In state capitals and universities across the U.S., leaders are facing the unpleasant reality that they don’t have enough money to meet their future pension obligations. States alone are facing a $1 trillion shortfall, according to the Pew Center on the States.
This is a crisis albeit a really slow-moving one. More than half the states had fully funded pension systems in 2000. Six years later, only six could make that claim. There were only 4 by 2008. Two states–Illinois and Kansas–had less than 60 percent of the necessary assets on hand.
New Jersey, the home of the nation’s highest property taxes, deserves a special place in the fiscal hall of shame. The Garden State’s pension shortfall was $45.8 billion as of June 30, 2009, or more than $5,200 for every man, woman, and child, according to the Philadelphia Inquirer. It’s the highest unfunded liabilities of any state on a per-capita basis. There is, unfortunately, plenty of blame to go around among Democrats and Republicans.
“New Jersey had a $7.5 billion pension surplus in 2000, but years of failing to meet the actuarially required contribution led to an unfunded liability of $34 billion in 2008,” according to Pew. “This has left the state’s pension plans with 73 percent of the assets needed, below the 80 percent benchmark that the U.S. Government Accountability Office says is preferred by experts.”
That’s right, the leaders in the state that sucks away my tax dollars into a fiscal black hole just decided that they didn’t feel like paying a pesky, but important bill. Because New Jersey leaders lived in a dream world for years, taxpayers are paying the price today. Assuming an 8 percent return on investments — a big if — and that the state makes its required contributions — another big if — New Jersey’s public employee pension funds will go broke in 2019, according to an economist quoted by the Inquirer.
“They have gotten themselves into a deeper hole than many other places,” says Elizabeth McNichol, a senior fellow at the Center for Budget and Policy Priorities, in an interview.
Governor Chris Christie (R) is vowing to cut pension payouts and may rollback a 2001 increase. The state’s unions, who already hate Christie, are fuming. Christie, though, says he has no other choice. He is expected to unveil a reform plan this week.
“This year, according to actuarial calculations, the state was supposed to contribute $3.1 billion to the pension system,” the Inquirer says. ” Of that amount, $1.8 billion was to pay for the unfunded actuarial accrued liability, while only $1.2 billion was for current costs. Under Christie’s first budget, the state put in nothing.”
Declining stock market returns have also hurt other states such as Illinois. The Prairie State has only funded 54 percent of its pension liability of $54.4 billion. State officials have failed to meet their actuarial obligations for years though in 2009 they issued $3.5 billion in bonds to pay for their 2010 contributions, according to Pew.
Even public universities are grappling with the issue. Officials at the University of California are poised to make sweeping changes to their pension plans to close a $24 billion shortfall to pay for pension and health care benefits for retirees.
Public pensions are a time bomb waiting to explode as Baby Boomers retire. Either we must deal with the problem now or face dire consequences later.