Two States, One Cup
To the many similarities between New Jersey and California—the basic shape, the endured disapprobation of an uncomprehending country, the vibrant but little understood beach culture, the cowboy way—you can now add complete stupidity in managing public sector pensions.
The Garden State has been using sleight of hand to avoid funding its largest public-worker pensions since the beginning of this century. The Bond Buyer gets the details from the prospectus for a new state bond issue:
The preliminary official statement distributed ahead of the note sale indicated that the state only made $106.3 million in contributions to its seven pension plans for the fiscal year ending June 30, 2009, much less than the $1.047 billion that was included in the fiscal 2009 appropriations act and just 4.8% of the total actuarially recommended contribution of $2.231 billion.
Fans or haters of Reason's coverage of the Golden State's pension peccadilloes will recognize the pattern seen most recently in the University of California's failure to fund its own swollen pension commitments. But New Jersey also, like California, traces its crisis back to a catastrophically large increase in pension payouts enshrined nearly a decade ago, followed by a long period of denial and unrealistic expectations:
Specifically, the SEC said the disclosure fraud began in November 2001 when the Legislature enacted a law that increased retirement benefits for employees and retirees enrolled in the Teachers' Pension and Annuity Fund and the Public Employees' Retirement System by 9.09%.
However, the state resorted to gimmicks to "fund" the enhanced benefits, rather than increase cost of the benefits to the state or employees. Specifically, it revalued TPAF and PERS' assets to reflect their full market value as of June 30, 1999, at the height of the bull market. As a result, the documents essentially masked a $2.4 billion decline in the market value of the pension assets between 1999 and 2001, the SEC said.
That is, the last time New Jersey actually paid this enormous bill was during the administration of Christine Todd Whitman. As Hoboken's favorite son found out, when the cultures of the bicoastal sister states overlap, the results are usually grim: