The first of a series reports by the State Budget Crisis Task Force makes it clear New Jersey is not alone in its fiscal crisis but has the highest unfunded pension liability among the six states studied which includes New York, California, Illinois, Texas and Virginia. The task force spelled out the issue that those states must address before it’s too late. Richard Keevey, a task force “state partner” who served as the state budget director under former Govs. Thomas H. Kean and Jim Florio, spoke with Managing Editor Mike Schneider about the findings.
According to Keevey, fiscal problems at the federal level garner most of the headlines and not enough attention paid to state governments. He says the six states were selected for their complexity, largeness and uniqueness.
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Keevey applauds Gov. Chris Christie and the legislature for making necessary changes to the state pension system, including eliminating cost of living allowances for retirees, increasing employee contributions and pledging to increase state contributions over the next seven years. If all goes as planned, he says that by the seventh year, the pension system will be 80 percent funded which is good enough.
“Most experts would say ‘well, we don’t think you could get to 100 percent and 80 percent is a satisfactory number.’ But the problem will be — does the state have the financial resources to continue to march that expenditure up and at the same time address other issues that we identified in the report for medicaid and school aid?”
The rising cost of Medicaid is a specter that hangs over state budgets. For New Jersey, medicaid is a $12 billion budget item that is only projected to go up, says Keevey. It’s a cost that may be impacted by the Affordable Care Act, also known as “Obamacare.”
“The Affordable Care Act will have some impact but at least in the first 3 or 4 years if New Jersey buys into it. Its cost will be neutral to New Jersey because the federal government is going to pay for it and that will ramp down to 90 percent.”
Oftentimes, states have resorted to what Keevey refers to as “gimmicks” to address short term budget shortfalls. It’s a practice well-used in New Jersey.
“New Jersey had a bad history of tapping into the unemployment compensation trust fund into the disability benefit fund and use those resources to balance the budget. Those resources go away and so you have to find another source into the future.”
Keevey says the report is meant to serve as a red flag to states that the current track of revenues will not match long-term expenditures.
“Decisions will have to be made as to what resources are necessary and what programs would have to be trimmed back to support the spending pattern. One of the major recommendations was states need to have 5 and 6-year planning documents … and all six of these states have none. So you really have no framework in which to understand the long range problems of the state government.”