BY DAVE FRIED
ROBBINSVILLE, N.J. – Any long-term mayor approaches a new year with a mix of looking back and looking forward. What would I have done differently? What can I do in the New Year to make things better?
As I head into 2011, I vow to sound the alarm loudly on the need for reform of our retirement systems. While I have not been quiet about this issue, as I look back I could have been ever louder, because the problem gets worse every day.
I used the term “retirement systems” on purpose, because taxpayers should understand that New Jersey has multiple pension systems and a separate mechanism for funding retiree health benefits. None of them are in good shape, but it’s actually the health care side of the equation that gets less attention than it deserves. A recent report by the State Treasurer found that for all the growth in unfunded pension liability – up $8 billion to $53.9 billion – the unfunded health care tab is higher, at $66.8 billion.
How deep is the hole? If New Jersey laid off every state employee, it would still take six years to pay the bill.
The good news is that, arguably, the health care side would be easier to change: Boldness on the part of the Legislature and the Governor would ask only that New Jersey’s public sector retirees pay a reasonable amount toward their health care, in line with what the rest of the country does. As mayors know, retiree health care is the runaway freight train of any local budget. Without reform, retiree health care costs threaten to undermine hopes that the new 2 percent cap on property taxes will bring meaningful control to the ever-rising cost of living in the Garden State.
Fixing pensions is more problematic, due to laws that suggest the state has less ability to change the terms of deal, certainly for those already retired and arguably for those still working. Chris Christie has taken on this issue like no other governor, offering ideas from changing benefit calculations to raising the retirement age. He’s right that everything should be on the table.
As Robbinsville employees know, I’ve said for years that promising benefits that can’t be funded is a lie. We ended post-retirement health care for most new hires starting in 2006, and cost-sharing on health care has been part of every union contract for more than a year. I put this challenge to all elected officials: It’s time to stop lying to our employees, our taxpayers, and to ourselves. If the only path to re-election is one that passes bills to the next generation, that must be the road not taken.
We mayors should worry that we have paid more than the state into the systems for the past decade. The numbers don’t lie: In FY 2011, Local PFRS (the police and fire system) was funded at 72.85 percent for active employees, compared to 56.46 percent for active members of state PFRS. In Local PERS, the pension system for non-public safety workers, the funding level was 71.2 percent, compared to 56.4 percent for state PERS.
Why does this matter? Political pressure may grow to merge the state and local systems, wiping out the benefit of all that we have paid into Local PERS and PFRS. That’s especially unfair to the suburbs, because state aid funded by income taxes pays so much of the labor and retirement costs for cities.
It’s time for lean and mean to be rewarded, not punished with an ever-increasing share of the cost of public employee salaries and benefits statewide.
Even when mayors wield the ax, pensions and benefits are the trump cards. Their costs more than offset the savings achieved by things like furloughs, layoffs and shared services. Last year, after a revaluation and property tax appeals that cost my town $1.7 million, I cut costs to the bone. Our operating budget went down, but increased pension payments canceled out much of what we achieved.
“Sharing” only goes so far. I’ve eliminated a Fire District and a separate Municipal Utilities Authority. We contract for health services, animal control, and sewer maintenance, and we provide public works and auto repair services for other towns. My growing community has fewer full-time employees than it did five years ago. Yet retirement costs keep climbing. At some point one must ask: Should Robbinsville residents be asked to pay ever-increasing costs for workers who are no longer here, with the price being fewer services delivered by an overworked skeleton crew? I hear about fairness to retirees; what about fairness to today’s residents?
Fairness is the issue statewide, too. Is it fair for the suburbs to continue to see less and less in state aid, while income taxes fund the pensions and health care plans of long-retired workers from cities much larger than ours? The urban mayors I talk to today know it’s time to get tough, but they acknowledge their predecessors feared reprisal for leaner contracts — or lacked the legal backing to deliver packages that controlled costs.
For all we do to encourage growth, whether we limit red tape at the Department of Environmental Protection or smooth the way at the Department of Transportation, nothing matters more to the business community – especially to national and international corporations – than controlling property taxes. We cannot compete until we tackle public sector retirement costs. We are long past the point where costs have exceeded our ability to pay. Just as too many Americans lived off credit cards and home equity loans, so did New Jersey – on a massive scale. Like it or not, everyone involved has to accept “the new normal,” or economic activity will vanish from New Jersey. And, if we don’t fix the retirement systems, they will disappear.
It’s not a question of pointing fingers at which Legislature or Governor created the mess – too many parties share blame. It’s a question of how we fix things going forward, so we have jobs and growth to fund a brighter future.
At a minimum, we must end lifetime health benefits and defined benefit pensions for new hires. A 401(k) with a match is actually a better deal, because the money belongs to the worker. As a mayor, I have also advocated allowing towns withdraw from the retirement systems, take their contributions and manage them locally under strict laws that will leave the money untouched.
The time has arrived for retirement system reform. Our future depends on it.
Dave Fried has been Robbinsville Mayor since July 2005. He served as mayor under the former Township Committee form of government and has been an elected official since 2000.