Responding to the ridicule of teachers and the teaching profession by politicians and self proclaimed "experts"!
"Where is Albert Shanker now that we need him?" - Walt Sautter

Tuesday, January 3, 2012

Unshared “Shared Sacrifice”?


In the budget message of March 2010 Governor Christie called for “shared sacrifice”. Pension “reform” was part of the “shared sacrifice” by teachers and public workers. The “reform” measures eliminated the COLA (Cost of Living Adjustment) for currently retired workers and scuttled many of the provisions of the existing system. In instituting the COLA elimination, the State of New Jersey unilaterally reneged on the contract agreement between retirees and the State which was put in place on the day the retiree began collecting pension payments. It appears that contract law applies to everyone in New Jersey except the State!
The cry from the Governor was the State doesn’t have the money (of course they don’t, since much of it was stolen by the State) and that retirees are obliged to participate in “shared sacrifice”.
Well, let’s look at another group who has entered into contracts with the State and not been required to participate in the Governor’s “shared sacrifice” program. Those are the New Jersey State bondholders.
Here’s what I mean.
Listed below are several of the outstanding NJ bonds, their maturity dates and coupon rates (interest rates).

NEW JERSEY ECONOMIC DEV AUTH ECONOMIC DEV REV ELITE PHARMACEUTICALS PJ-SER A
64577HPQ8            6.500 % 09/01/2030
TOBACCO SETTLEMENT FING CORP N J RFDG-SR-SER 1A ASSET-BACKED BONDS
888808DF6 5.000 %  06/01/2041
NEW JERSEY ECONOMIC DEV AUTH REV -SR MTG-ARBOR-A
645916D20 6.000%  05/15/2028
NEW JERSEY HEALTH CARE FACS FING AUTH REV SOMERSET MED CTR
64579E8G4 5.500% 07/01/2033
NEW JERSEY HEALTH CARE FACS FING AUTH REV SOMERSET MED CTR
64579E8G4 5.500%  07/01/2033

These are just five randomly selected issues all paying  5% or better (in a rate environment that pays less than 1% on saving accounts) and all carry maturity dates twenty and thirty years into the future.
As for the total State debt, I quote from the  Star Ledger – August 20, 2008
“The additional borrowing pushes the state's debt load to $32.9 billion. Including $3.6 billion in bonds being repaid with payments from a national settlement against cigarette manufacturers -- which the state Treasury does not count in its debt calculations -- the state's total debt load is $36.5 billion, nearly triple the level of a decade ago.”
Each purchase of a NJ muni bond represents a contract with the State (there are literally millions) and to date none have been violated (defaulted) as has been the pension contract.
If it is okay to unilaterally violate a contract agreement with pension retirees in the name of “shared sacrifice” then why has no sacrifice by the holders of NJ tax free bonds (many of whom are wealthy people) been proposed?
Why haven’t these bondholders been required to accept lower interest returns in the future in the name of “shared sacrifice” as have been public employees and retirees?

How about this:             36.5 X .05 = 1.825B bond interest payments at a  5% average rate
36.5 x  .02 = .73 B    bond interest payments at a  2% average rate
          1.095 B   net savings if bondholders were to “share the sacrifice”

At a reduced 2% rate (still twice that of a saving account) rather than an average rate of 5%, NJ could save over a billion dollars a year!
What do you think  the chances are of this happening or even being suggested ?
I say chances are slim and none.
Why hasn’t this been even mentioned? Well, from a practical standpoint, the ability of  NJ to borrow future funds would instantly disappear if it was even hinted at.
However, from a moral standpoint it still should be made clear by the Governor that public employees and retirees really represent the total share (100%) of the “shared sacrifice” of which he speaks so glowingly!

2 comments:

  1. Please see the following for your own information:

    http://www.app.com/article/CN/20111230/NJNEWS/312300029/Reforms-may-end-teacher-tenure-N-J-

    ReplyDelete
  2. A comment I received via email and my reply:

    Re: Unshared "Shared Sacrifice at http://teachersdontsuck.blogspot.com

    Great article! If only the pension fund managers invested Muni bonds we'd be all set.

    Reply:

    pension funds wouldn't invest in munis because they are tax free and only advantage individuals (especially the wealthy ones) and mutual funds.
    income to pensions isn't taxed until it is distributed to the retirees who then pay the tax.

    ReplyDelete

What do you think?