When Phil Murphy becomes New Jersey’s 56th governor on Tuesday, he’ll face a stark choice: Ship all new tax dollars to the state pension fund and freeze all other outlays — or sit back and watch the fund head to collapse.
That’s the alarming bottom line in a new Manhattan Institute report by Steven Malanga and Josh McGee. Indeed, even with a virtually frozen budget, a healthy economy, a bullish stock market and tax hikes, it may simply be too late to save the fund.
“New Jersey’s pension system may have already reached an unfixable tipping point,” the report notes. That echoes the thoughts of a financial analyst who warned, back in 2015, “You can’t grow your way” out of so vast a hole, even with higher investments. “It’s almost mathematically impossible to close the [funding] gap.”
The nightmare has been long in the making. The authors describe a “tale of elected officials willing to grant retirement benefits to workers without having the money to pay for them” and labor groups pushing for (and getting) “enhancements” even when there was no funding for them.
Jersey’s system guarantees government employees juicy benefits — whether or not the economy lags, tax revenues dip and pension-fund investments fall short. Few private-sector employees enjoy such guarantees; their bosses contribute to their 401(k) plans, but those fluctuate with the stock market.
As a result, the Garden State now boasts America’s most underwater pension fund, with a mind-blowing $124 billion in debt, Standard & Poor’s notes. Assets cover just 30 percent of what’s needed for future obligations, well below the 40 percent mark the Rockefeller Institute of Government deems “crisis” level.
California is also struggling with pension costs, though it’s 68 percent funded. A state court there shocked everyone by saying benefits could be rolled back as long as payments are “reasonable” (though an appeals court later pushed back on that).
Compounding the problem, Murphy is labor’s darling and so unlikely to curb pension perks, let alone push for anything like a switch to 401(k)s. Instead, he’s vowed $1.3 billion in tax hikes, though he already committed some of the new revenue.
Besides, even if he spent it all on the pension fund, he’d still need billions more to climb out of the hole.
One way or another, Jersey will soon face a painful day of reckoning.