From the NY Times:
In 1994, New Jersey decided to stop setting aside money in a fund to pay for health care for its retired public workers. The savings paved the way for a big tax cut.
Meanwhile, hundreds of thousands of public workers were being told that as long as they worked 25 years, the system would provide virtually free health care for them when they retired, often when they were as young as 55.
No one added up the cost — until now.
It turns out that New Jersey will need about $58 billion, in today’s dollars, to provide all the care it has promised its current and future retirees. That’s nearly twice the state budget and nearly twice the amount of its outstanding debt. And because of the step it took in 1994, the state has virtually no money in reserve to cover those costs.
In addition, New Jersey’s towns and other local governments owe about $10 billion for health care for their own retirees.
Many other states have been promising retiree health care without keeping track of the cost. They, too, are tallying what they owe, to comply with a new accounting rule that applies to all state and local governments. The numbers tend to be big, but so far, New Jersey’s obligation, which the state planned to announce tomorrow, appears to be the biggest.
“This is a very pressing situation that can’t go on much longer without being repaired,” said Clifford A. Goldman, New Jersey’s treasurer from 1976 to 1982.
New Jersey officials say the state simply cannot afford to create a reserve at this time, given its debt. Instead, they plan to pay each year’s retiree benefits out of revenues and work to control future costs.
The portion of the $58 billion that they need to come up with each year will rise sharply because of soaring health costs and a burgeoning population of retirees, according to the New Jersey Treasury. The state will spend about $1.1 billion on this year’s care, and the figure is expected to double in five years.
Meanwhile, the state’s revenues are largely static. That means that unless something changes, New Jersey will have less money each year to pay for vital services like colleges, hospitals and mass transit. Its popular program to preserve green space just fell victim to the need to devote huge amounts to the retirement plans and debt servicing.
Word of the amount owed for retiree health care over the long term comes on the heels of revelations that the state’s pension fund is woefully short and needs contributions of about $2.2 billion a year to bring it back into balance.