Doesn't Anyone Remember Christine Whitman?

Blog ››› ››› JAMISON FOSER

A young Democrat is elected President on a theme of hope and change, does some of the things he was elected to do, Republicans howl and win control of Congress in a landslide mid-term election, and the media becomes infatuated with a new crop of Republican governors who are trying to dramatically reconfigure state budgets.

That's a reasonable summary of the current state of affairs, but it also describes the first few years of Bill Clinton's presidency. But it isn't the similarity that's striking: After all, there's a reason the phrase "history has a way of repeating itself" exists. Or, perhaps more appropriately: "Those who fail to learn from history are doomed to repeat it." See, what's really striking about the current situation is how few reporters seem to remember what happened in the 1990s.

Most notably, the past few weeks have seen massive media attention paid to state budget deficits, and attempts by Republican governors like Chris Christie to blame out-of-control pension obligations for those deficits (even as they pursue deficit-increasing tax cuts.) A Google News search for the words "state budget pension deficit" in the past month yields 3,680 hits. News organizations like the Washington Post feature "States in crisis" special reports playing up "pension liabilities" as the source of the problem. And of course conservatives are eager to make that case, as Bill O'Reilly does in his latest column:

Many states cannot pay health and pension benefits because the tax revenue is not nearly enough to cover expenses.

Given how common that refrain is, and how many news stories there have been about New Jersey's pension system and its role in budget shortfalls, it's amazing how rarely Christine Whitman's name comes up.

Whitman was one of those star Republican governors of the early 1990s. Like so many other Republican governors who win media attention for innovative approaches, she made her name through the not-so-innovative strategy of cutting taxes. Since she had to offset those tax cuts in order to balance New Jersey's budget, she reduced payments into the state's pension system. And that, as the New York Times noted last August, "contributed to the growth of the unfunded liability" that is now widely blamed for New Jersey's budget shortfall.

It's important to keep in mind that none of this is a surprise. When Whitman was defunding the pension system in order to cut taxes, there were warnings that this is exactly what would happen. Here, for example, is a September 5, 1994 Washington Post article:

The first thing Christine Todd Whitman did upon taking office as governor of New Jersey in January was to cut the state's income tax. Then in July, as she signed into law her first state budget, the Republican cut taxes again while simultaneously closing the huge deficit left by her predecessor.

This is what her supporters call the Whitman miracle, the fiscal accomplishment that has sent her stock soaring among New Jersey's voters and transformed her on the national scene from a political unknown into one of the Republican Party's newest stars.

But the key to the Whitman miracle lies neither in her political philosophy nor in her spending cuts, but rather in the fine print of her budget. Contained there is a series of arcane fiscal changes that some experts say amount to this: Christine Todd Whitman has balanced New Jersey's books and paid for her tax cut by quietly diverting more than $1 billion from the state's pension fund.

Whitman calls what she did a "reform" of the pension system that puts it on a more "sound actuarial footing." Others are less charitable. The one thing that even the actuarial consultants hired by the Whitman administration agree on, however, is that the chief effect of the changes will be to shift billions of dollars in pension obligations onto New Jersey taxpayers 15 to 20 years from now.

Let's see, that article ran in 1994, so 15 or 20 years would be right about … now. Huh.

More from the Post article:

At best, this represents a gamble that the state's economy in the early part of the next century will be stronger than it is today and better able to shoulder pension responsibilities. At worst, according to fiscal experts, Whitman's move represents politics at its most cynical.

In recent years financially strapped governments around the country -- including Washington, D.C., and New York state -- have raided their pension funds for cash, gambling that when the bills come due their local economies will be in a better position to pay them.

"The New Jersey pension system was highly rated in terms of its fiscal integrity," said [Henry] Raimondo of the Eagleton Institute. "Now that's compromised. She has effectively slowed down" the amount of "money going into the system, and in around 2010 the liability to New Jersey taxpayers is going to grow dramatically."

So, in the mid-1990s, Christine Whitman raided New Jersey's pension fund to pay for tax cuts. Critics warned that doing so would cause massive problems for the state's budget -- and nailed the timing of those problems with remarkable accuracy. And now, the media is full of stories suggesting New Jersey's pension system is the cause of the state's budget shortfall -- without mentioning Whitman's role in causing it to happen. (The Washington Post, which reported on Whitman's role at the time and which frequently reports on current pension/budget issues, last mentioned Whitman's diversion of funds from the pension system on December 20, 2005.)

Take another look at that comment from Bill O'Reilly:

Many states cannot pay health and pension benefits because the tax revenue is not nearly enough to cover expenses.

You've probably seen dozens of statements like that lately. It should be clear by now -- though it isn't from most news reports -- just how disingenuous this is, at least as far as New Jersey is concerned. Let's review: A Republican governor of New Jersey reduced payments to the state pension system so she could cut taxes. Critics warned doing so would cause significant budget shortfalls in 2010. 2010 rolled around, and -- surprise! -- so did budget shortfalls. And now those shortfalls are used by New Jersey's current Republican governor (along with many in the media) to justify cutting pensions (while again cutting taxes.)

Basically, conservatives have staged an end-run around having a public debate over cutting pensions in order to pay for tax cuts. Rather than making the argument that tax cuts are more important than pensions, they just went ahead and cut taxes, raiding the pension system in the process, then waited 15 years for predictable -- and predicted -- deficits, which they now point to as evidence that the pension system is unsustainably generous. And they've done it with the help of countless news organizations that fall for this shell game.

Posted In
Economy, Budget
Network/Outlet
The Washington Post
Person
Bill O'Reilly
Show/Publication
60 Minutes, CBS News
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