New Jersey (Part 3): what next?
Last week, we explored the problems facing the state of New Jersey and the steps that Governor Chris Christie has been taking to shore up the state’s finances. Governor Chris Christie has made an admirable effort to reduce the state’s deficit and to cut back the size of government. Yet much more work needs to be done.
It’s important for New Jersey citizens to realize that its over-sized state government isn’t just a problem because it has lead to out-of-control deficits. Too big government is in itself a problem: it crowds out the private sector and slows economic growth, making citizens less prosperous in the process. New Jersey needs to continue to scale back government spending.
New Jersey will also need to go much further in terms of pension reform. Governor Christie has advanced some modest changes to the pension system, but a lot more needs to be done. Also, Christie’s 2011 budget forgoes more than $3 billion in contribution to the state pension retirement system. This helps the immediate budget crisis, but exacerbates the long-term problem of unfunded pension liabilities.
New Jersey could look to Illinois for guidance for reforming pensions, since Illinois just passed its own set of pension reforms. Under the new Illinois pension laws, new-hires will have to wait until 67 to retire (some current state workers can retire at age 55). Illinois also capped salaries, which can be used as a basis for calculating pensions and limiting cost-of-living increases. These reforms are good in preventing the build up of future liabilities, but do little to address the considerable liabilities that have already been incurred.
New Jersey will have to go further and make sensible changes to payouts for current and near retirees, while revamping the system for younger workers so that the pension system becomes financially sound. It’s unfair to the private sector that provides the resources to the government for the public pension system to act as an anchor on the state’s economic growth and consume so much taxpayer resources.
New Jersey isn’t alone in facing this problem. The Manhattan Institute found all 59 pension funds across the country that are dedicated to public school teachers face shortfalls, with total unfunded liabilities as high as $933 billion. With liabilities so high, and taxpayers already stretched so thin, states are going to have to face these pension issues or face financial ruin.
New Jersey can lead the way and become a model for other states to follow. What do you think about what’s going on with state budgets? Does your state face a budget shortfall due to unsustainable public pension obligations? Let us know in the comments section below, on Facebook and Twitter.