New Jersey pension overhaul proposal faces strong opponents

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A bid to stabilize New Jersey’s soaring pension and healthcare costs faces an uphill battle against the state’s Democratic governor and organized labor.

Senate President Steve Sweeney, D-Gloucester, unveiled a 27-bill package last week includes measures to establish hybrid 401(k)-style accounts for public sector workers with less than five years of service and merge the high-cost School Employees Health Benefits Plan into the lower-cost State Health Benefits Plan.

Sweeney said his “Path to Progress” legislation is necessary to stabilize a state that has one of the largest unfunded pension liabilities. Sweeney said without the legislation, New Jersey faces a $3 billion deficit by the 2023 fiscal year.

“These reforms can have an historic impact that will produce an unprecedented amount of sustained savings,” said Sweeney, who introduced the bills with state senators Paul Sarlo, D-Wood Ridge, and Steve Oroho, R-Sparta Township, along with Assembly Majority Leader Lou Greenwald, D-Lindenwold. “If we fail to act, property taxes will continue to go up, and pension, health benefits and debt service will continue to eat up every penny of state revenue growth over the next three years.”

The Path to Progress proposal was crafted by the bipartisan Economic and Fiscal Policy Workgroup comprised of economists, academics, government experts and legislators. Sweeney, who created the group, has been promoting the need for major changes to the state’s pension and health benefits systems while facing stiff opposition from labor groups. At a press conference Thursday, Sweeney said he plans to put the proposed pension and healthcare changes before voters in a referendum if not enacted by lawmakers and Gov. Phil Murphy.

Sweeney is seeking Murphy’s support for his pension and health savings measures in the midst of clashes over a proposed “millionaire’s tax” the Democratic governor pitched as part of his $38.6 billion budget proposal. Murphy projects raising the tax rate for on every dollar earned above $1 million to 10.75% from 8.97% would garner $447 million of new revenue to help fund a $3.8 billion pension contribution. The proposed 10% pension funding increase would put the state at 70% of the actuarially determined contribution and on pace to be at a full ADC funding level in 2023

“Our problems, and pensions in particular, have been engrained by years of politicians putting short-term electoral gain before well-known and acknowledged long-term needs,” said Murphy in a statement last Thursday. “I will carefully review the bills introduced today to see where we can find common ground, but the bottom line is that savings alone will not help us meet the entirety of our obligations”

A steep pension burden triggered 11 bond rating downgrades for New Jersey under previous Gov. Chris Christie between 2011 and 2017. The Garden State’s general obligation debt is rated A-minus by S&P Global Ratings, A3 by Moody’s Investors Service and A by Fitch Ratings and Kroll Bond Rating Agency. The state has only a 38.4% pension funding ratio, according to S&P.

Christie spearheaded sweeping pension changes in 2011 backed by Sweeney that called for ramping up payments to the underfunded system over a seven-year period of unions agreed to contribute more. The Republican governor ultimately slashed those promised pension payments, with unions fighting the contribution cuts before ultimately losing their battle in a 2015 State Supreme Court ruling.

Many public sector unions came out against Sweeney’s proposals including the New Jersey Education Association, which has fought the Senate president since the 2011 pension plan was enacted and sought to defeat him during his last campaign in 2017. The NJEA has more than 200,000 members.

“New Jersey’s educators have already been pushed beyond the breaking point, with unsustainable health care costs and a pension that costs much more and delivers much less than what was promised to many of us when we entered this profession,” NJEA president Marie Blistan said in a statement. “We refuse to be scapegoated for the state’s failure to meet its fiscal obligations, and we refuse to be driven further and further behind economically to pay for New Jersey’s legacy of fiscal irresponsibility.”

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