The State of New Jersey is facing budgetary shortfalls unprecedented in its extensive history. The coronavirus (COVID-19) pandemic and its detrimental economic impacts led, and will continue to lead to, cratering tax revenues in the Garden State.
But to assert that New Jersey was financially healthy, or even financially stable, prior to the onset of the coronavirus pandemic is wildly incorrect. Our state's pension program has been underfunded — otherwise stated, funded by debt — for years now, and the program is expected to earn less on investment returns and face increasing liability in the future.
The state government is funding less of the pension than is recommended by actuaries. This will only increase the fund’s liabilities as time moves forward meaning, simply put, that the state will be forced to borrow or default outstanding payments — the latter of which is not a realistic option.
With recent market turmoil sinking the fund’s investment return (which fell 13 percent between July 2019 and March 2020) and a lockdown-induced drop in tax revenues making their way to Trenton, the pension fund, has become a looming disaster for New Jersey’s fiscal health.
Gov. Phil Murphy (D-NJ) has appealed to the federal government for more grants and loans for the state. He’s right — New Jersey does need to borrow more from Washington, but it must eliminate its pension program first.
Forcing New Jersey to terminate its failing pension program (while grandfathering in those already collecting or on pace to collect pensions) would be a necessary stipulation by a lender Congress, which has provided conditional loans before — such as in 2008, when it bailed out Wall Street.
The 2008 bailout was rife with conditions and regulation, with lawmakers writing in clauses which would firm up the housing market and prevent executives from receiving cushy “golden parachute” packages.
Many of the 2008 provisions were written to assure the health of the financial sector, which were key to the survival of the economy. By assuring the health of the financial sector, Congress was able to up the chances that big banks would be able to pay back their federal bailout.
The federal government bailed out Wall Street due to its failing financial situation and because its collapse would harm millions of people. Now it must bailout New Jersey, as it endures a failing financial situation due to public pension funds. Much like Wall Street, New Jersey’s collapse would harm millions of people.
With the termination of the pension program, New Jersey would be free to use a federal loan to take adequate measures against the coronavirus pandemic, such as providing personal protective equipment (PPE) to workers and teachers. The state would also be able to provide public work to those unemployed due to the lockdown.
Public work is a reason why New Jersey has the amenities it does. Former President Franklin D. Roosevelt’s New Deal led to many of the services New Jerseyans rely on.
“For New Jersey, (Roosevelt's) call to action in confronting the Great Depression meant the construction of schools, post offices, roads and highways that are still in use today and are the result of the policies of the New Deal,” said Arthur Guarino, associate professor of professional practice in the Rutgers Business School.
Considering that New Jersey’s highway system ranks dead last in the nation in performance and efficiency, it is not as if public work programs would be frivolous. In fact, the state is in dire need of them.
And the obvious benefit of mass public works projects is employment for those disaffected by a recession or depression. Given that New Jersey’s unemployment rate is at an abhorrent 16.6 percent, public projects are arguably as critical as PPE at this juncture of the pandemic.
But the only way New Jersey could adequately institute New Deal-esque policies would be through a federal loan. The only way it would be able to reimburse Washington would be through slashing its pension program entirely. Otherwise the state would never be able to afford such a loan unless Murphy raised state taxes further, which would exasperate an already dire financial situation and perhaps have a counterintuitive effect.
Murphy and the legislator must be looking into this possibility immediately or risk plunging the state into destitution.
Jake McGowan is the Opinions editor for The Daily Targum.
*Columns, cartoons and letters do not necessarily reflect the views of the Targum Publishing Company or its staff.
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