New Jersey’s state government debt is not sustainable. It was not sustainable years ago, long before coronavirus. Coronavirus simply brought us to the day of reckoning quicker. Only bankruptcy or Constitutional debt reduction can fix the problem. Most New Jersey taxpayers want to get out of this state. The last thing they want is to turn the rest of America into New Jersey.
According to TruthInAccounting.org, New Jersey has been the worst debt burdened state in America since 2014. Even with a prosperous economy, New Jersey fell deeper in debt during the past six years.
In 2019, TruthInAccounging.org reported that New Jersey government had $235 billion in debts, which came to $65,000 per taxpayer.
Roughly $99 billion of that debt were shortages in public employee pension funds, and another $92 billion were unfunded promises to pay lifetime healthcare for public employee retirees. Another $82 billion were for state bonds. Some of those bonds were approved by voters pursuant to our NJ State Constitution. However, most were not. They were simply borrowed by “authorities” like the NJ Transportation Trust Fund Authority (funded by tolls and gas taxes), the NJ Economic Development Authority (funded by “rent” paid by government agencies) and the NJ Educational Facilities Authority (funded by “rent” paid by state colleges like Stockton).
Before the coronavirus, New Jersey planned to collect about $39 billion in taxes and fees each year. Even in a prosperous economy this was not sustainable. It was like a family earning $39,000 per year trying to pay $235,000 in credit card bills, not counting the mortgage.
New Jersey planned to pay about $4.2 billion on its debt each year — more than 10% of its yearly income. Last year, Moody’s Investor Service predicted that this could not be sustained and that New Jersey and Illinois were “the two states least able to handle a recession”.
Even without coronavirus, New Jersey taxpayers could not afford to pay taxes high enough to run state government and also pay this $235 billion debt. The cost of paying the debt keeps going up as more public school teachers and other public employees get older and retired. Each year, their are fewer taxpayers to pay the debt as the our most productive citizens and businesses move to other states with less debt and lower taxes.
The sudden drop in incomes and stock values caused by the coronavirus brought New Jersey to crisis a few years sooner than expected. New Jersey must now either make drastic cuts in its debt, or massive cuts in public employees and salaries.
Democratic Governor Phil Murphy doesn’t want to do either. He is instead demanding massive bailouts from the Federal government. This is nothing new. By helping Democratic President Barack Obama get re-elected in 2012, former Republican Governor Chris Christie was allowed to use “Superstorm” Sandy money to bail out New Jersey State government in 2013.
Murphy may not be as lucky. First, President Trump, unlike former President Obama, wants New Jersey to actually spend its $1.8 billion of emergency virus relief money for “coronavirus-related expenses”. Governor Murphy claims that restriction makes the relief money “unusable”.
Second, the Federal government now has its own financial problems. The trillion dollar bailouts and “stimulus” of 2009 did not save the economy–they simply kicked the can down the road a few years–that is until now.
With the latest coronavirus bailouts and “stimulus”, the Federal government is now $103.7 trillion in debt. That’s a hundred three thousand, seven hundred billion dollars or $103,700,000,000,000.
Roughly $24.7 trillion is official government debt. The federal government owes another $10.1 trillion in unfunded government pensions, superfund cleanup obligations, and pension guarantees. It owes $35.2 trillion in unfunded promises to social security and $42.3 trillion to Medicare.
That debt comes to $315,315 for every person living in the United States or $806,181 for every household. It is obvious that this debt is also unsustainable, and that at some point, people expecting to be paid by the U.S. government will get pennies on the dollar. Click here for source: https://www.justfacts.com/nationaldebt
However, that will come later. New Jersey’s day of reckoning will probably come first. There are two ways this can legally happen.
One would be for New Jersey’s state government to go through a federal government bankruptcy process. That would allow the state to pay everybody holding bonds or entitled to pensions or health benefits a lot less than what they were promised.
There is also a State Constitutional process to give a similar result. After the financial collapse of 1837, New Jersey rebuilt its economy by adopting a new State Constitution in 1844. That new State Constitution had several important reforms One of them was that the state could not borrow money without voter approval.
Most of the New Jersey’s state government debt was never approved by voters. Billions were borrowed without voter approval by “authorities” like the NJ Transportation Trust Fund Authority, NJ Economic Development Authority and the NJ Education Facilities Authority. Voters were never asked to approve pension and health care benefits far above what was being set aside to pay for them. As a result, the state legislature has the legal and moral right to repudiate, or refuse to pay any state debt or obligation not approved by voters.
New Jersey’s biggest debt problem is its public employee pensions. Most public employees are promised pensions that have nothing to do with how much they contribute to pension funds. Pensions are instead determined by years of employment and salaries during the last years before retirement. Very often, politically connected employees get big pay hikes just before they retire to “juice up” their pensions. This allows them to collect far more than they ever invested in the system. Before the coronavirus, New Jersey pension funds were short roughly $100 billion of what they needed to pay retirees what they were promised. With falling stock prices and layoffs, those pension funds are probably in much worse shape now. Zero moneys are set aside to pay roughly $92 billion of lifetime medical benefits offered to public employee retirees.
New Jersey Transportation Authority is another debt problem. In 2017, it had had unsustainable debts of $16 billion. For years, this Authority collected roughly a billion dollars a year from tolls and the gas tax–more than enough to build and repair New Jersey roads. However, it borrowed and spent billions more for other projects like a new trains between Camden and Trenton. As a result, we had big gas tax hikes to pay down that debt. However, instead of fixing the problem, the Transportation Authority borrowed and spent even more and increased its debt to $20 billion.