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New Jersey ranks at the rock bottom financially, according to a new study | Opinion
Thomas J. Healey, GSI Board Member & Contributor | December 20, 2022 | As Seen In NJ.com & Star-Ledger
By Thomas J. Healey
It’s easy for New Jersey taxpayers to feel positive about their government’s financial condition. First full pension payment made in over 20 years. Record performance by the public retirement system’s stock portfolio. But a new report by Truth in Accounting (TIA), a nonprofit think tank that analyzes government financial reporting, paints a startlingly different picture.
New Jersey finds itself in the embarrassing position of dead last in the “Financial State of the States” report from Truth in Accounting (TIA). More specifically, a comprehensive study of the state’s finances showed $43 billion available to pay $241 billion of outstanding bills. Those expenses consist of $55 billion of bonds and other net liabilities, $80 billion of unfunded pension benefits owed to public employees and teachers, and $105 billion of unfunded health care benefits to that same group.
This distressing financial picture shows New Jersey with a $197.7 billion budget shortfall for the fiscal year ending June 30, 2021. And that translates into an individual taxpayer burden of $58,700 — the highest in the country.
In fact, New Jersey was the only state to experience a decline in its financial condition for the fiscal year 2021, as it remained for the 13th straight year in the bottom five of what TIA calls the “Sinkhole States.” States that lack the necessary funds to pay their bills were relegated to that category, while states that had sufficient funds were dubbed “Sunshine States.”
Truth in Accounting is a partnership between the nonpartisan TIA and the University of Denver. Its mission is to enhance the public’s understanding of government finances by presenting reliable and transparent government financial information.
An examination of that information for New Jersey resulted in the state receiving an “F” for financial health based on TIA’s grading scale, which assigns that failing score to any state government with a taxpayer burden greater than $20,000.
The bad news does not end there for the Garden State. The authors of the report found that the state’s fiscal status could deteriorate further going forward as both federal COVID funding and the market value of its retirement system assets decline.
Total debt among the 50 states was $1.2 trillion according to TIA. Most of that debt stems from unfunded retirement benefits promised to state employees and teachers, including pension and healthcare liabilities. For fiscal year 2021, total pension debt amounted to $699 billion, and other post-employment benefits (OPEB) – mainly retire healthcare – totaled $665 billion.
As outlined in the report, New Jersey‘s unfunded pension benefits at the end of the fiscal year were $79.8 billion, while unfunded retiree health care benefits were $105.6 billion. Like all states, New Jersey’s pension plan assets experienced significant short-term increases in value, yet the state’s portion of its net pension liability increased because it assumed new pension responsibility from local governments. The overall effect was to add to the individual taxpayer burden.
TIA’s report should serve as a wake-up call for all Garden State legislators and government officials. Thanks to the generous infusion of COVID-19-related assistance from Washington, for the last several years New Jersey has been able to edge away from the cliff of financial disaster, where it has lingered for years.
Now is the time for the governor and legislature to take advantage of that breathing room to do a top-to-bottom analysis of New Jersey’s chronically mismanaged budget — critically parsing its oppressive taxes, revenues and expenditures.
Indeed, not only does the state saddle its citizens with the third-highest tax burden in the country, but its annual budget has grown nearly 140% over the past 20 years while its economic activity (measured by gross state product) has increased by less than 1% annually since the Great Recession. Taxes today are driving both people and corporations out of New Jersey rather than welcoming them.
More than anything, New Jersey needs a sensible and thoughtful long-range fiscal plan, driven by an administration and elected officials who are not afraid to make the politically difficult decisions necessary to bring order at long last to New Jersey’s financial house.
Cities like Detroit, and arguably Atlantic City, have been hollowed out financially by refusing to deal with their debt load and spending beyond their recurring revenue capacity. The state is not immune to the same fate if our governor and legislature do not change their ways.
Thomas Healey is a senior fellow at Harvard University’s Kennedy School of Government. He was an assistant secretary of the U.S. Treasury under President Reagan.