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New Jersey, the only state with a worse pension funded status than Illinois (according to Pew’s 2020 compilation based on 2018 data), is ecstatic because, as the state announced in a recent press release, “State Treasurer Elizabeth Maher Muoio announced that the Treasury Department today kicked off the start of the new fiscal year by paying the full state-funded portion of the state-funded portion of the state-funded portion of the state-funded portion of the state-funded portion of the state- (FY 2022). New Jersey is providing the full Actuarially Determined Contribution to the Pension Fund, plus an additional $505 million contribution, for the first time in more than 25 years, and it is also the first time in years that the state has paid a lump sum payment rather than quarterly payments.”
Senate President Stephen Sweeney believes he has a solution to ease the load of these pension payments in the shape of the Retirement Infrastructure Collateralized Holdings Fund (yep, the “RICH Fund”), which he advocates in an article at NJ Spotlight News. “That is why we have developed legislation to allow our state and local pension systems to add revenue-generating assets such as water and sewage treatment systems, High Occupancy Toll (HOT) lanes, parking facilities, and real estate to their investment portfolios to provide new, diversified sources of revenue,” he writes. Senate Bill 3637 would establish the Retirement Infrastructure Collateralized Holdings Fund — RICH for short — as an infrastructure trust fund to hold and manage assets transferred to the public corporation by state and local governments for the benefit of New Jersey’s public employee pension funds. It could be considered by the Senate Budget and Appropriations Committee this week.
MORE FOR YOU “Not only would this strengthen the pension system, but it would also provide state and local governments with powerful new tools for preserving public ownership, improving public stewardship, and maximizing public benefit.”
However, none of the assets listed are meant to generate profit when they are owned by the public! People want their water and sewage treatment systems to be cost-effective, provide safe drinking water, and dispose of human waste in a sanitary manner in order to safeguard public health. We want our government officials to manage these systems at a cost that is as cheap as feasible while still keeping them in good working order, especially for the benefit of the poor. Private firms, to be sure, are increasing market share in the United States, with one in every six Americans receiving water, according to The American Prospect. And, while the rationale for privatization can be sound — a municipality’s inability to fund needed improvements, and the expectation that a large multinational can manage more effectively, in general — too often (as reported in the Philadelphia Inquirer), towns see it as a quick cash infusion, regardless of the long-term cost to resale. (And, certainly, Chicagoans will be eager to recount their traumatic experience with parking meters, which were sold to a private business for a one-time cash payment of $1.16 billion in 2009 under previous mayor Daley.)
In other words, when critical public infrastructure becomes a source of profit, it is a sign of misgovernment, not of good governance. Any contracting out of the management of an infrastructure system to a private organization should be limited to circumstances when the private business can better manage the system and profit from the savings resulting from superior management. Giving such a valuable asset to a public fund, which would then have to hire a third party to manage it, would not fit the description.
What this boils down to is Sweeney’s proposal to support state pensions through a collection of taxes that are not visible to the general population. How many inhabitants, after all, will realize that when their water bill goes up or they have to pay more for toll roads, the increased rates are for the purpose of supporting pensions? Furthermore, these types of revenue-raisers are significantly more regressive than a basic income tax, with higher relative expenses for lower-income individuals. No one should be patting themselves on the shoulder for coming up with a novel solution in this situation!
Perhaps this is why Illinois scrapped its plan to fund pensions through asset transfers — not with a public declaration, but simply by letting the task group expire quietly, never disclosing the draft report its members had prepared. Illinois looks to have escaped a bullet in this regard.
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