The State of New Jersey is a financial basket case. The recent report that the state has not set aside one dime to pay for the promised ($66.7 billion) medical benefits of current and future retirees is another example of nonfeasance on the part of our elected officials.
By failing to fund the medical benefits of state and local government workers, the state is on a road that will cause enormous economic hardship for the people of New Jersey. In short, to pay for all the promised benefits, taxes will have to skyrocket, which will lead to a mass exodus of productive individuals and businesses over time. In addition, businesses will not expand or relocate to New Jersey because of the onerous taxes that will have to be imposed to prop up the medical benefits fund.
Even if benefits are reduced for current and future retirees, which is highly likely, who in their right mind will trust the political hacks in Trenton to be born again fiscally responsible politicians?
For years, Republican and Democratic governors and members of the state legislature from both political parties have failed to perform their duties to maintain the state’s fiscal health. Now that the chickens are coming home to roost, what is being done to correct the gross shortfall in the state’s obligations? Before we answer that, another report released on April 26th reveals the state’s pension fund is $54 billion in the hole.
Can anyone say criminal indictment? If a corporation’s officials did not fund their employees’ retirement benefits, they would be fired and/or possible fined or even indicted by the federal government for failing to fulfill their fiduciary duties. In New Jersey, we just keep electing the same gang of self-serving career pols from gerrymandered legislative districts who exploit the public’s income and wealth to maintain their political careers and continue the great con, the redistribution of income.
(One legislative solution is to elect at large members of the legislature instead of from specific legislative districts. Alternatively, we could elect half of the legislature from the gerrymandered districts and half at large members. With at large members of the legislature, all taxpayers will be represented.)
The financial solution to the $120 billion underfunding of retirees’ pensions and medical benefits is for the state to invoke something like force majeure and start from scratch. That will send a strong signal to New Jerseyans and businesses, especially those from out of state that the politicians in Trenton will be fiscally responsible and not make promises they cannot keep.
Without an “extreme makeover,” New Jersey will become the Greece of the United States.
Murray Sabrin is professor of finance at Ramapo College and blogs at www.MurraySabrin.com.