The budget he just signed worsens the state’s fiscal mess. Can he fix it in time for 2016?
New Jersey’s budget problems aren’t Chris Christie’s fault. But they are his problem, and this week, we got a reminder about just how far he is from fixing them — and notching a real accomplishment to run on in 2016.
On Monday, Christie signed most of a $34 billion budget passed by the Democratic legislature. The main controversy is over two parts of the budget: As he’s been planning to do for months now, he vetoed $2.25 billion in pension funding he had once promised to allocate, making just a $681 million contribution instead. And, for the fourth time in five years, he’ll block more than $1 billion in tax increases that Democratic legislators proposed to fund the pension payment.
The scheduled pension payment was part of the pension compromise he reached with public-sector unions in 2011, which secured benefit cuts from employees in exchange for promises that he would ramp up pension funding each year until 2018, at which point the pension funds would be on track to solvency.
The deal is one of the centerpieces of his case for himself as a blue-state reformer, which in 2012 earned him calls to run for the presidency and a plum spot at the GOP convention. Before this spring’s Bridgegate scandal, his status as a popular blue-state governor made him almost the establishment front-runner for the 2016 Republican presidential race.
But for all the boasts he made in that 2012 convention speech, as the current budget crisis suggests, his policy achievements in New Jersey are incomplete. The state’s economy is growing slowly, job growth is less than impressive, tax levels are still onerous, and the public-employee pension system remains tens of billions of dollars in the red.
Thanks in part to the terrible situation he faces, Christie’s record pales in comparison to those of red- and blue-state governors with growing economies.
In an interview with NRO, Christie defends the amount of money he’s adding to the pension fund: “At least we’re identifying and addressing this issue,” he says. “The fact is, I’ve made more pension payments, at $2.9 billion after I make my $681 million payment [Monday], than any governor in the state’s history,” he adds.
He’s right, but it’s nowhere near enough. A state court recently ruled that Christie could make a pension allocation well below what he’d agreed to pay in 2011 because the state is in a fiscal emergency. But the state is basically in a permanent fiscal emergency. It’s losing ground on its pension obligations, not gaining it.
“The $681 million payment I’m making this year takes care of the liability for all current employees in the government,” Christie says. “What it doesn’t do is make additional payments on this debt that was left to me by my predecessors.”
But making the full payment scheduled this year and next year wouldn’t even begin to pay down the unfunded liability — it would just slow the rate at which it’s growing. Making a much smaller contribution, as Christie plans, will cost the state twice as much in the long run as it saves in today’s budget, increasing the state’s unfunded pension liability from $42 billion to $46 billion. (It’s possible the liability could grow even more this year, essentially through no fault of the governor: The state’s historically activist courts have ruled that Christie may have to pay cost-of-living adjustments for current retirees, even though the deal the legislature passed in 2011 specifically froze these adjustments.)
True fiscal responsibility — and some laurels for a possible 2016 run — in other words, remains well out of Christie’s grasp. His budget decisions yesterday epitomize his catch 22: His state’s combined fiscal situation and its economic stagnation make both problems seemingly intractable.
By refusing to make pension payments, he’s allowing the state to sink deeper into its Meadowlands-like fiscal mire. But on the other hand, the only way to fund the pension payments offered by the Democratic legislature is a billion dollars in tax increases. His opposition to that solution is not only ideological but practical: “The state is just not in a position to sustain any increased taxes, given the tax structure we have already,” he says. It’s hard to argue with this when New Jersey is consistently ranked the 49th or 50th worst state in the country by tax environment.
That’s not to say Christie hasn’t made progress. He has. The state’s job growth has been respectable under Christie, ahead of the rates it saw during the 2000s, but it’s nowhere near the rate needed to grow out of the state’s budget problems.
Moreover, Christie deserves credit for taking the right first step on pensions in 2011, the Manhattan Institute’s Steve Malanga says, and this week’s decision could be wiser than it looks.
Malanga, one of the nation’s leading advocates for public-sector pension reform and a longtime commentator on New Jersey budget issues, agrees that tax increases were out of the question and that the situation Christie finds himself in is entirely of his predecessors’ making. This is no ordinary blue-state budget crisis — it’s a challenge of a scale comparable only to that of a handful of other states, and it’s one that may ultimately have to be solved with constitutional restructuring.
But Malanga thinks Christie could be doing a better job with the Sisyphean task he has.
It’s understandable that Christie decided it was politically unrealistic to cut spending elsewhere in the budget this year to make the pension payment. Cutting education funding, for instance, would essentially force cities and towns to raise property taxes. And property taxes are another tough issue for New Jersey where Christie has won just minor victories, while other 2016 contenders on the right — such as Wisconsin’s Scott Walker — have given real relief to residents in their states.
But Christie needs to lay out how basic services are going to be affected in the absence of pension reform, Malanga argues. The state simply cannot raise taxes enough to cover its pension debt; it has to cut back on its services (close hospitals, cut education aid, etc.) or reform the pension system. States and municipalities across the country are confronting this dilemma, and Christie needs to show he can make the argument for sweeping reform, and get it passed.
He hasn’t so far. The assumptions of the 2011 pension deal were overly rosy, Malanga says, and the gap between revenues and the increases in scheduled payments was somewhat inevitable. “I think everyone, Christie included, was being optimistic,” he says. Revenues this year came in way below what the Christie administration projected, and even below what the Democratic legislature, in making the case for tax increases, projected. (Christie says the projections weren’t unrealistic and calls the gap this year, which is part of the reason he had to cut the pension payment, a “one-year blip.”)
Christie hasn’t even seen the toughest aspects of the 2011 deal yet: By 2018, when the deal is fully ramped up, New Jersey is supposed to be putting about $5 billion a year into the pension fund. That means the Garden State would need to be putting almost 15 percent of its budget away to pay for its pension and health-care promises.
But Malanga does see deferring the pension payment as a possible resumption of the political strategy that got Christie his first round of legislative victories. That strategy: I’m not making any more contributions to help make the system solvent until public employees agree to chip in to close the yawning pension gap that they helped create.
It may not look fiscally responsible for now, but it has a certain political logic: Taxpayers and public-sector unions both agreed to promises that they either knew were impossible or simply didn’t understand. Both parties need to pay up, and raising taxes or cutting services elsewhere now would mean solidifying a bargain in which public employees bear hardly any of the cost.
Christie plans to lay out his case for a second round of reforms this summer. When I ask whether he sees any chance for growth-friendly tax reform, he focuses on pensions. “The first job is to stabilize the pension and health-benefits situation,” he says. “And you’re going to hear me later in the summer come out with a plan. I’ll travel around the state, selling this issue, in terms of why it’s so important for the state’s future.”
We’ll see if it works. If it does, then Christie will have done a great service to his state – and his own presidential prospects.
— Patrick Brennan is an associate editor at National Review.