NJ must cut back health benefits to afford public pension payments, lawmaker says
A Republican lawmaker believes that if New Jersey were to guarantee pension payments in its constitution, the law should provide for a temporary "escape hatch" in years that tax collections fall short, and public employees should agree to significant changes in their health benefits.
Assemblyman Declan O’Scanlon, R-Monmouth, said the changes he envisions for public workers’ and retirees’ healthcare would save almost $4 billion across all levels of government, including $2.25 billion for the state. That would go a long way toward making pension payments, he said.
“We are at a tipping point,” O’Scanlon said. “We are really on the cusp of either fixing our situation, dramatically fixing our situation, or a fiscal cliff of proportions this state has never confronted in its history.”
“This has to be a two-way street. We have to take care of our public workers and we have to take care of our taxpayers simultaneously,” he said. “To do either one or the other, either side could argue is unilateral disarmament.”
Unions were unimpressed. They are advocating for a constitutional amendment guaranteeing contributions to the pension funds that doesn’t allow for the state to reduce or skip payments and isn’t contingent on healthcare cuts.
“This ‘safety valve’ for funding the pension payment … would probably allow the Christie administration to never make the pension payment anyway, since that would merely allow them to do what they have done for two decades – that is, whenever they need any cut, to eliminate the pension payment first,” said Hetty Rosenstein, the New Jersey area director for the Communications Workers of America.
New Jersey Education Association spokesman Steve Baker pointed to union president Wendell Steinhauer’s testimony at a hearing Monday, when he said two decades of promises and plans have left the pension systems less than half funded, with a deficit exceeding $40 billion.
“Everyone seems to have a plan to fix the pension system, but none of those plans have worked. Just look at Chapter 78 for evidence of that,” Baker said, citing a 2011 reform law. “The bottom line is, politicians have had 20 years to fix the system, and they have failed.”
O’Scanlon said he understands why unions are insisting on a constitutional amendment but adds that unless reforms are made now, unions won’t agree to changes later once the pension funding is locked in.
“It’s fair of public workers to insist on that in order to come back to the table, because they’re right. The 2011 reforms we did, we reneged on,” O’Scanlon said.
Here’s what O’Scanlon proposes:
- Requiring annual pension payments through a constitutional amendment. He’d phase-in the required payments more slowly than in the Democrats’ proposal, reaching a full payment in 2023, not 2022, by following the most recent formula Gov. Chris Christie has laid out – though could make the payments higher in the near term by applying savings from healthcare changes.
- Pension payments wouldn’t be a full guarantee, as a ‘safety valve’ would be put into the constitution. If state revenues are 1.5 percent or more below forecast, the payment can be reduced by an equal amount. On the flip side: If revenues beat expectations by 0.5 percent or more, half of the extra money would go into the pension funds.
- Pension payments would be made once a year, not once every three months as would be required by the Democrats’ proposal. Quarterly payments would require the state to borrow billions each year, as tax collections are smaller earlier in the fiscal year. O’Scanlon figures that could add $100 million a year in short-term borrowing costs.
- The Legislature would be required to adopt changes to public workers’ and retirees’ health benefits that would substantially, though not entirely, offset the higher pension payments. O’Scanlon says those changes would save $2.25 billion a year.
- The biggest change would be reducing the generosity of the state’s health plans from what’s dubbed a “platinum” level under the Affordable Care Act to a “gold” level. That would increase a worker’s out-of-pocket costs by $870 to $1,100 a year, depending on their salary and family structure, though O’Scanlon said the state could choose to help offset that though reimbursement accounts.
- Another significant change would be requiring early retirees and Medicare-eligible retirees to purchase insurance coverage through a private exchange, using state-providing subsidies. That could save the state $600 million, O’Scanlon says.
- The $810 million cost for health benefits for retired teachers would be transferred from the state, which has picked up those costs for about 25 years, to local school districts. O’Scanlon says districts would cover the costs through the savings from health-benefit changes and that the state would have to pick up any costs that exceed the savings. He projects the plan would lead to a net 8 percent decrease in property taxes.
- The plan design committees created by the 2011 reforms would no longer be made up of equal numbers of labor and state appointees, as the governor would get another nominee who would only vote to break ties, when the two sides can’t agree on whether to make a change to a plan.
“Even this close to $2.25 billion overall savings in my plan won’t be enough,” O’Scanlon said. “It’s not as if we’re doing this and taxpayers are scot-free and the state is off to a street paved with gold. This is just one component of the many things that we’ll have to do.”
The bills are A3905, A3906 and ACR190. They were proposed Monday.