How New Jersey’s public-sector unions created the pension crisis

New Jersey’s public pension and health-benefit system is a looming disaster that threatens the future of the state.

New Jersey's is underfunding its pension fund. (Big Stock photo)

New Jersey's is underfunding its pension fund. (Big Stock photo)

New Jersey’s public pension and health-benefit system is a looming disaster that threatens the future of the state. According to my research and a recent report by WNYC — under new, more realistic accounting standards, the total amount of the state’s unfunded public-pension and retiree healthcare liabilities is $253 billion. The state budget is $35 billion. Because of these liabilities, the Mercatus Center at George Mason University ranks New Jersey dead last among the states in fiscal condition, and New Jersey has the second-lowest bond rating of any state (above only broke Illinois).

The recent New Jersey Pension and Health Benefit Study Commission concluded that the funding of all the benefits promised is “no longer within the state’s means.” By fiscal year 2023, the state’s annual pension and benefit costs are projected to rise to $11.3 billion, or an unsustainable 27 percent of the state budget.

The grim truth is that we simply do not have the money to pay for these obligations.

How did we get into this situation?

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Our state’s pension crisis is the direct result of public-sector unions using their enormous political leverage to increase benefits for their members, regardless of the state’s ability to pay. And the most powerful union of all — the New Jersey Education Association — is the primary cause of our state’s fiscal crisis.

How did the NJEA accumulate all its power? Mostly on the backs of taxpayers — with the acquiescence of legislators who fear the union monster they helped create.

Decades ago, the NJEA rigged the political system to funnel property-tax dollars directly into its coffers by getting the Legislature to pass two key laws. The first is “agency fees,” which effectively forces teachers to pay union dues to the NJEA whether they want to be in the union or not. If a teacher joins the union, she must pay full membership dues; but if a teacher chooses not to join the union, she still must pay up to 85 percent of dues in “agency fees.” Unsurprisingly, over 99 percent of teachers are union members.

The second key to the NJEA’s success is the automatic withholding of union dues from teachers’ paychecks, which not only greatly facilitates the collection of dues at taxpayer expense, but also serves as an enormous state subsidy for the NJEA, a private organization.

Typically, private membership organizations like the NJEA must spend significant amounts of their budgets to recruit members and collect their dues. Not the NJEA: it is guaranteed nearly 100 percent membership and the automatic collection of its taxpayer-funded dues, saving the union millions of dollars annually in operating expenses.

This rigged system has served the NJEA well. The NJEA siphoned off $121 million in property-tax-funded dues in 2016 and a total of $1.85 billion since 1994. That gives the union a lot of money to spend on politics, which is exactly what the NJEA has done.

Political spender No. 1

The NJEA has long been the top political spender in the state. According to the Election Law Enforcement Commission (ELEC) reports, from 1999-2015, the NJEA spent a total of $73.3 million. As ELEC’s Executive Director Jeff Brindle concluded: “When you combine NJEA’s lobbying and campaign spending, no single interest group has ever come close.”

The true magnitude of NJEA political spending goes beyond the ELEC numbers. The numbers do not account for UniServ, a statewide cadre of NJEA-funded political professionals that helps local unions get out the vote to pass school budgets or support the NJEA’s legislative initiatives; or for the annual Pride in Public Education campaign (PRIDE), a statewide, public relations effort aimed at mobilizing local communities to support the NJEA’s priorities. Nor do they fully account for NJEA’s communications and government relations divisions, which are heavily involved in political activities.

From 1999-2015, the NJEA spent $687 million on this array of unreported political tools. Adding this to the NJEA’s reported spending (and adjusting for some overlap) total NJEA political spending comes to $725 million, or $43 million a year. These numbers provide a much more accurate measurement of the NJEA’s real political power. And this still does not account for the thousands of NJEA “volunteers” who staff political campaigns in districts across the state, which are often viewed as the NJEA’s most powerful political weapon.

With the enormous resources at its disposal, the NJEA generally gets what it wants. In the early 1990s, after the Democrats crossed the NJEA by shifting pensions to local school districts and reducing state education aid, the NJEA endorsed 46 Republicans and three Democrats and was credited with flipping the legislature from a Democratic majority to a Republican super-majority. Neither the Democrats nor the Republicans forgot.

In 1997, the NJEA won the “non-forfeitable right” to pensions, which passed overwhelmingly. As a result, 89 percent of current teachers are protected from any reduction in their pensions, vastly complicating reform efforts (including Gov. Chris Christie’s 2010 and 2011 reforms, which mostly could only affect new teachers).

In a remarkable display of NJEA clout and fiscal irresponsibility, in 2001 the Legislature manufactured a pension surplus by reaching back to 1999’s equity prices to value the state’s pension assets. Using this fake surplus, the Legislature passed a 9 percent pension increase for both existing and future retirees — even though by 2001 pension assets were billions lower due to the dot-com bust. The NJEA called this raid on pension assets “one of the most significant legislative accomplishments in NJEA history.”

With its enormous power, the NJEA has also been the major logjam to sensible pension reform. In 2005, acting Gov. Richard Codey created a Benefits Review Task Force to look into public employee pensions and benefits and to recommend changes that would control costs and taxes. The NJEA launched massive protests and blocked the ensuing legislative proposals. The NJEA similarly rallied successfully against the recommendations of the special session of the Legislature in 2006. In both cases, the winner was the NJEA and the loser was the taxpayers.

New Jerseyans must wake up to the reality that we have allowed a special interest to rig our political system for its own benefit. The pension crisis is just a symptom of this underlying malady. This corrupted status quo is threatening the future of the state. Left unreformed, our unfunded liabilities will consume over a quarter of the state budget in five years, necessitating massive tax hikes, cuts in public services, or both. All New Jerseyans will likely suffer, including the retired teachers depending on these pensions.

It doesn’t have to be this way. New Jersey must stop the special privileges for the NJEA that give it such enormous, taxpayer-funded political clout. We must change laws that effectively force teachers to join the union. We must end the taxpayer-funded withholding of dues, which amounts to a multi-million-dollar state subsidy for a private organization.

Only by reigning in the political power of the NJEA will we be able to adopt the sensible reforms needed to address our pension crisis, such as those presented by the recent Pension and Health Benefit Study Commission.

It’s time to take back our state.

Michael Lilley is a resident of Monmouth County and a former Marine captain, as well as the former executive director of B4K — Better Education For NJ Kids. Lilley spent a year working as an adjunct scholar with the American Enterprise Institute detailing the history of the NJEA and its impact on state lawmakers, taxes, and the state’s economy. His five-part series on the NJEA will be published this month by the AEI.

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