The State of New Jersey was accused by the Securities and Exchange Commission of committing fraud when it issued bonds between 2001 and 2007. According to the SEC complaint, the State did not fully disclose to bond buyers the extent of the growing shortfall in the state's two major pension plans.
Although the State just settled the SEC case without admitting or denying the allegations in the complaint, this episode highlights the misfeasance and probable malfeasance on the part of both Republican and Democratic state officials. Yet, the SEC has not charged any individual in the case.
Rather than closing the books on this issue, the SEC and certainly an independent commission appointed by Governor Christie should investigate the actions or nonactions on the part of the DiFrancesco, McGreevy, Codey and Corzine administrations regarding the pension payments that should have been made to adequately provide retired teachers and state workers with their promised benefits.
Every former governor and state treasurer, as well as key legislative leaders and others should be made to testify in an open forum about their disregard of sound financial polices while they were in office. They should be asked the tough questions about their irresponsible decisions during 2001 and 2007 that has led to a massive underfunding of state pension funds.
Such a forum, however, would be an embarrassment to the Christie administration because this year's budget does not provide for any payments to the pension funds. In other words, Governor Christie and the Legislature are continuing the practice of financial irresponsibility.
In the private sector, irresponsible decision making would have led to congressional investigations, probable indictments, and disgrace. In the public sector, a slap on the wrist is the most taxpayers can expect to be handed out to our "public servants."
This episode reveals an important principle: public officials are poor stewards of taxpayers' money and the only solution is downsizing state government, ending defined benefit plans and replacing them with 401(k) plans.
Another financial storm is on the horizon. Governor Christie and the Legislature should undertake a long term strategic restructuring of state government now before the pain of a deep economic downturn creates more financial hardship for the people of New Jersey.
Murray Sabrin is professor of finance at Ramapo College. He was the Libertarian Party nominee for governor in 1997 and a Republican candidate for the U.S. Senate in 2000 and 2008. Check www.MurraySabrin.com for more of his writings.