…and one year ahead of schedule
It’s been a long time coming.
For the first time since 1996, New Jersey is poised to make its full actuarily determined state contribution (ADC) into the pension system in Fiscal Year 2022. This is thanks to Gov. Phil Murphy making good on his promise to be the governor who would finally fully fund the pension system.
The proposed payment comes as a welcome surprise. Fiscal Year (FY) 2022, which begins this July, is the ninth year of what had become a ten-year ramp up to full pension funding. The first full payment wasn’t expected until FY 2023.
After more than two decades of pension underfunding by governors from both parties, the state has spent nearly a decade gradually increasing its payments into the pension system. Under Ch. 78, passed in 2011, Gov. Chris Christie had promised to ramp up to full payments over seven years. He promised to pay one-seventh of the ADC in FY 2012, two-sevenths in FY 2013, and so on.
It didn’t take long for Christie to break that promise. With his eyes set on a White House where he’d never live, Christie announced in May 2014 that he did not intend to make the legally required four-sevenths payment—reducing it to fourth-tenths of the ADC—even as he demanded more concessions from public employees. Christie shortsightedly believed that attacking public employees, and reducing their hard-earned benefits, was his clearest path to the presidency.
Paying the full ADC this year is good not only for those in the pension system, it is good for all New Jersey residents. As taxpayers it will save us $861 million over the next 30 years. Murphy is demonstrating true leadership and a foresight that has long been missing when it comes to pension funding.
Gov. Christine Todd Whitman did not demonstrate such foresight when she became the first in a long series of governors to use for other purposes funds that should have gone into the pension system. Her pledge to cut state taxes by 10% a year for three consecutive years helped her narrowly win the governorship in November 1993.
Whitman paid for those tax cuts through maneuvers that lowered the state’s ADC to the pension system. When those maneuvers did not yield enough to pay for her tax cuts, she simply stopped making the state’s full contribution to the pension system in FY 1997.
The long-term impact of her administration’s cuts was predicted at the time in editorials and analyses.
Montclair native and New York Times columnist Bob Herbert wrote on Feb. 22, 1995, “Mrs. Whitman and the long-term interests of New Jersey appear to be at odds. The governor won election by promising tax cuts, and any further advances in her career will be powered by her ability to ‘deliver’ on that promise. Like most politicians, her eyes are on the short term: today’s budget, tomorrow’s election.”
Writing for the Washington Post, Malcolm Gladwell reported on Sept. 5, 1994 that Whitman’s team made the audacious claim that the pension system was overfunded. He noted that then state Treasurer Brian Clymer contended that “we were basically creating a windfall for future taxpayers at the expense of today’s taxpayer.”
After multiple governors of both parties followed in Whitman’s pension-underfunding footsteps, we now know that there was no such windfall for those of us who became those future taxpayers, and that the pension was never overfunded. In fact, Gladwell’s 1994 column was right on target, reporting that Henry Raimondo of Rutgers’ Eagleton Institute said, “[Whitman] has effectively slowed down the amount of money going into the system, and in around 2010 the liability to New Jersey taxpayers is going to grow dramatically.”
The pension payment required to meet the full ADC in the coming fiscal year proves this prediction beyond doubt. Had Whitman and every governor who followed her made the full ADC, this year’s state contribution would have been about $750 million, rather than the $6.4 billion required in FY 2022. Raimondo would have had 6.4 billion reasons to say, “I told you so.”
Murphy’s willingness to look beyond “today’s budget and tomorrow’s election” is a foresight we have sorely needed for a long time. If over the next 25 years, New Jersey’s governors and legislators follow in Murphy’s footsteps rather than Whitman’s, future residents of the state will reap the long-term benefits of doing what is right, rather than what is expedient.