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Pension Meltdown
New Jersey Joins Illinois and California at the Bottom

Illinois and California still lead the nation in fiscal mismanagement, but New Jersey is looking like a solid contender for third place. After the state cut hundreds of millions of dollars in planned pension contributions to balance its budget, S&P finally cut New Jersey’s general obligation bond rating to A+, third lowest in the country. Explaining its decision, the ratings agency pointed to the state’s “unbalanced budgets,” “partial funding of pension obligations,” and reliance on “one-time measures” that make the state’s budget look healthier than it really is. The Philadelphia Inquirer reports:

“Based on these estimates, we calculate the use of one-time measures to range from $811 million to $1.03 billion, or 2.5% to 3.2% of the budget. When non-recurring measures of $1.17 billion used to balance the enacted budget are included, total use of non-recurring measures range from $1.8 billion to $2.07 billion, or between 5.5% and 6.3% of the budget, depending on whether these additional shortfalls materialize. This compares the use of one-time measures of approximately $1.7 billion, or 5.4% of budget, in the fiscal 2013 budget.

“These figures would be about double if the state were fully funding its pension annual required contribution. […]

“Approximately 26% of the budget and 94% of increased spending is going to pay for pensions, employee and retiree health care, and debt, which are ultimately crowding out other services. School aid funding increases by less than 0.5%.

The message here is clear: Despite the reform Christie passed in 2011, pensions and other public employee costs are burning a hole in the budget. The state has resorted to quick fixes to keep things running, jeopardizing the state’s long-term fiscal health in the process. Not all of the pain can be blamed on Governor Christie: he inherited a state that was already in deep trouble, managed to push through a pension reform, and is currently pushing for another one. On the other hand that reform shows signs of the same short-term thinking S&P criticizes in the report, and his administration has relied on a number of these one-year fixes to keep budgets in line.

This may indicate fiscal mismanagement on Christie’s part, or simply that Democratic majorities in both houses of the legislature put serious limits on what Christie can do. The reality probably lies somewhere in the middle, but it’s obvious that New Jersey will need to do a lot more if it wants to avoid the fate of Illinois.

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