Budget Reform - CIANJ - Controlling state employee benefits essential to reform

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Published in COMMERCE magazine, June 2006

Controlling State Employee Benefits
is Essential to Budget Reform

BY JEANETTE ISSENMAN
CIANJ VICE PRESIDENT OF GOVERNMENT RELATIONS
AND COMMUNICATIONS

AS THE LEGISLATIVE AND EXECUTIVE branches continue to debate how to best solve the state's budget crisis, one thing remains clear-New Jersey's fiscal house is in desperate need of long-term spending reforms. One of the primary reasons why the state seems to face a multi-billion dollar budget gap year after year is due to the fact that a few big-ticket items consume a disproportionate share of the state's tax dollars. Two areas in need of overhaul include the state's mandated school funding formula and the spiraling costs of employee health and retirement benefit programs.

Focusing on state employee pensions and health benefits, Acting Governor Codey in last year's budget address cited some staggering statistics regarding the growing costs. According to the Treasurer's Office, the total cost of healthcare benefits for state employees has risen by 50 percent over the last four years, and the cost of healthcare benefits for retired state teachers, school personnel and college employees has more than doubled. In Fiscal Year 2006, employee benefit costs consumed 14 percent of the state's overall budget, compared to 8.8 percent just four years ago. Codey's office projected that by the year 2010, state employee benefit costs will constitute 20 percent of the state budget.

Recognizing these out-of-control entitlement packages could eventually bankrupt the state, the Acting Governor established the New Jersey Benefits Review Task Force last May. The Task Force, composed of the State Treasurer, the Commissioner of Labor, and six public members, was charged with making recommendations to control the costs of benefit packages, while ensuring the state's public employees receive a fair and equitable benefit system. CIANJ Board Member David Alai, vice president of corporate human resources for Sharp Electronics Corporation, was one of the private sector experts chosen by the Acting Governor to serve on this Task Force.

In December, the Task Force released a series of formal recommendations to help the state get control of this massive spending program by reforming the structure of the benefit programs and restoring integrity to the system. CIANJ supports the Task Force's recommendations as an important first step in reforming the state's budget process.

The Task Force stated unequivocally that government must fulfill its commitment to fund the pension system and make annual payments without relying upon fiscal gimmickry and borrowing. For seven of the past nine years, the state enjoyed a "pension holiday" in which no payments were made, resulting in the fund's current $12.1 billion deficiency.

In addition, the Task Force proposed major structural reforms to the system, including extending the state employee retirement age from 55 to 60, and ensuring pensions are more reflective of an employee's salary by calculating benefits based on the average of the five highest salaries (as opposed to the current three) or the highest three years of income (rather than one). Other reforms include greater cost-sharing of healthcare expenses through additional co-pays and deductibles-something many private sector companies have implemented in order to contain skyrocketing healthcare costs.

While the Task Force's recommendations represent long-term structural changes, flagrant abuses of the state's pension system must be curtailed immediately to stop the fleecing of taxpayer dollars. A recent report from the State Commission of Investigation illustrated examples of local school superintendents receiving hundreds of thousands of taxpayer dollars in sick leave reimbursement. This report, and other accounts of abuse, has sparked the introduction of several legislative reform initiatives deserving immediate consideration.

One such measure, sponsored by Assemblyman Michael Panter, prohibits compensation for unused sick leave for public school employees with an annual salary of $100,000 or more. Another common-sense bill prohibits individuals convicted of a crime from receiving pension benefits.

The Benefits Review Task Force also proposed eliminating pension padding by restricting end-of-career salary hikes, and ending the practice of pension tacking by requiring employees to designate a single job for pension purposes. The Task Force also recommended that state jobs paying less than $5,000 per year should not receive credit towards pension benefits.

Finally, the Task Force proposed to strengthen the review process for benefit enhancement bills passed by the New Jersey Legislature. Every bill that enhances the state employee pension or healthcare system would be required to have a price tag, as well as a specific revenue source to pay for it.

These and other reforms sought by the Benefits Review Task Force are not likely to be adopted without heated debate and serious opposition from entrenched special interests in Trenton. In his budget address, Governor Corzine proposed modest reform measures, including an end to pension tacking and other abuses, as well as requiring non-union employees to pay at least 10 percent of their health insurance premium per year. Another reform proposal includes enrolling newly elected officials and political appointees into a 401(k)-type plan rather than the state's pension system.

The legislature has yet to take up these reform initiatives, and Governor Corzine has conceded that many of the bigger issues involving unionized employees will have to be negotiated at the bargaining table. However, like payments to the under-funded pension system, this reform issue is one the state cannot afford to defer for much longer.

CIANJ - June 2006 - Legislative Update

http://www.cianj.org/news/default.aspx?n_ID=93

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