The New Jersey Pension Crisis: Flailing in Deep Waters

Abstract

New Jersey has a deep pension-funding crisis. It has made excessively generous pension promises without funding them; simultaneously, it has run up some of the highest debts, lowest credit ratings, highest tax rates, lowest citizen satisfaction rates, and highest out-migration rates of any state. Its responses have proven futile or counterproductive. While the pension crisis has arisen largely from a lack of citizen oversight, the state has recently increased government-worker control. While it has failed to fund its pensions, it has recently made a cosmetic dedication of lottery revenues that will only serve to hide—not correct—underfunding. And while the state already shows signs of tax-base flight, it contemplates enormous tax increases. New Jersey’s future likely requires its officials to reduce pension promises for work not yet performed and to trim some already-granted pensions that run in excess of earnings during working years and reasonable New Jersey compensation levels.

Keywords: pension reform, public pensions, state finances, government finance, public employees, public-employee unions, government employees, government-employee unions, vicious cycle, taxpayer flight, tax-base flight, employee benefits, public choice theory, government oversight, fringe benefits

JEL Classification: H10, H11, H12, H3, H550, H71, H72, H74, H75, H77, J5, J58, K1, K12, K31