Possibly laying the groundwork for today’s speech, a commission that the governor had tasked with looking into the pension crisis released its third report last week. This time, the panel attacked the proposed amendment and said the reforms it had laid out a year ago are the best and, perhaps, only way to avert a pension doomsday.
The new report also provides new details on the panel’s own plan to save roughly $2 billion by making sweeping changes to government worker and retiree healthcare plans. That money, under the plan, would then be used to help pay down the state’s $40 billion pension debt.
Past Recommendations
Last year, the same commission released a set of recommendations that included freezing the current pension system and creating a cash-balance retirement plan with some features of a 401(k). The commission also proposed offering current public employees and retirees less generous health plans and using those savings to pay down the current pension system’s debt. School districts would also take on the cost of educator pensions and their retiree’s healthcare costs under the commission’s plan.
New Details
The report released late last week fleshed out some additional details of the commission’s proposed healthcare changes, including reforming out-of-network rules for current employees and reducing their premiums, but increasing out-of-pocket costs. It also called for using healthcare exchanges for retirees, presumably through the federal Affordable Care Act. And it included new actuarial estimates validating the commission’s earlier projection of $2 billion in annual healthcare savings.
The section of the report that took aim at the proposed constitutional amendment asserted that the plan contains no concrete explanation of how the state would be able to afford a series of significant pension contributions. The Pension and Health Benefits Study Commission ripped the constitutional amendment, saying that the mandated payments and a new tax on millionaires would still leave a $2.8 billion budget gap without further reforms. The report calls it “a significant, irrevocable burden on the State.” The only real solution, the commission argued, was to make sweeping cuts to the health benefits of public workers.
The pension amendment plan calls for the state, over the course of several years, to eventually get up to the full pension contributions calculated by actuaries to restore the health of the pension system. It would also require that the state make payments on a quarterly basis rather than at the end of each fiscal year, which is the current practice.
The pension payment in the Governor’s current state budget is $1.3 billion, but the state contributions would climb to over $5 billion in less than a decade if the constitutional amendment – which Democrats want to put before voters this fall — is approved.
The report said that, without reforms, employee pension and health benefits would eat up more than 25 percent of the state budget by 2022, while 15 percent would be a better target.
“The premise of the amendment is that funding employee benefits — not protecting the health, safety and welfare of the public — should have the first call on the State’s funds,” the report said. Interestingly that same statement was echoed in the Governor’s State of the State address a month ago.
Democratic Response
Mark Magyar, policy director for the Senate Democrats, told NJSpotlight that the commission didn’t take into account several key factors in its analysis of the proposed constitutional amendment, including its projection of 7 percent annual increases in employee healthcare costs.
Magyar indicated that nothing in the proposed amendment prevents further changes to employee-pension contribution levels. He also indicated that Democrats might be receptive to some of the commission’s findings.
Next Steps
It is expected that the Governor will zero in on pensions and health benefits as part of this Budget Address today. Stay tuned as details of the address, and supporting budget document, are unveiled later today.