Christie pension reform could have high price tag for N.J. schools, report warns

By Samantha Marcus | NJ Advance Media for NJ.com
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on June 17, 2015

After announcing that he is creating a commission to study further pension reform, Governor Chris Christie signs a copy of The Star-Ledger newspaper for a member of the public. Christie held his event outside of Parsippany Town Hall with Parsippany Mayor James Barberio.

 

TRENTONGov. Chris Christie's controversial pension reform plan could cost New Jersey school districts hundreds of millions of dollars each year, according to a new report commissioned by school and municipal lobbyists, but those who crafted the governor's plan have said those costs would be offset by reducing public employee health benefits.

For now, the commission's proposal is mired in politics, and its future is uncertain. After the state Supreme Court invalidated a portion of Christie's 2011 pension overhaul last week, labor leaders slammed the door on negotiations over new reforms.

The report released Wednesday by the New Jersey League of Municipalities and the New Jersey School Boards Association studied the effects of a pension reform plan drafted by a special pension and health benefits commission and championed by Christie.

Part of the plan would shift the cost of teacher pensions from the state to local school districts, and the study breaks down potential property tax increases for homeowners.

"Once again the mayors across the state are being asked to bail out the state and take the political heat for what the state leaders aren't doing," said Brian Wahler, Piscataway mayor and president of the league. "It's plainly obvious that's what the game plan is here."

Christie rolled out the sweeping proposal in February to combat "insatiable" liabilities for local and state workers retirement benefits. Combined, the unfunded liabilities, or the gap between the money the state has and what it would cost to fully fund benefits, is more than $90 billion.

Under the plan, active employees would move from their defined-benefits pension system to a less generous "cash balance" plan that provides lifetime payments, like a pension. But the employer contributions are based on a percentage of employees' salaries, like a 401(k), rather than actuarial assumptions.

Christie's commission recommended that local school districts absorb the cost of local education retiree health benefits and the new "cash balance" pension plan.

The study by the two groups focused on the cost to homeowners if their school district had to pick up the tab using salary records for roughly 135,000 members of the Teachers Pension and Annuity Fund, whose salaries total more than $9.3 billion (that figure excludes county-based programs, like vocational school districts and special services school districts).

In a letter to New Jersey mayors, league officials said the assessment would help them "understand the potential cost to your municipality for assuming part or all current and/or previously unfunded or underfunded employer contributions of the Teachers Pension Annuity Fund."

Local officials are concerned that the new burden could damage their credit ratings and raise the cost of borrowing money, Wahler said.

Because the cash balance plans works like a 401(k), school districts would contribute a share of a employees' wages. If the match is 1 percent, districts statewide would owe $93 million. If it's a 4-percent match, the figure quadruples to $372 million, according to the study.

"This analysis assumes that a shift of teacher pension costs to local school districts would concurrently include an amendment... allowing for an adjustment to the state-imposed 2 percent tax levy cap in an appropriate manner," the study said.

To put it more plainly, Wahler said, the shifting burden would decimate the 2 percent cap.

Breaking the price tag down further, Raphael Caprio, director of Rutgers' Bloustein Center for Local Government Research and the author of the study, assigned a cost to each of the state's 21 counties and its residential property owners.

Statewide, the average homeowner would owe about $28 for every 1 percent contribution made by school districts to the pension plans, according to the study. Cape May homeowners fare the best at $9.07 per 1 percent, while Essex County homeowners face an increase of $43.81 in property taxes per 1 percent.

Christie's commission didn't establish that rate in its February outline. But in states that operate cash balance plans, employers — in this case, the school district — contribute between 3 percent and 7.5 percent, according to a 2014 Pew report.

At a 3 percent match, the cost per home is $84, and at a 7.5 percent match, it is $210.

But shifting costs to school districts is just half of the equation. Christie's proposal also calls for less expensive health care plans and for workers to pick up a larger share of their health care costs. Those savings would be more than enough for local governments to soak up the new pension costs without raising taxes, according to the commission's report.

"As a result, this reform would be cost-neutral to local governments," Christie's commission said.

The commission, however, has yet to provide details on exactly how the health plan changes would save money. And Wahler remains doubtful those savings will materialize.

"After being an elected official for more than 20 years at the local level, I don't see that happening," he said.

Tom Healey, head of Christie's high-powered pension commission, on Wednesday said the study's estimate is about $30 million below what the commission projected, and he reiterated that reforming health benefits could save up to $2.7 billion — "far more than enough to permit the proposed cost shift without any increase in property taxes."

"... A condition of the commission's proposal is that costs will only be shifted to the extent they can be offset by local benefits savings," he said.

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