NJ, NY have high unfunded liabilities: Report
New Jersey Tops the List for Unfunded Post-Employment Benefits
A recent report from the American Legislative Exchange Council’s Center for State Fiscal Reform reveals that New Jersey has the largest unfunded liability for post-employment benefits, excluding pensions, compared to any other state. The report highlights the nationwide increase in unfunded liabilities, reaching a staggering $1.14 trillion in 2022, averaging $3,000 for every American.
New Jersey’s Alarming Numbers
According to the report, New Jersey ranks at the bottom with a whopping $175 billion in unfunded other post-employment benefit (OPEB) plans for 2022. This translates to a per capita liability of $19,691.65. Not far behind is New York, with over $133 billion in OPEB liabilities and a per capita liability of $6,847.42 per resident.
Delaware’s Struggle
Delaware also faces significant challenges, with more than $11.7 billion in liabilities. Due to its smaller population, the per capita liability stands at an outsized $12,048.16 per resident.
The Urgent Need for Policy Reforms
Jonathan Williams, ALEC’s chief economist and executive vice president of policy, emphasizes the burden on taxpayers and the need for significant policy reforms. Introducing various defined contribution options for new employees can help fulfill commitments to both public employees and taxpayers, ensuring financial sustainability.
Understanding OPEB
ALEC defines OPEB as all benefits retired public employees are eligible to receive upon retirement, excluding pensions. This includes health insurance, life insurance, Medicare Supplement Insurance, and other forms of compensation.
Successful Reforms and Funding Challenges
The report highlights Nebraska, South Dakota, Indiana, and North Carolina as states that have successfully reformed their OPEB plans while protecting taxpayers. Overall, OPEB plans have worse funding ratios than state pension plans, with an average funding ratio of only 13.46 percent. This lack of pre-funded assets allows liabilities to grow rapidly each year.
The Impact on Participants and Taxpayers
A poorly-funded benefits system puts a strain on both participants and taxpayers. It requires higher annual contributions from taxpayers, diverting funds from other important priorities. By addressing the trillion-dollar OPEB problem now, state leaders can fulfill their promises and protect taxpayers from excessive debt.
Why has New Jersey’s unfunded liability for post-employment benefits more than doubled in the past decade?
8.5 billion in unfunded post-employment benefits. This includes healthcare benefits for retired state employees, such as medical, dental, and vision coverage. The report points out that New Jersey’s obligation for these benefits outweighs its ability to pay, creating a significant financial burden for the state.
Furthermore, the report underscores how New Jersey’s unfunded post-employment benefits have been growing at an alarming rate. In the past decade alone, the unfunded liability has more than doubled, increasing by $4.2 billion. This drastic increase can be attributed to various factors, including inadequate funding, rising healthcare costs, and an aging population.
Implications for New Jersey
The staggering amount of unfunded post-employment benefits in New Jersey has serious implications not only for the state but also for its residents. The report emphasizes that the burden of these liabilities ultimately falls on taxpayers. As the unfunded liability continues to grow, the state will be forced to allocate a larger portion of its budget towards these benefits, leaving fewer funds available for other crucial public services.
Moreover, the report suggests that the mounting unfunded liability for post-employment benefits could lead to credit downgrades for New Jersey. This could have a detrimental impact on the state’s ability to borrow money and fund essential projects. It could also result in higher borrowing costs, which would further strain the state’s already precarious financial situation.
The Need for Remedial Actions
The report underscores the urgent need for New Jersey to address its unfunded post-employment benefits crisis. Without prompt action, the burden on taxpayers will only increase, potentially leading to higher taxes or reduced public services. Moreover, the state’s financial stability will be at risk, making it even more challenging to attract businesses and stimulate economic growth.
Several solutions can be considered to tackle this issue. One option is to implement reforms that reduce the cost of post-employment benefits, such as renegotiating healthcare contracts or increasing employee contributions. Additionally, the state could explore alternative funding mechanisms, such as establishing trust funds or seeking federal assistance.
It is crucial for New Jersey policymakers to prioritize this issue and develop a comprehensive plan to address the unfunded post-employment benefits problem. By doing so, they can not only alleviate the burden on taxpayers but also ensure the long-term financial stability of the state. Furthermore, it will demonstrate a commitment to responsible fiscal management and strengthen New Jersey’s position as an attractive place to live and do business.
A National Crisis
While New Jersey may top the list for unfunded post-employment benefits, it is important to recognize that this issue is not unique to the state. The report highlights the nationwide crisis of unfunded liabilities, which represents a significant challenge for the entire country.
Addressing this crisis requires collaboration between state and federal governments, as well as innovative thinking and long-term planning. By taking decisive action now, we can mitigate the impact of these liabilities and ensure a more secure financial future for all Americans.
In Conclusion
New Jersey’s ranking as the state with the largest unfunded liability for post-employment benefits underscores the urgent need for action. The growing burden on taxpayers and the potential consequences for the state’s financial stability cannot be ignored.
It is imperative for New Jersey policymakers to prioritize this issue and devise effective solutions. By doing so, they can protect the interests of taxpayers, maintain crucial public services, and safeguard the state’s long-term economic well-being. Additionally, addressing the nationwide crisis of unfunded liabilities requires a collective effort and a commitment to prudent fiscal management from both state and federal governments.
Only by addressing these challenges head-on can we secure a brighter future for New Jersey and the entire nation.
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