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Analysis: Health costs are key to Christie’s pension repairs

March 5, 2015, 10:56 PM    Last updated: Thursday, March 5, 2015, 11:01 PM
By MELISSA HAYES
State House Bureau | 
The Record

www.northjersey.com

Teachers, police officers, state employees, county and municipal workers and even retirees would have to agree to changes in their health care coverage to free up money that would then prop up retirement benefits under a plan Governor Christie has endorsed, an analysis of the plan showed.

It’s unclear, however, just how that would work. And there are concerns that residents could be facing bigger property tax bills if the state shifts its responsibility to pay teacher pensions to local school boards as the plan proposes.

“It’s a kaleidoscope of change,” said Bill Dressel, executive director of the New Jersey State League of Municipalities. “There are so many moving parts to this. There’s many union contracts, and those dates would have to be reconciled. I think that there’s going to have to be very comprehensive analysis of all these things that’s going to have to be taken into consideration.”

Christie focused much of his annual budget address last week on the “unprecedented accord” he had reached with the New Jersey Education Association – one of his biggest political foes – to work on additional changes to state pensions and health benefits. But the plan, which calls for freezing existing pensions and introducing retirement plans that are more in line with private-sector benefits, also relies on everyone in the state’s two health-benefits plans to agree to changes that would include having them pay more toward the premiums.

Any savings the state and local governments realize from those shifts, estimated at $1.9 billion, would be put toward the state’s unfunded pension liability under the plan – but the report stresses the benefits “can only be realized if these local savings are realized.”

There are 885,000 employees, retirees and their dependents enrolled in either the State Health Benefits Plan or the School Employees Health Benefits Program, according to a report from a special commission appointed by Christie. The vast majority of municipal and county employees – 180,487 – are not enrolled in state health plans, but 42,297 local workers are. On the education side, 95,678 employees are enrolled in state plans and 57,780 are in other plans.

In its report, the commission notes that the existing state health plans are more generous than the “platinum” level plan offered under President Obama’s Affordable Care Act. It suggests setting the standard for coverage closer to the act’s “gold” level, to avoid paying federal surcharges that will start in 2018 for having so-called Cadillac plans. Workers would be asked to pay an average 25 percent of the premium cost, up from the state’s average employee contribution of 18 percent. The “gold” level plans also come with higher  copayments.

In his budget address, Christie set a June deadline for identifying health care savings. If that is not met, he won’t push for a November ballot question that would constitutionally mandate set payments by the state toward the unfunded pension liability, something the unions want. Christie and earlier New Jersey governors have cut that funding; an amendment would end the practice.

Democratic state Sen. Paul Sarlo, who is chairman of the Senate Budget and Appropriations Committee, said he’s concerned about the governor’s aggressive timeline.

“Everybody is focused on the teachers. It’s not just the teachers,” said Sarlo, D-Wood-Ridge. “Every collective bargaining agency that deals with public entities has to make the transition in order for this so-called proposal to work. There’s just way too many moving parts.”

The state, counties and towns negotiate their contracts – including health care coverage – at different times, so it’s unclear how everyone would be shifted at once and within the next year. There is also the added confusion for the many towns and school districts that don’t use the state plans. Those communities wouldn’t realize any cost savings, so it’s unclear how they would get money to cover the pension costs they’d be assuming from the state.

The New Jersey School Boards Association has yet to take a position on the proposal but has concerns about school districts being asked to take on retirement payments and assume the cost of lifetime health benefits, both of which have been covered by the state.

State Senate President Stephen Sweeney, D-Gloucester, said if he were a municipal or county official he’d want to use any savings to make his own pension payments, instead of giving it to Christie to make state pension contributions.

“Why would I turn those savings over to him when it’s not his money?” Sweeney said.

Sarlo, who also is mayor of Wood-Ridge, which participates in the state plans, questioned how local governments that aren’t in the state health plans, and therefore wouldn’t realize savings, could be expected to take on added pension obligations.

“The savings is going to be a benefit to the municipality, if they get one,” he said. “Those who don’t, there’s going to be a cost. There could be winners and losers here.”

The commission said towns should be willing to share some of that savings.

“Given the dire need, the extent to which state funds already pay a significant role in funding local benefits, and the fact that local savings would not exist but for statutory and constitutional reforms intended to address the state-level crisis, the commission believes that it is appropriate to dedicate these local savings to help close the state and local pension funding gaps,” the commission wrote in the report it released last week.

The commission said its plan would be tax-neutral, but communities like Fair Lawn that aren’t in the state health care fund aren’t sure what the proposals mean for them.

“You have to look at it in-depth and see what’s happening,” Fair Lawn Mayor John Cosgrove, a Republican, said of the proposal. “I do know that we have to do something. You can’t continue not to fund the pension plan; people paid money into it. We need to fund it and get it back on track.”

Cosgrove said any plan changes would have to be approved by the municipal workers.

“I listened to the speech and I want to know more as far as how can we come together,” he said. “Government, unions, people – we’re all going to have to come together to solve these problems.”

Sweeney said he’s also concerned the state is again asking employees to pay more, when they are already making significantly higher health care and pension contributions under 2011 reforms, while the state hasn’t lived up to its end of that agreement. Sweeney was a sponsor of that 2011 legislation, which Christie signed into law.

The governor agreed to step up annual payments into the state pension funds in 2010 as part of those negotiations. But in 2014 he slashed the state’s contribution, citing a revenue shortfall. Christie cut the payment in the current budget from $2.5 billion to $681 million for the same reason, but the unions sued and a judge ruled last week that the state is constitutionally obligated to make the payments. Now he’s proposing a $1.3 billion payment for the next fiscal year, when the phased-in increases would require a $3.1 billion payment. Fourteen public employee unions announced Monday they plan to file a lawsuit challenging the proposal for the coming fiscal year.

Sweeney said he’s willing to work with the teachers, whose pensions are funded by the state and are facing the largest unfunded liability. But Sweeney, a union official himself and one of several Democrats said to be considering a run for governor, said he’s unwilling to allow the state to impose changes on the other unions without their consent.

In his speech last month, Christie embraced the proposal as a “national model” and set a June deadline for identifying health care savings with the teachers before he asks lawmakers to put a public question on the ballot that would constitutionally require the state to make pension payments going forward.

 

 

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