Daily Record - New Jersey’s pension burdens are supposedly so crippling that reforms approved in 2011 are already obsolete, having not gone far enough in forcing more contributions and givebacks from public workers.
That’s the argument from Gov. Chris Christie and his administration as part of a campaign to squeeze those middle-class workers even more. But Democrats who backed those reforms four years ago say they’ll work — if the state follows through on its annual payment plan into the pension system. But Christie already reneged on that deal under the current budget — a court decision on a lawsuit demanding full payment is imminent — and doesn’t plan to meet the full commitment in the new budget that will take effect in July.
Christie’s philosophy in trying to wade through this financial crisis has been to cast the middle class as villains; their benefits have been too generous and they’re too stubborn to make the necessary sacrifices to make the system solvent. Taxpayers continue to suffer as a result.
But there’s another important component to this problem that the governor and his allies don’t want to talk about. That’s because it goes directly to the heart of the administration’s own dubious financial decisions that have taken a big problem and made it even bigger. In short, state officials may be investing pension funds poorly.
That was the subject of a Senate Legislative Oversight Committee hearing on Thursday amid rising concerns that the state is spending too much for too little return. New Jersey has paid about $600 million in fees to money managers over the past year, compared to $140 million in 2010. That increase has been fueled largely by a growing reliance on alternative investments — real estate and hedge funds, for instance — which require more active management than traditional stocks and bonds.
The result? Well, let’s just say that seems up for debate.
Treasury officials and other administration supporters insist that the added fees have been worth it, generating returns that have outperformed relevant benchmarks. Public-worker unions, however, say the opposite, that New Jersey’s investments are lagging behind similar funds, and that the state’s own money managers could do a better job far more cheaply.
It is a complicated economic issue, and the truth lies beneath a blizzard of numbers that can be interpreted different ways to serve different agendas. What benchmarks are the investments being measured against, and how were they determined? What qualifies as a “similar” fund? It isn’t difficult for those on either side of this issue to find the necessary measuring sticks to support their view, and they’re relying on the fact that the vast majority of the public lacks the expertise to understand all of the nuances and industry standards in assessing the success or failure of certain investments.
So we’re left to focus on specific elements that are easier to grasp and put in context. That’s what the oversight committee seemed to be doing Thursday with its emphasis on that massive growth in money-manager fees, a fact that isn’t disputed by the administration. Officials say that spike to $600 million is actually evidence of the success of the investments since it is fueled in part by bonuses.
Maybe it’s true that the performance of the investments has exceeded the most relevant benchmarks. But could the state’s own people have accomplished the same thing, or done even better, at a far cheaper cost to taxpayers? Will those fees continue to mushroom growing forward?
There’s another piece of this puzzle that rightly raises public skepticism: Top executives at several firms handling some of New Jersey’s investments have been big donors to Republican campaign causes. Christie earlier this year vetoed a bill aimed at ending such connections while also expanding disclosure requirements for money-management firms. The governor said that would put New Jersey at a competitive disadvantage in working with such firms.
Would it surprise anyone if part of the explanation behind the administration’s investment choices was to reward GOP-friendly donors? That needs to be part of future legislative hearings examining this issue, because it may get to the heart of why the state is willing to spend so much more in trusting outside firms with taxpayer money.