News Column

Pension shift poses challenges for Christie

May 25, 2014

By Maddie Hanna and Andrew Seidman, The Philadelphia Inquirer

May 25--The rocky start to Gov. Christie's second term took a turn for the worse last week, as he reversed course on a signature first-term accomplishment and risked his political reputation as a fiscal steward.

Christie announced that he planned to slash state payments into the public employee pension system to fill a gaping revenue shortfall, despite a 2011 deal that required the state to ramp up its payments in exchange for increased worker contributions.

Two of the state's largest public-sector unions threatened to sue, and Democrats blamed Christie for mismanaging the budget.

To Wall Street ratings agencies that had already downgraded the state's credit, Christie's plan to cut the pension payments by $2.4 billion over two years to help fill an even greater projected revenue shortfall demonstrated further evidence of fiscal instability.

For the Republican governor, who says he is still weighing a run for president in 2016, "the danger is that the news really tarnishes his reputation as a chief executive," said Julian Zelizer, a Princeton University history and public affairs professor.

New challenges

At the same time, Zelizer said, Christie could woo conservative voters by picking a fight over pensions in a dramatic way -- "a message he's willing to take steps people in Washington won't."

A battle with public workers would not be new for Christie, who early on gained YouTube fame for verbal takedowns of teachers defending their schools.

But Christie faces new political challenges as he calls for more changes to reduce the costs of public worker benefits.

"The rhetoric that he used in selling and promoting the pension reforms of his first term rings hollow when he, in effect, is engaging in the actions that all his predecessors" did, said Ben Dworkin, director of the Rebovich Institute for New Jersey Politics at Rider University.

Nationally, Christie's bigger problem is not the pension backtrack, but the budget trouble underlying it, Dworkin said. "When he's in Iowa, the challenge won't be to explain the pension cut, but to explain the lack of economic growth."

'We did it'

Addressing the Republican National Convention in 2012, Christie trumpeted the pension deal, saying that "with bipartisan leadership we saved taxpayers $132 billion over 30 years and saved retirees their pension. We did it."

When Christie announced plans Tuesday to cut the state's pension payments, he said he had few options to fill a projected $2.75 billion revenue shortfall over the two years. His budget plan for fiscal year 2015 is $32.7 billion.

Saying that the state could not afford to pay for the "sins of the past," Christie said: "Our problem is we have made promises to people we cannot keep. So we have to adjust this. . . . People have to get real about what the situation is going to be going forward."

For more than a decade before Christie's term, the state improved employee benefits and cost-of-living adjustments but largely didn't make its full payments into the pension system, which includes about 800,000 current and retired public employees. At the same time, the state's investments were roiled by swings in the stock market.

Christie and the Democratic-controlled Legislature enacted a series of changes to the pension system. Most notably, a 2011 law required public employees to contribute more toward their pensions and health benefits; increased the retirement age for new workers; and suspended cost of living adjustments.

The law required the state to phase in its pension payments over seven years, at which point it would make its full actuarially recommended contribution.

But the payments Christie budgeted relied on "rosy revenue projections" that proved difficult to meet, meaning the governor would have had to raise taxes or cut popular services to meet the state's obligation this fiscal year and next, said Patrick McGuinn, a political scientist at Drew University who has written about the politics of pension reform.

Christie acknowledged in 2011 that even if the state were to meet the recommended contributions after seven years, the pension would still be significantly underfunded.

Now it's further behind schedule, increasing the costs to future budgets.

"This was supposed to be the signature legislative achievement of his administration and a demonstration of his ability to work with a Democratic legislature, and now it's all blown up," McGuinn said.

Last week, state Treasurer Andrew P. Sidamon-Eristoff told the Legislature's budget committees that he expected the pension's unfunded liability to grow by $2.4 billion to more than $40 billion in fiscal year 2016.

"This will just make it harder to close the gap," said Richard C. Dreyfuss, an actuary and adjunct fellow at the Manhattan Institute's Center for State and Local Leadership, a conservative-leaning think tank.

"This is just a bad problem that's getting worse," he said. "They did some actions in 2011. But clearly they were not sufficient."

Ratings agencies have issued a series of downgrades during Christie's tenure. On Thursday, Fitch Ratings warned that the decision to cut pension payments "once again displays an inability to deliver a recurring solution to the state's budgetary imbalance and further delays action to align the state's revenues and expenditures."

Compared with other states, New Jersey has been paying a smaller percentage of what actuaries say it should contribute toward its pension system.

If Christie can't make bigger payments, "this cost doesn't go away," Dreyfuss said. "It's deferred with interest. The next governor after Chris Christie is going to have this on his or her doorstep."

That creates another interesting political dynamic, since Senate President Stephen Sweeney (D., Gloucester) -- Christie's key partner in the 2011 deal -- is said to be considering a gubernatorial run.

Sweeney, who manages a private-sector union, is still recovering from his battle with public unions that year and recently declared that the pension system was "fixed."

At a rally Thursday outside the Statehouse, Sweeney and other members of the Legislature's Democratic leadership vowed to protect public employees' pensions.

'This fight'

Sweeney repeated his call for a tax hike on the state's highest earners, pledging to "make sure a millionaire's tax gets done. This fight has just started."

Christie has been adamantly opposed to the hike, which he says would make New Jersey less competitive.

A tax hike could have another effect: It could hurt Christie in a Republican presidential primary.

While the pension backtrack could supply opponents with ammunition, "Christie's got far more serious national problems than this," said Larry Sabato, a political scientist at the University of Virginia. "Not just Bridgegate but some moderate positions that won't sell with many conservatives."

In light of the George Washington Bridge controversy, Christie could benefit from a new story line, said Tom Rath, a Republican strategist in New Hampshire.

"If the narrative changes, from discussion about the bridge circumstance to his ability to manage an economy, I think that's a good step for him," Rath said. Christie will be seen "more as a governor dealing with a state problem, and less as a person with lieutenants who play politics."

mhanna@phillynews.com

609-989-8990

@maddiehanna

___

(c)2014 The Philadelphia Inquirer

Visit The Philadelphia Inquirer at www.philly.com

Distributed by MCT Information Services


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Philadelphia Inquirer (PA)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters