Christie Whitman, Putting One Over in Jersey
Monday, April 7th 1997 — Imagine this phone conversation between Governor Christie Whitman and State Treasurer Brian Clymer when they realized that New Jersey couldn't fund its pensions:
Governor: "Hey, Brian, this is Christie. What's this about a shortfall in our pension payments?"
Treasurer: "Well Governor, it was your tax cut that forced it, but you can get out of it by raising taxes now to pay the deficit."
Governor: "What are you nuts? Gimme another choice. So far you're batting zero."
Treasurer: "Well, we could lay off a few thousand workers and then use that money to balance the pension system."
Governor: "Let me stop you right there bub. No taxes, no layoffs, I could be Vice President you know. How's this going to look? C'mon give me something to work with."
Treasurer: "Well, there is one thing, I don't know about it though ... "
Governor: "Give it to me, give it to me."
Treasurer: "Well, what if we borrow $5 billion, keep it for say 40-60 years, use it for the pensions and then try to invest it so we can say we're making a profit?"
Governor: "Now that's more like it. The best thing's that no one will understand it. I love it. No wonder you're our Treasurer!!!"
Governor Christie Whitman, the darling of the Republican Party and oft-mentioned GOP vice-presidential candidate is pulling a fast one on our kids. What she wants you to believe is that she's cutting the waste from government by cutting your taxes. But sometimes things aren't as they appear. In fact, most of her 30% state income tax cut was paid for by cutting the state's yearly contribution to its pension funds by more than $3 billion. The liability in the funds, which has not been paid, is now $4.2 billion in comparison to only $800 million three years ago. Whitman is going into debt at the rate of more than $1 billion a year on the pension funds alone.
An elementary school child could do the math -- The billions you saved on your income tax are now magically appearing as your debt to the pension funds.
What Governor Whitman hopes is that terms like "unfunded liability" will put you to sleep so she and her legislative colleagues can put one over on you.
The plain truth is that Christie is borrowing from Peter to pay Paul -- something your accountant doesn't recommend.
To make matters worse, she proposes to cut the already too-low pension contribution from current levels of $687 million a year to only $40 million driving the unfunded liability up at a rate which dazzles the mind.
"So," you ask, "How can she do it?" Smoke and mirrors is the answer. What Whitman proposes is that you allow her to borrow nearly $3 billion -- money you have to eventually pay back at high interest. And make no mistake, this is not to bring the pension funds in balance. They will still have a huge deficit. Not only that, but the $2.9 billion borrowed today will cost you and your kids as much as $15 billion later.
The move is akin to taking a second or third mortgage on your house, at higher interest rates, to pay off your credit cards. Sure, the pressure is off for the moment, but will be right back on again as future taxpayers pick up the ball and pay for this folly.
Even sillier is State Treasurer Brian Clymer's assumption that billions borrowed at low rates will allow the state to "invest" the borrowed money and make a profit on it. First of all it's doubtful that New Jersey voters can borrow these funds at low rates since they'll have to pay a much better return to bondholders because these bonds are not tax exempt. Clymer also believes that classical investments will outperform bond returns. While this might have been true during the past six years, there is no relying on what might happen on Wall Street during the next decade.
So, how will they get away with it. Simple. Whitman offers this choice to state workers-- the only natural opposition: If you get in my way, I'll be "forced" to lay off thousands of you to balance my budget. To workers and the unions that represent them this is an impossible choice. If they try to block the legislature from passing this nonsense they'll lose jobs. If they don't they'll end up approving a loan that will force taxes up long after Whitman sneaks out of the governors office. The affect is to chill the kind of opposition you might expect from state employees.
At the date of this writing, it's unclear whether the bills needed to pull off this swindle will pass. What is clear, however, is just how the Governor fooled us on how our income tax cuts would be paid for. The money came out of the pockets of career state workers. Money we'll have to pay back - big time - later on.
© 1998, 1997, American Politics Journal Publications Inc