The evasion of reality:
From 1987 through 1994, New Jersey was one of only a handful of governments that went to the trouble of setting aside money for retiree health care. Gov. Christine Todd Whitman stopped the practice the year she took office, along with cutting back on pension contributions.
The official explanation was that inflation in health costs had subsided and that setting aside money could create a bigger reserve than was needed. Also, her administration noted, the Clinton White House was working on a national health plan.
Not long afterward, though, health inflation went to double digits, and the Clinton initiative collapsed. But by then, New Jersey’s lawmakers had grown accustomed to using retiree-health dollars to balance the budget, which was required under the State Constitution.
Some of the consequences:
When New Jersey stopped funding its retiree health plan 13 years ago, it also stopped trying to keep track of the cost. That created the illusion that the long-term obligation was zero, not billions of dollars, and made it easy for the state to enhance its already rich benefits.
In 1994, New Jersey decided to stop setting aside money in a fund to pay for health care for its retired public workers. The savings paved the way for a big tax cut.
It turns out that New Jersey will need about $58 billion, in today’s dollars, to provide all the care it has promised its current and future retirees. That’s nearly twice the state budget and nearly twice the amount of its outstanding debt. And because of the step it took in 1994, the state has virtually no money in reserve to cover those costs.
Meanwhile, the state’s revenues are largely static. That means that unless something changes, New Jersey will have less money each year to pay for vital services like colleges, hospitals and mass transit. Its popular program to preserve green space just fell victim to the need to devote huge amounts to the retirement plans and debt servicing.
