The stock-market plunge has badly eroded the value of public-employee pension funds, a worsening dilemma that elected officials have yet to address.
New Jersey is in particularly bad shape. Its pension fund lost $23 billion as of last month, including $9 billion in October, dropping to $57.8 billion. The remaining balance might sound like a lot, but it's less than half of the $118 billion in obligations that's needed to pay retirees over time.
Currently, the plan pays out $5.2 billion per year to 240,000 retired government workers, police officers, firefighters, teachers and their beneficiaries.
Gov. Corzine, unfortunately, has responded with the kind of temporary gimmick he once scorned. He has called for a "pension holiday," which would allow local governments to skip paying $540 million of the $1.1 billion due next year.
That's a bad idea. Skipping pension contributions in the years before Corzine took office is another reason why New Jersey's fund is so out of balance. The governor agrees that it's a poor choice, but said it might be the only way to avoid a huge increase in local property taxes next year.
The recession has made it more likely that the cash-strapped state government will cut municipal aid in 2009. Unless local governments are allowed to defer pension payments for a year, Corzine said, property taxes will soar. And the state's property taxes are already the highest in the nation.
New Jersey's fiscal situation is fragile, and this move is designed to cause the least amount of short-term pain for taxpayers in an election year. But it's also another example of New Jersey government failing to live within its means, a lecture that Corzine has often delivered.
Senate Democrats postponed a vote on the plan until next month because they didn't have enough support for it. Republicans are united in opposition, and among the Democratic opponents are Majority Leader Stephen Sweeney and Sen. Fred Madden, both of Gloucester County, and Sen. Jeff Van Drew, of Cape May County.
"As difficult as this is, governments have to bite the bullet," Sweeney said. "If it's layoffs, it's layoffs."
Corzine's proposal also would defer New Jersey's duty to bring its long-term pension costs under control.
"The pension can go broke, and it will," Sweeney said. "We need long-term proper levels of funding, or a tiering system for new employees, or defined contributions. The problem is not going away."
Pennsylvania's pension situation is not as dire, but its day of reckoning is coming, too. The state's two pension funds for teachers and other public employees suffered multibillion-dollar losses this fall. And unless the legislature enacts a delay, contributions from state and school district taxpayers are scheduled to quadruple in 2012, to $2.3 billion.
The city pension system's problems are well known, and are creating worsening budget challenges for Mayor Nutter. Declining pension fund investments will require the city to kick in at least $283 million more over the next five years, nearly a third of the city's overall budget deficit. Nutter's plan to shore up the system with a bond sale in fiscal 2011 is uncertain in the current environment.