The Christie Hiatus
Chris Christie grabbed the attention of political observers when he defeated New Jersey incumbent governor Jon Corzine in 2009, vowing to fix a state that had been beset by almost continuous economic and fiscal woes for a decade. Christie's tough talk about reining in public-sector unions and his efforts to reduce huge deficits without raising taxes won him a certain celebrity in Republican circles. And in his home state, he gained popularity by engineering some overdue, bipartisan reforms such as a cap on annual property taxes. Christie's early successes sparked speculation that he might run for president in 2012, and though he declined, he has been exploring a run in 2016.
But lately, especially since winning reelection easily in 2013, Christie has watched his reputation tumble both in New Jersey and nationwide. This is partly the result of the political fallout from the so-called Bridgegate scandal, in which members of Christie's staff ordered lane closures on the approaches to the George Washington Bridge to create traffic jams, and headaches for a political opponent who was the mayor of a town that suffered the congestion. But, in addition, the governor's efforts at cleaning up the state's multitude of fiscal messes and recharging its economy have stalled, prompting criticisms that he isn't doing enough to revive New Jersey.
It's worth considering what Christie was up against when he took office, what he's accomplished, and where he's fallen short. A good starting point is to look at the massive debt in the state's pension system. The way New Jersey has mismanaged that system over 25 years — with a succession of administrations and legislatures engaging in accounting tricks, backroom deals, and outright deception about how much money was in the pension funds — is indicative of how Trenton has mishandled its other fiscal affairs.
The tale begins when Trenton politicians discovered that they could alleviate short-term budget woes by manipulating the financial statements of the pension system. In 1992, Governor Jim Florio signed into law the innocuous-sounding Pension Revaluation Act, which raised the projected return on the state pension system's long-term investments. Politicians have no business dabbling in such projections, but the maneuver made the system seem better funded than before, allowing Trenton to reduce the money it contributed to the fund by some $750 million in a tight budget year. Two years later, the legislature passed a bill, signed into law by Governor Christie Whitman, that changed the pension system's actuarial methods. This produced a short-term paper gain that saved the state more than $1 billion in pension payments over two years. But Trenton was just getting warmed up. In 1997, the Whitman administration decided to float $2.7 billion in bonds for the pension system as part of the ironically named Pension Security Plan. Borrowing to fund pensions is rarely a good idea, but Trenton made it even worse than usual. To get the public-employee unions to go along, the administration agreed to lower the retirement age for workers and reduce their required contributions to the system. And to minimize the short-term impact of the borrowing on its budget, New Jersey designed the bonds to pay no interest for ten years — making them more expensive to repay over the long term. Then legislators cited the borrowed money to argue that the system was well funded and that therefore the state could afford to skip some annual pension contributions and simultaneously increase benefits to workers. Between 1999 and 2003, Republican and Democratic administrations approved 13 bills boosting benefits, at a cost of an additional $6.8 billion in total liability.
To make these maneuvers look justifiable, Trenton misled voters. Even as the stock market declined in 2000 and throughout 2001, the state kept valuing the pension system as it had in 1999, when the system was flush with borrowed money. The legislature also kept referring in budget documents to a plan to shore up the pension system by putting more money into it, even though that plan had been abandoned. State documents in 2005, for instance, variously suggested that New Jersey contributed $551 million or $56 million to the pension system that year. The real number, the New York Times reported two years later, was zero. Politicians often mislead their constituents in such ways, but when New Jersey extended its obfuscations to bond-offering documents, the Securities and Exchange Commission cited the state for defrauding investors, making New Jersey the first state ever charged with violating federal securities laws. “The State of New Jersey didn't give its municipal investors a fair shake, withholding and misrepresenting pertinent information about its financial situation,” the SEC complaint said.
In 2005, a governor's commission estimated the pension system's unfunded liabilities at $12 billion and urged action. Corzine ran for governor that year promising to make reform a priority, but once in office he failed to propose any meaningful cost savings and continued shortchanging the system. By the time he left office in early 2010, the state's pension debt had soared to $48 billion, and the opportunity to fix the problem at a price the state could afford had passed.
The economist Alicia Munnell, head of the Center for Retirement Research at Boston College, has said that the one common characteristic of states with severely underfunded pensions is that they are fiscally irresponsible in other areas, too. New Jersey certainly fits that pattern. Not content to spend merely the money it should have pumped into pensions, Trenton has foraged for even more cash. Between 1992 and 2006, the state swept $4.6 billion from its unemployment trust fund — meant to pay jobless benefits to workers — into other spending. When the recession hit in 2008, New Jersey had to borrow $2 billion from the federal government to pay benefits to unemployed workers — money that it has had to pay back under the Christie administration. Former governor Jim McGreevey was perhaps the king of borrowing. Even while he was shortchanging the pension system, McGreevey floated nearly $2 billion in bonds to finance a 17 percent increase in 2005 state spending — a move that violated the state constitution's ban on borrowing to finance day-to-day operations. New Jersey's supreme court reprimanded McGreevey but let the borrowing stand.
As the state's fiscal woes multiplied, Trenton could not muster the will to enact any meaningful reforms. By 2008, New Jersey had emptied its transportation trust fund. All the money from gas taxes and tolls had gone toward paying back its debt. Still, the state managed to waste transportation money at astonishing rates. A 2010 study by the Reason Foundation found that New Jersey spent $1.14 million per mile on its roads, compared with a national average of just $145,127 per mile. It expended an astonishing $123,844 per mile just on transportation maintenance at a time when the national average was $22,937. No other state spent more. Those huge numbers represented expensive practices such as the imposition of prevailing-wage laws, which essentially require state contractors to pay union wages on all jobs, and the maintenance of a complex and needlessly large transportation bureaucracy.
What is perhaps most astounding is that the state racked up these debts even as McGreevey and Corzine enacted more than $5 billion in tax hikes. By the time Corzine left office, New Jersey was collecting more state and local taxes per capita than any other state, yet it was deeply in debt and its projected revenues and spending showed no signs of matching up anytime in the foreseeable future.
When Christie took office in January 2010, he inherited a $2 billion midyear financial hole from Corzine (New Jersey's fiscal year, like that of most states, begins on July 1) and a whopping $11 billion projected deficit for the next budget, on estimated revenues of only $30 billion. The state's budget woes were exacerbated by the ending of a nearly $1 billion temporary income-tax surcharge on wealthy residents that Corzine and the Democratic legislature had designed to expire at the close of 2009, knowing that any potential Republican candidates would be forced during the gubernatorial campaign to declare whether they planned to extend the tax, and, if not, what programs they would cut.
This piece originally appeared in National Review Online
This piece originally appeared in National Review Online