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-- Op-ed: Former NJ State Treasurer reviews history of

​decisions leaving state facing 'financial collapse'

PictureImage: Eagleton Institute of Politics, Rutgers University
Clifford Goldman served as State Treasurer during the administration of Governor Brendan Byrne from 1976 to 1982. He died on September 16, 2018, at the age of 75. Prior to his appointment as State Treasurer, he was the first executive director of the Hackensack Meadowlands Development Commission in the administrations of Governors Richard Hughes and William Cahill and an assistant to Commissioner Paul Ylvislaker of the Department of Community Affairs. He also worked as a financial consultant to many state, county and local government agencies and authorities and taught public finance as a Visiting Professor at the Woodrow Wilson School of Public and International Affairs at Princeton University, where he was awarded a Ph.D and masters degree, and also held a B.A. degree from Rutgers University.

        

​       
About twenty years ago, at dinner before our poker game, I was telling my friend, the columnist John McLaughlin, how New Jersey was undermining its solvency by pushing its pension obligations into the future, increasing its debt, undermining the Transportation Trust Fund,
balancing its budget by raiding the unemployment fund, and so on. He
arranged for me to meet with a reporter.  To each item I raised, the
reporter replied that the paper had covered it.  My point was that
they had to be added together to show their combined threat to New
Jersey's future.  No article came out of our meeting.
 
       A few years later, I joined Governor-elect James McGreevey at a press
conference about the $6 billion budget deficit he would soon inherit.
There was no feasible combination of tax increases and budget cuts
that could produce $6 billion in one year.  The reporter stopped me on
the way out to say that my predictions had come true, not realizing
that the full effect was yet to come.
 
       McGreevey raised the corporate tax, but was unable to resume budgeting money to the pension funds.  Before McGreevey took office, the State budget had not appropriated money to the pension funds for five years, using borrowed money instead.  And, McGreevey had to borrow money to balance the budget.
 
       In 1997, the Court had disregarded the Constitution and allowed the
administration of Governor Christine Todd Whitman  to use borrowed money to balance its budget, thus departing from the past practice of making annual appropriations to finance state employee pensions. The payments on the debt sold in 1997 are now set to grow to almost $500 million in 2020.  So McGreevey also followed Whitman's precedent of using debt three times before the Court finally declared it unconstitutional, but nonetheless still allowed the third debt financing to proceed.
 
       With the approval of the Court in another case, the constitutionally
required pension appropriation has not been made for twenty years.
The budget gap McGreevey inherited has never been fixed.  Every
governor since then has been forced to manipulate the budget to keep
it in apparent balance by gimmicks, short-sighted budget cuts, and
pushing huge obligations into the future, to a day of reckoning that
is now fast approaching.
 
       For example, a tax was added to phone bills to pay for an upgrade to
the 9-1-1 emergency system. The money, about $1 billion, was used to 
balance the State budget instead of the upgrade.  The State borrowed
money to finance annual business incentive grants until Governor
Corzine stopped it.  The State settled an $8.9 billion pollution case
against Exxon Mobil for $225 million, but most of that money was used
to balance the budget instead of cleaning up the pollution. The same
thing happened to the $355 million extracted from the chemical
companies that had polluted the Passaic River.
 
       Bonds supported by tobacco sales, coming due in 2041 but rated as low-quality "junk bond" CCC status due to the high risk of default because of the projected decline of smoking by then, were refunded to be paid off beginning in 2017 at a cost of $60 million per year for seven years in return for $90 million to help balance one budget. In effect, for a one-time budget fix of $90 million, the state assumed a $420 million liability which is now coming due and will continue as a burden on future state budgets for the next seven years.

       State aid to support city police forces, fire departments, and
libraries were slashed regardless of the consequences.  Support for
education and public colleges declined.  The recent crash of a New
Jersey Transit train in Hoboken led to the disclosure of inadequate
funding and maintenance of the system.  Emergency Assistance, the last
safety net for the poorest families, was severely cut.  Meanwhile, the
State has amassed over $100 billion of debts to pension funds and
bondholders and billions more for needed improvements like the 9-1-1
upgrade and a rail tunnel to New York, the funding for which was also
used to balance the budget.
 
       Recent stories claim that the New Jersey economy has been slowing.
Except for the Newark Prudential Center arena, the Highlands, and
rail lines to Camden and the Sports complex, the public investments
that lead to economic growth such as county and State colleges, the
medical school, interstate highways and local roads, New Jersey
Transit, State parks and land preservation like the Liberty State
Park, the Meadowlands, and the Pinelands, reservoirs and water supply,
sewer treatment plants, and the Sports Complex were largely made from
25 to 60 years ago. New Jersey was able to do these things and still
be rated AAA and have little debt and fully funded pensions.
 
       Real economy drivers such as done deals to bring the Philadelphia
76'ers to a new arena in Camden and to create a summer classical arts
center at Waterloo Village with ballet, opera, and orchestra companies
of international acclaim were killed thoughtlessly.  Later, Waterloo
Village was killed to save pennies.
 
       New Jersey will suffer financial collapse when its pension funds are
depleted, beginning in 2021. The Court will decide whether hundreds of
thousands of retired judges, teachers, and State employees lose their
pensions and are impoverished or whether some $8 billion, one fourth
of the State budget, will be taken from other, already underfunded
purposes.  As was true 20 years ago, most items have been covered in
the press, but the frightening totality is still being ignored.