December 28, 2008

Politics

Pension Fight Signals What Lies Ahead

By DUNSTAN McNICHOL

IN a preview of political battles to come over the state’s mounting fiscal problems, Republican lawmakers and labor union leaders are voicing opposition to Gov. Jon S. Corzine’s proposal to allow county and municipal governments to skip $584 million in pension fund payments in the coming year.

While Mr. Corzine said the move is necessary to avoid the prospect of big property-tax increases, Republicans are using the plan to seize the mantle of fiscal responsibility. Labor unions argue Mr. Corzine’s strategy will jeopardize their members’ benefits. The dispute over the pension fund contribution is just the beginning of the fights that lie ahead in Trenton this year as Mr. Corzine and lawmakers confront a shortfall in revenues that threatens their ability to finance many state services.

“None of the choices are going to be good choices,” said Senator Barbara Buono, a Democrat from Middlesex County who is chairwoman of the Senate Budget and Appropriations Committee.

The pension fund for thousands of New Jersey teachers and government workers is now about $60 billion, after investments declined by 24.6 percent or about $21 billion through November, according to reports delivered to the State Investment Council.

About 700,000 retirees are counting on the fund to cover benefits that are scheduled to cost more than $118 billion over the next several decades.

Governor Corzine said that letting local governments postpone $584 million in deposits they are scheduled to make into the fund this April would help head off double-digit property tax increases this coming year, a year in which residents are facing a crippling recession and Mr. Corzine is scheduled to stand for re-election.

In an interview with reporters, Mr. Corzine said it would be unreasonable to demand full pension payments now given the economy. “The deferral is designed to meet the times,” he said. “It is not anything anyone would do in healthy economic times.”

Earlier this month, the pension deferment proposal was pulled from the voting agenda in the Senate after Democrats failed to muster the votes needed to pass it. Mr. Corzine and Richard J. Codey, an Essex County Democrat who is the Senate president, promised to renew their push for the measure this year, but key Democrats continued defecting from the proposal, leaving its prospects for passage murky.

“In the past, Governor Corzine decried the underfunding of state pensions and the use of one-shot measures to paper over fiscal problems,” said Senator Tom Kean Jr. of Union County, the Senate Republican leader. “This pension gimmick commits both sins, and it’s a bad deal for both workers and taxpayers.”

The pension fight comes amid a burgeoning state budget crisis.

Before July 1, Mr. Corzine must address a shortfall of at least $1.2 billion that has arisen in the current state budget, since revenues from income, sales and corporate taxes are running far behind the amounts needed to support the original spending plan.

During the budget year that starts next July 1, the task is even more daunting. The governor has projected a shortfall of at least $5 billion because of the recession, about one-sixth of the total budget. At the same time, New Jersey is facing a 12-year high unemployment rate of 6.1 percent, cutbacks in the financial services jobs that were among the state’s most lucrative and a record drop in sales tax collections caused in large measure by the virtual collapse of auto sales.

“We are in the worst financial crisis since 1930; everything is going to be up for grabs,” said Robert Master, lobbyist for New Jersey’s largest public employees union, the Communications Workers of America. He is pressing for an increased income tax on high-wealth residents.

“We know the ax is going to fall on all kinds of social programs that matter a lot to lower- and middle-income people,” he said. “The question is whether Governor Corzine is enough of a leader to make his friends, frankly, step up.”

Like many governors before him, Mr. Corzine first turned to the pension fund for a lifeline. But it is a frayed line.

The fund started in 2008 with $81.3 billion in assets, but that was still only 79 percent of the amount actuaries calculated it should hold to cover the benefits retirees have already earned.

Investment losses would ordinarily prompt steep increases in state and local taxpayer contributions, to keep the pension funds flush. But Mr. Corzine and local leaders face a host of competing demands for the diminished tax returns they control, and the long-term demands of the retirement account have become a tempting source of short-term savings needed to prop up current government spending.

Already, Mr. Corzine’s current budget has saved about $1 billion by contributing only half what actuaries said the state should put into the fund this year. The balance of the state’s contribution has not yet been deposited, meaning it could be further reduced to help meet the looming budget shortfall.

And the new initiative would have let local governments pay only half the $1.17 billion they are scheduled to contribute to the pension system in April. That would save towns $584 million in 2009, and another $509 million next year and $257 million in 2011, as they work their way back to full financing in 2012, according to information presented to lawmakers considering the measure.

“Failure to provide this short-term relief will have devastating consequences,” Ms. Buono said. “I just can’t turn a blind eye to the social costs and human suffering we will be contributing to if we fail to pass this bill.”