Source: Daily Record [Op-Ed by Jack Ciattarelli] -
For decades, Trenton politicians in both parties have shied away from providing real long-term solutions. We can’t afford to wait any longer.
Why are pension systems for municipal and county employees, as well as the Police and Firemen’s Retirement System, all solvent? Because these systems are funded by property taxes that, while too high, are a very stable funding source.
The teachers’ pension is funded by the state, making teachers the exception— they’re the only local public employee whose pension is not funded by property taxes. There’s a fundamental problem with this. State taxes on income, sales, corporate profits and casino revenues — the state’s primary sources of revenue — are all highly volatile. Case in point, during the recession, state tax revenues plummeted $6 billion in 24 months’ time.
When state revenues plummet or don’t grow, choices are made. For nearly 30 years, New Jersey chose not to repeatedly shut down government; not to stop funding schools, hospitals, or healthcare for the poor; and not to stop supporting 26,000-plus disabled citizens. Administrations and legislatures past and present also chose to not make adequate pension payments. Worse yet, they chose not to address the underlying pension problem.
Many say ‘just make the pension payment,’ but that’s not realistic, and the state Supreme Court agrees. Indeed, in its recent decision, the court said it has no constitutional power to order payment of state expenses. The court also said the state can’t pay with what it doesn’t have.
A comprehensive reform plan that we can honor and afford — one that solves the teachers’ pension problem once and for all — is desperately needed.
We need a plan that provides the financial flexibility to permanently add at least another $1.5 to $2 billion to the current annual pension payment. That kind of annual payment would make the teachers’ pension system solvent over the long-term.
Here’s a plan:
- No community is allowed to fund less than 25 percent of their school budget through the local tax levy (some communities fund less than 15 percent of their school budget, while others fund more than 90 percent);
- No community whose local school budget is funded more than 50 percent by federal and state aid can abate school property taxes on new development;
- For all current and future teacher retirees, no post-retirement Medicare Part B reimbursement if their pension plus Social Security equals or exceeds $30,000 per year;
- For all teachers with less than 10 years in system, pension account is switched over to cash balance defined contribution pension plan (e.g., 401k);
- All newly hired teachers go immediately into cash balance defined contribution pension plan (e.g., 401k) and their pension and Social Security are paid for by the local school district, not the state;
- “Cadillac” health insurance plans are discontinued for all newly hired teachers and all others at end of current contract
The personnel-specific reforms would apply to all non-teacher school district employees, as well as all municipal, county and state workers too.
The timing is perfect for the “cost shift” aspects of this plan. First, Baby Boomers will generate a tsunami of retirements in the next 10 years — teachers in higher salary ranges will be replaced by new hires in lower salary ranges. Second, the Affordable Care Act’s 2018 40 percent excise tax on “Cadillac Plans” provides strong incentive for significant health insurance savings.
Without exacerbating the property tax crisis and making any one group bear the entire burden of the crisis, this plan fully funds teachers’ pensions in an equitable way. Just as importantly, this plan demonstrates a willingness to truly address and resolve the teachers’ pension system.
In addition, there is discussion taking place on casinos outside Atlantic City. If these casinos materialize in places like Newark and/or Jersey City, the usual tax on casino revenues should not be collected by the state, but by the host city to support the local school system. This would free up another $500 million to $1 billion of state revenues to make the teachers’ underfunded pension systems solvent.
John F. Kennedy once said, “What man has created, man can solve.” What we’ve created in New Jersey, we need to solve, and soon. All we need is a plan.
Assemblyman Jack Ciattarelli, R-Somerset, represents the 16th Legislative District.