House of Cards

New Jersey's house of cards, otherwise known as the state budget and fiscal outlook, is a very fragile thing. The latest sign that the situation is out of hand is a report by the New York Times indicating that the state has been shortchanging the pension fund by billions of dollars. This means that not only are the pension funds underfunded but that the operating budgets are in danger as well.

In 2005, New Jersey put either $551 million, $56 million or nothing into its pension fund for teachers. All three figures appeared in various state documents — though the state now says that the actual amount was zero.

Recycled Money The phantom contribution is just one indication that New Jersey has been diverting billions of dollars from its pension fund for state and local workers into other government purposes over the last 15 years, using a variety of unorthodox transactions authorized by the Legislature and by governors from both political parties.

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.

The discrepancies raise questions about how much money is really in the New Jersey pension fund, which industry statistics show to be the ninth largest in the nation’s public sector, with reported assets of $79 billion.

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.

The Times’s examination of New Jersey’s pension fund showed that officials have taken questionable steps again and again. The state recorded investment gains immediately when the markets were up, for instance, then delayed recording losses when the markets were down. It reported money to pay for health care costs as contributions to the pension fund, though that money would soon flow out of the fund. It claimed it had “excess” assets that allowed it to divert required pension contributions to other uses, like providing financial assistance to poor school districts.

Trenton is blaming the Treasury Division officials while Treasury is blaming the Legislature for directing them to take these actions. Either way, this double whammy is going to leave taxpayers on the hook to make up the shortfall.

And we all know what that means. More taxes.

Gov. Corzine has been warning that the pension system is in crisis, but he's not willing to take the political hit necessary to get the state on a sound fiscal footing. He's unwilling to cut state jobs and reduce state expenditures all the while promising (and getting) property tax reform in the form of higher sales tax rates to curb the growth in property taxes for the next couple of years. He's also looking at one-shots to get the budget in line, but that will not provide a permanent fix.

Cutting state spending is the only way to achieve a sound fiscal picture for New Jersey, but that is not going to happen with the legislature and governor wedded to the unions and state workforce.