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News & Press: Pension

Dueling Plans to Fix Public Pension System, One With a 'Safety Valve'

Friday, June 10, 2016   (0 Comments)
Share | 06/10/16

Assemblyman Declan O’Scanlon (R-Monmouth) wants voters to consider a different pension funding proposal. He claims that his scheme would eliminate the possibility of new tax hikes or drastic cuts to state programs. Either proposal could end up as a ballot question in November that, if ratified, could become a constitutional amendment. “This is the start of a dialogue as far as I’m concerned,” said O’Scanlon, while rolling out his plan yesterday during a State House news conference.

Union leaders reacted to O’Scanlon yesterday by saying they still favor the plan put forward by Democrats. That plan doesn’t require public employees to accept less generous healthcare coverage in return for more pension funding, which is a key element of O’Scanlon’s proposal and something a group of benefits experts impaneled by Gov. Chris Christie has also called for. New Jersey’s $71 billion public pension system is more than $40 billion in debt thanks to years of skipped or partial payments made by Christie and a long line of governors from both parties before him.

The sponsors of the Democratic proposal maintain that normal growth in the state economy, along with new revenues from an expanded state Transportation Trust Fund and new casinos possibly opening in North Jersey, could produce enough cash to fund the larger pension contributions each year without disrupting services or requiring taxes to go up. O’Scanlon said yesterday that his pension funding proposal addresses both affordability issues and concerns about tax hikes or program cuts. While his plan also calls for increased contributions into the pension system that would be required via a constitutional amendment, it features a key difference from the Democrats’ plan, which would be the establishment of a “safety valve.”

According to O’Scanlon, that “safety valve” would allow governors to reduce the planned pension contributions during years when official state revenue projections were off by at least 1.5 percent, thus ensuring that any misses in the forecasts would not lead to tax hikes or program cuts, he said. “You would be able to suspend pension payments for the amount of the difference.” But his plan would also force governors to share a portion of unexpected revenue windfalls with the pension system during years when revenue forecasts were at least 0.5 percent ahead, he said. His proposal would not require quarterly payments to be made, something that O’Scanlon said is not feasible since the state collects a good chunk of its revenue only at the end of each fiscal year.

Instead of counting on revenue growth to help fund rising state pension contributions, O’Scanlon’s plan relies on savings the government would get from forcing public workers to accept less generous healthcare plans. Private healthcare exchanges would also be used to trim retiree healthcare costs, he said. Those reforms and others could generate as much as $2.25 billion in annual savings that in turn could be used to shore up the pension system and likely lead to property tax relief at the local level as well, O’Scanlon said.  Asked why his projections for savings are any more solid than the Democrats’ forecasts, O’Scanlon said he’s relying on reputable actuaries while Democrats are just hoping for growth. “Those things don’t a policy make, and they don’t pay the bills,” he said.

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