When Gov. Chris Christie returns from Washington to deliver his final budget address tomorrow, he’s expected to key in on public worker pensions. Former State Treasurer Andrew Sidamon-Eristoff wrote an op-ed published by NJ Spotlight predicting the federal government will step in and solve the pension crisis for every state, including New Jersey. He recently sat down with NJTV News Chief Political Correspondent Michael Aron.
Aron: Andrew, thanks for coming in. You wrote an op ed that NJ Spotlight published recently in which you said that the federal government is going to step in and solve the pension crisis for us all over the nation, including New Jersey. Is that your prediction?
Sidamon-Eristoff: Yes, it’s a prediction, not a wish or a desire, but it’s a prediction. And I was trying to make three basic points. One is, in my view, state political systems all across the country are failing to address this multi-trillion dollar problem of pensions and health benefits/liabilities. We’ve all read about Illinois and New Jersey of course and states like Arkansas, but in fact if you look across America, almost every state has a major challenge. And it’s just getting worse because state political systems, here in New Jersey and elsewhere, are just not meeting the challenge. We don’t have what it takes to apparently make the hard choices. So I think that ultimately some form of federal intervention is inevitable in the foreseeable future.
Aron: So that’s good news? We don’t have to worry about the pension crisis any more?
Sidamon-Eristoff: Well, it is maybe at one level, but maybe not because there are a couple of other points I’m making. One is, if you think ahead to what federal intervention might actually look like, it will probably come with some pretty severe restrictions, or conditions. So the feds are not going to help a state like New Jersey without imposing some very strict conditions. That means — in real terms — drastic cuts to employee benefits, health benefits, pension benefits, requirements to increase pension contributions.
Aron: So it’s not a federal bailout then?
Sidamon-Eristoff: Well, it will be, I think, this again is a prediction, but I think that the feds may end up having to provide some sort of transitional assistance to states. But in return for that, I think the feds are likely to impose restrictions, or conditions, on the states. So at the end of the day, public employees in New Jersey and elsewhere, if this happens, will end up with much less rich benefits than they have now.
Aron: So no reason for unions to get excited about your prediction?
Sidamon-Eristoff: No, and no reason indeed. In fact, I’m trying to emphasize that they should probably think in terms of taking on these issues and dealing with them in a serious fashion now while there’s still time. Because if it gets to the point when federal intervention becomes necessary they may not welcome the result.
Aron: The governor delivers his budget address this Tuesday. You crafted his first six budgets, what do we expect from this new one?
Sidamon-Eristoff: Well I think I can kind of give you a broad brush preview. One, it’s going to be well over $35 billion — obviously a new high as you would expect for the state budget. That’s a lot of money. Every year the budget debate centers on five issue groupings, if you will, and I expect this year will bear out the same way. So what are those issues? Pensions and health benefits is probably the top one. Education aid, municipal aid, taxes — both in terms of revenues and property tax relief. And then finally, health care policy and funding in all its manifestations, including hospital care, charity care for hospitals, hospital aid, Medicaid, what we might do, if anything, if the feds repeal Obamacare, that kind of thing.
Aron: The governor said on the radio recently that he will fully fund the pension. I guess that means in the ramp up system, not what the actuaries say is needed into the budget. You think that’s going to happen?
Sidamon-Eristoff: Oh, I’m sure of it. He made a public commitment. I’m sure that they’re planning on making the full 50 percent contribution — 50 percent of the actuarial recommended contribution amount. Last year it was 40 percent and so forth, we’re building up to a full actuarial required contribution amount over time. That will be $2.5 billion however, and just to cover the extra $650 million they’re going to need revenue to increase by about 2 percent.
Aron: And I’m reading that revenues are about a billion dollars under projection at the moment. That’s another budget crisis in the making.
Sidamon-Eristoff: Well, it remains to be seen. You know the revenue estimates that were embedded in last year’s adopted budget, the expiring budget, were pretty modest. They called for a 3.1 percent increase in revenues year over year. So if they’re not meeting even those modest growth projections then it begs the question how are we going to deal with next year? At the end of the day when the smoke clears one thing is absolutely sure, almost all revenue increases will be devoted to pay for two things: pensions and public employee health benefits.
Aron: Not education? We’ve got very little time left, but you don’t expect the governor to propose any school funding formula change in this budget?
Sidamon-Eristoff: I personally don’t anticipate that. I mean, it’s certainly his prerogative and I know that he’s committed to reform of the formula, but I suspect that he won’t completely propose a radical revision. And I further expect that the budget probably won’t anticipate repeal of Obamacare, because it doesn’t have to. Because we don’t know what’s on the other side of repeal yet, so there’s really no practical way the budget can take that into account in any comprehensive and careful way.
Aron: Former State Treasurer Andrew Sidamon-Eristoff, thanks very much.