-- Op-ed: Former NJ State Treasurer reviews history of
decisions leaving state facing 'financial collapse'
Image: 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 andan 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.