New Jersey's Pension Fund Fiasco

Murray Sabrin

In my commentary last week about how to end political corruption in New Jersey I wrote, “… the State of New Jersey is bankrupt. Not legally, but New Jersey is a financial basket case, and it will get worse before it gets better.” The Record reprinted my essay on its op-ed page Tuesday, and on Wednesday the front page headline of The New York Times says it all: “N.J. Pension Fund Endangered by Diverted Billions.” (Read the full text of the Times article to get a sense of how Trenton really works.)

According to the Times, “The state has long acknowledged that it has been putting less money into the pension fund than it should. But an analysis of its records by The New York Times shows that in many cases, New Jersey has overstated even what it has claimed to be contributing, sometimes by hundreds of millions of dollars” (emphasis added). In other words, government officials may have committed fraud in their official duties.

The Times article writes: “State officials say the fund is in dire shape, with a serious deficit. It has enough to pay retirees for several years, but without big contributions, paid for by cuts elsewhere in the state’s programs, higher taxes or another source, the fund could soon be caught in a downward spiral that could devastate the state’s fiscal health. Under its Constitution, New Jersey cannot reduce earned pension benefits” (emphasis added).

Will taxpayers have to pay higher taxes for the possible misfeasance and/or malfeasance of elected and other government officials? This could be the defining issue of the 2009 gubernatorial campaign.

The chickens are coming home to roost. The policies over the past fifteen years, taxing and spending and borrowing to pay for and grow New Jersey’s welfare state, is being exposed for what it is, a fraud perpetrated by the Trenton political establishment to win votes by engaging in a gigantic financial scam.

One of the first principles of sound finance is to pay for current expenses and future obligations out of today’s income. In other words, people do not borrow to pay for their groceries or fund their retirement accounts. They use their current paycheck to deposit funds in an IRA or 401(k). Instead, politicians from both political parties have borrowed billions to pay for current expenses, but more importantly they did not even deposit the funds they were legally obligated in the teachers’ pension plan.

To paraphrase a famous question during the Watergate hearings: “What did previous governors, leaders from both parties of the Legislature, members of the Legislature, cabinet officials, and officials of the Division of Pensions and Benefits in the New Jersey Treasury Department, know and when did they know it?

In short, let the investigations begin of Whitman, DiFrancesco, McGreevey, Codey and other lesser mortals of the Trenton political establishment. Let has have a thorough accounting (no pun attended) of the past fifteen years. Let’s have former governors, former legislative leaders, former cabinet officials, and former and current Treasury officials testify under oath in public before a legislative committee assisted by the best investigators in the state.

Until we the people can get the truth, the whole truth and nothing but the truth, and hold government officials accountable, and if that means indictments, trials, convictions, and jail time, so be it. Politicians cannot hide behind their offices and claim they were just acting “politically.” When it comes to governing, officials cannot commit crimes. If they did commit crimes, they should be held accountable. No one is above the law.

Murray Sabrin, Ph.D., is professor of finance in the Anisfield School of Business, Ramapo College of New Jersey, where he is director of the Center for Business and Public Policy.