November 14, 2018
As CEO of one of the largest financial institution headquartered in New Jersey – and the State’s fourth largest bank – I am often asked by customers, shareholders and employees whether I believe New Jersey is a good place to invest.
My answer is always an emphatic “Yes.” Consider, for example, that the Garden State ranks near the top in educational quality (at #2, only behind Massachusetts), with strong academic institutions and a high 68.1% four-year college graduation rate. The State has a diverse and robust economic base, and employment is growing in industry sectors ranging from manufacturing to life sciences. We rank #7 in the U.S. in the number of Fortune 500 corporate headquarters and are wonderfully positioned to capitalize on the transportation and logistics revolution underway in our nation’s economy.
Our optimism about New Jersey’s potential has led OceanFirst to add more than $5 billion in assets in the State through acquisitions and organic growth since the end of 2015. Just last week we committed to invest an additional $80 million with the planned acquisition of Capital Bank of New Jersey, further confirming our confidence in the Garden State as a great place to invest, live, and grow our business.
Yet, like many New Jersey business executives, I am concerned that the long-term case for investing in our State is being undermined by a growing threat: the precarious position of our public employee pension funds, which will threaten the solvency of our State if action is not taken soon.
Unfunded Pension Obligations Pose Threat
New Jersey’s pension system ranks among the most underfunded in the nation. The combined pension and retiree health benefit liabilities, estimated at $151.5 billion, are four times the size of the State’s entire annual budget. Years of underfunding, and a lack of willingness to make difficult choices, have left the pension system in an ever-deepening hole. With only 55.8% of the State’s pension liabilities now funded, some experts believe that massive tax increases, severe cuts in benefits, or other drastic measures will be needed to prevent the pension funds’ insolvency.
Unless a remedy for the pension shortfall can be found – and soon – New Jersey’s ability to attract the financial and human capital needed for a viable economic future may be very much in question.
Needed: A Sense of Urgency
While various recommendations have been put forward, most recently by the New Jersey Economic & Fiscal Policy Workgroup, we have yet to see all the parties needed for a workable solution come to the table. I believe that elected officials, labor representatives, business leaders, and the academic/policy research community must come together, place every option on the table, and not leave that table until they have arrived at a set of real solutions. They must behave as though New Jersey’s economic future is at stake – because it is.
All parties must make compromises. The State of New Jersey must demonstrate a credible commitment to fund pension liabilities, unions must agree to revisit members’ benefits, and both the revenue and expense lines of the State budget must be retooled. While no one wants to pay higher taxes, I believe New Jersey’s residents and businesses want the pension time bomb defused once and for all.
Solutions Are Not Out of Reach
New Jerseyans can take encouragement from other jurisdictions that have charted a course toward fiscal stability. Detroit exited state financial oversight earlier this year, as the city has made strides towards reversing a long economic and fiscal decline and has begun to attract investment from entrepreneurs. Even California, despite obvious ongoing challenges, projected a $6.1 billion budget surplus heading into the 2018-19 fiscal year, reversing a $27 billion deficit through reduced spending, higher taxes and economic growth. Beyond our borders, Ireland has come roaring back from the global financial crisis due to a combination of tight spending and growth in trade.
Each of these situations is quite different, and no one is suggesting that New Jersey needs to undertake such extreme actions as Detroit’s bankruptcy or Ireland’s austerity campaign. But, without a meeting of the minds and commitment by all sides to share the necessary pain, we cannot make any progress in closing a pension gap that will ultimately cost the State billions and make New Jersey an unattractive place to invest, conduct business or raise a family.
I began by citing a few of the many factors that make New Jersey such a compelling place to invest. Yet, unless all affected and accountable parties come together now to tackle the pension crisis, New Jersey’s pension liabilities threaten to outweigh the many assets that have made the State so attractive to both human and financial capital.
By Christopher D. Maher
Chairman, President & CEO, OceanFirst Financial Corp.