By Mark Lagerkvist | New Jersey Watchdog
The U.S. government should rescue troubled state pension plans with billions of dollars in long-term, low-interest loans, New Jersey Senate President Steve Sweeney proposed on Wednesday.
The trillion-dollar question is whether it would save pensions or sink states deeper in debt. That’s the amount of underfunding public retirement plans collectively face in the 50 states, according to a Pew Foundation study.
“A federal plan to restructure the pension debts would cut annual payments and save the taxpayers money,” said Sen. Sweeney, D-West Deptford.
Sweeney said New Jersey now needs to pay $6 billion a year for the next 30 years to erase its $51 billion in unfunded pension liabilities. He calculated the annual payment would be cut in half to $3 billion with a $50 billion loan from the Federal Reserve at an interest rate of 1-percent a year.
But the Garden State’s total public pension system shortfall is actually $170 billion — more than three times the figure cited by Sweeney — according to New Jersey Watchdog’s analysis of state Treasury records. It includes:
- $82.7 billion in unfunded liability for the pension plans of state workers
- A $20.7 billion shortfall for the pensions of local government employees
- $53 billion in unfunded health benefits for state retirees, and
- $13.8 billion to cover the post-employment benefits local government workers
Paying that full debt could cost roughly $10 billion per annum, even at 1-percent interest over three decades. The yearly payments would equal one-third of the entire state budget, currently $33.8 billion.
“Bad idea!” opined Bob Williams, president of State Budget Solutions, a non-profit watchdog. “How does Sen. Sweeney expect the feds to fund a low-interest loan program? Congress has enough problems trying to get the loans they need to pass their unsustainable federal budgets.”
By borrowing, New Jersey’s Statehouse Democrats hope to avoid reductions in retiree benefits like those urged by Gov. Chris Christie’s bi-partisan, blue-ribbon pension study commission.
“The time has come to break this cycle,” stated the panel’s 52-page report. “The essence of this approach is to more closely align public retirement and health benefits with levels they would be at in the private sector.”
The Democrats have refused to negotiate since the governor has reneged on $4 billion in pension payments he promised in a 2011 reform measure. Rather than control costs, Sweeney is willing to borrow to keep the existing system afloat.
“Instead of making difficult choices, the legislators are trying to kick the can further down the road,” said Shelia A. Weinberg, CEO of Truth in Accounting, a non-profit group advocating fiscal responsibility in government.
Five months ago, the governor’s pension commission warned the current system is unsustainable and that time quickly is running out.
“The situation is not only getting worse, it is fast approaching the point at which it will be beyond remedy,” concluded the task force study.