I can’t let this week pass by without commenting on the royal screwing of New Jersey’s public employees that took place Tuesday:
In a victory for Gov. Chris Christie’s pension revisions, a Superior Court judge has ruled that about 800,000 retired public employees are not entitled to increases based on the cost of living.
The ruling by Superior Court Judge Douglas Hurd in Mercer County affects all current and future retirees in pension systems funded by the state, including state workers and judges as well as local police, firefighters and teachers.
The pension law the governor signed last June says current and future retirees will not get any cost of living adjustments – better known as COLAS – until the pension funds become stable, which is not expected until at least 2040.
Yes, that’s a pension freeze for at least 28 years. What, exactly, does this mean?
Let’s start with a few facts, courtesy of Politifact (despite my misgivings about their “Half-True” rating, their figures appear to be accurate):
– The average state worker pension is $22,034; the average local pubic worker pension is $14,028.
– The average pension of a full-time, newly-retired state employee with at least 25 years of service is $39,551. The same local employee’s pension is $33,828. (PolitiFact does not say how many pensioners fall into this category, and I haven’t found the statistic yet).
Let’s be very generous and consider that full-time, 25-year vet who just retired on a pension of $39,551. Because there will be no COLA, the effective buying power of that retiree will diminish every year. But by how much?
It’s difficult to project exactly what trends we will see in inflation over the next 28 years. But as a purely theoretical exercise, lets suppose that inflation will be the same over the next 28 years as it was over the last 28 years.
The Bureau of Labor Statistics has a CPI calculator that allows us to do just that. Based on a projection that the long-trend inflation rate will be the same over the 28-year period:
Pension in 2012: $39,551 (2012 dollars)
Pension in 2040: $17,860 (2012 dollars)
If inflation continues along the same long-term trend, the real value of public employee pensions will be less than half their current worth before any COLAs are reinstated.
This isn’t a “revision.” It’s not, as Senator Sweeney soothed, “protecting the pensions.” It isn’t, as Chris Christie crowed, “an appropriate sharing of costs.” It isn’t, as Tom Moran tried to convince himself, “bringing health and pension benefits back to earth.” It isn’t, as the Sunbeam tries to sell it, “flexibility.”
It is, quite plainly, an economic and moral disaster. Economic, because this huge devaluing of pensions will mean a large decrease in spending and economic activity among pensioners, who will have to curtail their retirement plans to deal with the gutting of income they had planned on years ago.
Moral, because this will mean middle-class seniors turned out of their homes, as they won’t be able to afford to pay off their mortgages and maintain their houses. It will mean people who worked hard, played by the rules, and trusted that the promises the state made to them will now have to choose between medicine and basic living needs. It means the dignified retirement promised to cops and firefighters and teachers and other public servants will now vanish.
Make no mistake: New Jersey taxpayers will not save money from this screwing over of public workers; it will actually cost them more. Young people entering public service have seen that the state can now break it’s promises on a whim; they will not settle for pensions as deferred compensation any longer. That means the investment market will no longer be able to help pay public workers what the labor market demands; taxpayers will have to pony up more on the front end to get qualified public workers.
The best hope for taxpayers and pubic workers is that this decision gets overturned on appeal (yet another reason why Christie cares so much about the make-up of the courts). This would force the Legislature to look for new revenues, starting with the many (not all) ineffective and indefensible tax expenditures detailed yearly by the OLS. Ending the exclusion of corporate dividends alone could bring in more than $2 billion extra to the state.
Is anyone prepared to make the case that it’s better to continue this corporate giveaway at the expense of breaking promises to middle-class seniors?
I mean besides Christie and the Christiecrats?