Dear Mayor:

Following press reports of the State’s pension and benefits funding crisis, State Treasurer Abelow and Pensions Division Beaver will testify before the Senate Budget and Appropriations Committee on Wednesday and before the Assembly Budget Committee on Thursday. We will closely monitor these sessions and keep you posted on this issue, as it develops.

While it appears that the State has combined pension and post-retirement medical benefits into one account for reporting purposes, this will provide an opportunity to clear up any reporting issues. But funding is a major issue which all must address in light of a demand for property tax reform.

As stated in our March 23, 2007 analysis of the 2006 valuation reports for PERS, PFRS and TPAF, the State is confronted with a significant unfunded liability for active and post retirement medical benefit costs. Local PERS funding is in significantly better shape than the State’s PERS and TPAF situation. Local PERS is currently funded in excess as 82% of Assets versus Liability. The State PERS and TPAF, for which less than normal contributions have been made in recent years, is in very poor shape. Local governments, in their budgets, will be funding PERS at 60% this year at 80% next year. For PFRS this year, local governments will fund at 80% and, next year, it will be 100%. This is in accordance with the Law which adjusted local employers’ contributions to PERS and PFRS (Chapter 108 Public Laws of 2003)
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The fact that local PERS is funded in excess of 82% of Liability versus Assets does not mean local governments are not confronted with significant problems.  More than 90% of the cost associated with funding of Police and Fire Retirement System (PFRS) falls upon the local property taxpayer. League analysis of the Valuation Report of March 23 identified the significant problem confronting local property taxpayers with regards to the PFRS.  The benefits provided to uniform personnel are significantly greater than those provided to other rank and file public employees. The per employee cost of funding PFRS is approximately 14 times the PERS per employee cost.  The League and Affiliated Organizations testified on the PFRS problem before the Governor Codey’s Pension and the Benefits Review Committee and before the Special Session’s Joint Committee on Pensions and Benefits.  To date, there has been no action by the Legislature to address the problem. As a result, the devastating financial impact, which PFRS is having on local property taxpayers, continues.

Further analysis must be undertaken if there is ever going to be true property tax relief.  In doing so, the State must address its funding of obligations and at the same time, where there are overly generous benefits granted or abuse of the pension rules and regulations, there is a need for corrective and immediate action by the Governor and Legislature.

The League has scheduled a Mayors’ Summit on Pensions and Benefits. It will be held on May 30, from 8:30 a.m. to 1:00 p.m. at the National Guard Armory in Lawrenceville. Detail will follow.

Very truly yours,

                                                                        William G. Dressel, Jr.
                                                                        Executive Director