Opinion

New Jersey’s warning for New York

New Jersey Gov. Chris Christie has faced heavy criticism since he announced that he’s deferring payments to the state’s pension system to balance his budget. But so far no one’s offering a real way out of Jersey’s pension dilemma.

Democrats blasted Christie for reneging on reforms passed in 2010 and 2011 to address the state’s massively underfunded pensions.

But they volunteer no reasonable alternatives to Jersey’s pension problems: Even more taxes on the rich don’t come near to fixing the mess.

Getting Jersey’s retirement system healthy is impossible without new ways of thinking about government in the Garden State — something that few in Trenton acknowledge.

Independent analysts rate the system as among the nation’s worst-funded, thanks to mismanagement and politically motivated self-dealing among politicians and union leaders dating back to the early 1990s.

The actual cost of beginning to pay down the state’s pension debt requires annual contributions of about $5 billion. But Jersey only collects about $32 billion a year in revenues.

Historically, states have spent under 5 percent of their budgets on pensions; now Jersey needs to consistently pump between 10 percent and 15 percent of its revenues into pensions, perhaps for decades.

Democrats’ proposed new levy on high earners (on top of Gov. Jim McGreevey’s 2004 half-millionaires’ tax, which remains in place) would raise less than $1 billion. And they’ve been silent on how to fix the rest of the problem, except to blame some of it on slow economic growth under Christie.

Massive tax hikes to fix the pension system would be especially destructive right now because the money wouldn’t even go to build roads and bridges or invest in better schools. Instead it would largely leave the state, invested around the world in pursuit of the high returns that the pension fund desperately needs.

Ironically, Jersey is actually doing better now economically than under the Democrats who criticize Christie.

In each of the last two years (2012 and 2013) private-sector jobs in Jersey have grown at a faster rate than during any of the years 2002-2009 when Democrats controlled state government.

That’s not been enough growth, however, in part because the cost of fixing past neglect in Jersey is staggering.

Still, Trenton politicians continue conducting business as usual.

Democrats have vigorously fought Christie’s efforts to reform the state’s Supreme Court, which along with pensions plays a major part in the state’s woes. The most activist state court in the nation has imposed billions in unprecedented costs on Jersey residents with its housing and education mandates.

There’s no way Jersey can afford both the court’s expensive dictates and the cost of fixing pensions.

Similarly, Democrats have resisted Christie’s calls to revisit the pension reforms of 2010 and 2011. He’s now admitted those reforms were not enough; the Democrats haven’t.

Christie has promised to propose more reforms; the Democrats promise to resist.

Public employees need their own wake-up call, because there is simply no way to save the current system without serious cutbacks elsewhere on workers. Governments across the nation have been laying off public employees and cutting wages thanks to rising pension costs.

From 2010 through 2012, according to the latest data, school systems in America cut spending on salaries by $7 billion even while outlays on benefits, largely driven by pensions, rose by $6 billion.

In Jersey, school spending on salaries fell $400 million in the same period while benefit costs rose by $350 million. Without new savings, Jersey government workers face years of similar wage curbs.

New Jersey’s woes should also be a warning to New Yorkers. Although the Empire State’s pension systems are better funded, benefits are so expensive that municipalities are rushing to defer pension contributions.

In the last year, 133 New York municipalities postponed nearly half a billion dollars in pension contributions, according to the state comptroller, on top of $368 million the year before. Many of these places are deeply troubled upstate communities with no strategy for paying back these deferrals.

Bad habits can be contagious. In Jersey, politicians started by shortchanging the pension system, then moved on to other shenanigans — including draining the state’s unemployment trust fund to finance spending. As a result, the state’s budget has not been legitimately balanced in years.

Now, under pressure, Jersey politicians must acknowledge that for decades they have been spending more than they could afford to support a budget they only pretended to balance — despite having the nation’s second-highest taxes. Jersey’s years of living beyond its means are over — for both parties.

Steven Malanga is senior editor of City Journal.