christie should be putting $2.5 billion in Jersey’s pensions next year, but he’s cutting that to $700 million. But somehow Brown’s meager additional contribution to the Calstrs pension system of $73 million is more responsible?

California’s politicians have been particularly cowardly about confronting their pension problem. They enacted insignificant reforms that have done virtually nothing to reduce the long-term liabilities the state and its municipalities face in the general pension system Calpers. That’s why San Jose Mayor Chuck Reed is undertaking the difficult task of trying to pass a ballot initiative to allow municipalities to amend their pensions absent reform in Sacramento (I wrote about this, for Bloomberg!).

Now consider Illinois. Politicians there deserve credit for having enacted pension reform that is more substantial than anything California has done. But they did theirs three years after Jersey passed its, and Illinois faces the same problem Jersey did: the prairie state’s pension system is in such bad shape that its reforms will prove inadequate over the long term unless we get some spectacular market returns in the next 10 years.

Even more problematic, however, is that Illinois politicians have done little to fix the municipal pension problems in the state, which Springfield controls. Places like Cook County are still trying to get the legislature to enact pension reform, and the legislature only now has coughed up more money for teacher pensions. Meanwhile the governor and the legislature are giving the brush off to Rahm Emanuel on pension reform (Quinn to city: Drop dead, says the Chicago Tribune today). Yet Illinois is somehow the model that Jersey isn’t?

Detroit may be absolutely the worst example in the Bloomberg piece. No elected official at the state or municipal level ever solved the city’s pension problems, which is one reason Detroit wound up in bankruptcy. Now an emergency manager with widespread power is imposing a solution on an insolvent place, and even that involves a gimmick.

As Steve Eide points out here, the city’s restructuring plan involves a 10-year pension holiday for the government. Until 2023, all pension payments made on behalf of Detroit workers will be made with money from private contributors, who are bailing out the system. Let’s hope that by 2023 Detroit’s books are in order to the extent that it can make its own pension payments. But if we gave anybody else (like say, New Jersey), the same deal I’m sure they’d be able to balance their budgets, too.

The Bloomberg piece also leaves out other governments (and governors) who are more or less punting on pensions. New York State has enacted insignificant reforms that do little to chip away at long-term pension debt. How, then, are the state and its municipalities dealing with rising pension costs? Through a new program enacted by Gov. Cuomo which allows the state and its cities to “borrow” from the pension fund by not making their full payments. Here is how the Ithaca Journal described what’s going on in a piece entitled, “Borrowing for pension costs soar in N.Y.”

Local governments and the state increased borrowing off the state pension fund to pay yearly retirement costs by 22 percent between 2013 and this year, state records show.As pension costs soar, 133 municipalities deferred $472 million in retirement obligations this year – a record amount, data from the state Comptroller’s Office showed. Last year, 139 employers borrowed $368 million. Local governments said they had no choice but to enter the state’s amortization program, which allows them to essentially borrow off the state’s $161 million pension fund to pay the ongoing expense with interest over as many as 12 years.

What’s most worrisome about what’s happening in NY, under the scheme that Gov. Cuomo enacted,  is that there’s little planning for how the municipalities will pay back this pension debt, because many of those doing the borrowing have long-term structural deficits, and the state is doing little to control rising pension costs. As the Mayor of Elmira said: “We have zero in economic growth here. Sales tax revenues are down; we’re under the constraint of a tax cap.”  That’s a great reform agenda, isn’t it? But somehow Cuomo is teflon-coated, I guess.

I could go on, of course, about all of the governors and mayors not confronting their pension woes, or backtracking on reform. Maryland’s Martin O’Malley, for instance, has reneged on 2011 reforms which committed the state to paying $300 million a year additionally into the pension system, every year, to reduce its liabilities. This year and next the state will make only one-third of the supplemental payment it committed to and use the rest of the money, like Christie, in order to balance its budget. And as Chris Tobe noted in the comments section of this posting, let’s not even bring up Kentucky!

New Jersey remains in the unenviable position of having done more than most places in the way of pension reform but still having big problems, thanks to the depth of its pension hole. You can certainly argue that Christie could have pushed for even more three years ago, including switching workers into defined contribution plans or hybrid plans, as Rhode Island did.

But across the rest of the country reform has been tepid, at best, and pension liabilities are still rising in many places. To suggest as the Bloomberg story does that somehow pension fixes are being carried out across the rest of the country in some wave of reform is just downright misleading at best.

 

 

 

 

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  1. S & P 500

    The University of Calif. has a big pension problem too, as explained in this letter from Mark Yudof who was recently replaced by Janet Napolitano. To address this issue it has done what most states and muni’s have done–make modest adjustments to contributions and benefits. UC, however, has something that most public sector pension funds don’t have–a source of revenue that currently looks like it will never run dry. This infinite well consists of (1) tuition increases (2) out of state students who pay much more than in-state residents and (3) foreign students who likewise pay more in tuition. UC costs $4500 per quarter and it’s only a matter of time before that amount goes up or before fewer students get full scholarships in favor of those who can pay. UC is no longer a “crown jewel” of the state–it’s another pension black hole.

    http://ucrpfuture.universityofcalifornia.edu/news-updates/regents-approve-increase-in-pension-plan-contributions-for-2014-15

    http://newsroom.ucla.edu/stories/yudof-letter-uc-employment-benefits-168517

    June 2, 2014 Reply

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