The Ticking Time Bomb Faced by Next NJ Governor

New Jersey’s public pension system faces a $253 billion crisis that could result in higher taxes for residents, fewer services or even bankruptcy for state government.  Gov. Chris Christie will hand that fiscal time bomb to a new chief executive that state voters elect in November.

 “The next guy is going to face this – whoever he or she is.  And it’s going to be worse.  And let me tell you, when the state runs out of money, don’t think the state is going to pay this.  They’re not!” warned Christie during a 2015 town hall meeting.

The next “guy” will be either Democrat Phil Murphy or Republican Lt. Gov. Kim Guadagno.  Neither has announced plans that would avoid the potential financial meltdown – and Guadagno has some pension-related baggage of her own.

The dilemma pits the pension promises to 760,000 current and retired public workers against the tax burden shared by all 9 million state residents.

According to the numbers state officials prefer to use, the pensions are underfunded by $53 billion.  To dress up the balance sheet, New Jersey now counts its State Lottery as a $13 billion pension asset.

However, the state keeps a second, more ominous set of figures. WNYC analyzed the data it reported under the rules of the Government Accounting Standards Board, a non-profit that sets transparency guidelines followed by most state governments.  

Those numbers show New Jersey’s public pension system is actually underfunded by $168 billion.  And that does not include an additional $85 billion shortfall for the medical benefits of retirees.  The bottom line is a state retirement system that faces a future debt of $253 billion.

The underfunding has increased despite pension reforms enacted during Christie’s eight years in office — including a halt to cost of living raises, increases in employee contributions and an effort by the state to make payments it skipped for decades.

“The benefits are too rich, the contributions are too small, and the system is on a path to bankruptcy,” Christie stated.

In statements to WNYC, neither the Murphy nor Guadagno campaign offered a plan on how they’ll find the billions it will take to avoid a fiscal meltdown.

Murphy, a retired Wall Street executive, has the support of the public employee unions. He pledges to honor existing benefits and fully fund the state’s obligation.

“The state must own up to its end of the bargain,” said Murphy during an interview on NJTV’s “State of Affairs.”

The Democrat has not said how he’d fund the pension deficit, but he hopes to find quality health care for workers and retirees at lower costs.  "He is committed to closing the out-of-network loopholes that have cost taxpayers hundreds of millions of dollars," said his spokesman, Derek Roseman. 

Murphy acknowledges the situation is worse than in 2005, when he chaired a pension study committee appointed by then-Governor Richard Codey.

“We thought that was a big hill to climb then,” said Murphy. “It’s a much bigger one today.”

Lt. Gov. Kim Guadagno doesn’t stray far from her boss’s position. Like Christie, she warns that the state cannot afford its obligations to workers.

 “The pension’s not going to be there – and you’re hiring teachers and police officers and career firemen right now – and promising them a pension that we know will not be there,” said Guadagno on NJTV’s “State of Affairs.”

She says the state will face hard choices on whether to fund future pension benefits at the expense of essential services.

“Which schools are you going to close?  Because you will have to, to pay for the pension — and you still won’t have enough money. Or which hospitals are you going to close because you’re going to have to pay for the pension?  It’s a toss-up,” said the Republican nominee.

Guadagno vows to protect the pensions of current retirees — including her husband.  Retired Judge Michael Guadagno receives a $98,000 a year pension after 13 years of state service.

She also pledges to end all pension abuses.  Yet she was at the center of a controversy that once led to a pension fraud investigation.

As Monmouth County sheriff in 2008, Guadagno hired Michael Donovan, a retired county investigator, as her “chief of law enforcement division.”  She announced the appointment in a memo to her staff. The sheriff's official website subsequently identified Donovan as "sheriff's officer chief," supervising 115 subordinate officers and 30 civilian employees.

Under law, Donovan’s state pension checks should have stopped when that job began.

However, in county payroll records and a news release from Guadagno, Donovan was listed as the sheriff's "chief warrant officer" – a lower ranking position exempt from the pension system.   That enabled him to keep collecting an $85,000 a year pension in addition to his new $87,500 salary.

A photo released by the sheriff’s office shows Guadagno attended a ceremony in which Donovan took an oath of office as chief warrant officer. Yet on Guadagno’s organizational chart, he was listed as chief of law enforcement. The position of chief warrant officer was not on the chart.

The Police and Firemen’s Retirement System’s board of trustees requested a criminal investigation in 2011 after it discovered the scheme.  By then, Guadagno had been elected lieutenant governor as Christie’s running mate.

The case was assigned to the Division of Criminal Justice, where Guadagno once served as a deputy director.  DCJ reports to the attorney general, who reports to Christie.  Both the attorney general and Guadagno are members of Christie’s cabinet.

The pension board waited in vain for results.  During a meeting in 2014, it passed a resolution seeking answers from DCJ.

“If this is closed, when are we going to find out the outcome?” complained trustee John Sierchio.

Yet to this day, DCJ has refused to release its findings — not even to the pension board that asked for the investigation.  No charges were ever filed.

Public records lawsuits that I filed as a reporter for New Jersey Watchdog – a now-defunct, non-profit investigative news site – uncovered information about DCJ’s probe though not its conclusions.

In a 13-month investigation, DCJ produced just one report totaling five pages. There is no record indicating that investigators ever contacted, interviewed or took statements from Guadagno or anyone else, according to an index of the case file that a trial judge ordered the agency to release. 

An appellate court panel ruled that five-page report of findings should remain confidential, citing a “deliberate process privilege” in New Jersey law that protects some pre-decisional governmental records from public disclosure.

Guadagno dismisses the case as “old news.”  Yet it raises questions about her credibility as a candidate who promises to audit every state agency in search of fraud, waste and abuse. 

She now promotes the idea of a special prosecutor to investigate future allegations against a governor or lieutenant governor. But if an independent prosecutor had been appointed six years ago, Guadagno might not be running for governor in the November election.