Testimony in Support of S-2937
Friday, June 17, 2011

TESTIMONY OF

KATHLEEN A. DAVIS

EXECUTIVE VICE PRESIDENT/COO

ON

S-2937 (Sweeney)

PRESENTED TO THE SENATE BUDGET COMMITTEE

June 16, 2011

Testimony in support of

S-2937 (Sweeney)

Good morning, Chairman Sarlo and members of the Committee. I am Kathleen Davis, Executive Vice President and COO of the Chamber of Commerce Southern New Jersey. It is my distinct pleasure to offer the strong support of our Chamber for S-2937, Senator Sweeney’s legislation that makes much needed reforms to public employee benefits.

Senator Sweeney is to be commended for his courage in taking on this issue – for recognizing that something must be done now, and for his thoughtful approach to minimizing the impact, as much as possible, on those affected by these changes. This bill will place all public employees -- whether they work for state government, local or county governments, for an authority or for a school district – on the same level. Phasing in a health insurance contribution schedule based upon salary; tying these contributions to health insurance premiums; providing employees more choice in plans; phasing in the increased contributions to employee pensions; requiring future retirees to contribute toward their health insurance; and ensuring that future contribution levels are subject to collective bargaining negotiations, are among the provisions that bring balance to these necessary changes to the system and help to minimize the impact on public employees.

It is no secret that the cost of providing public employee benefits has been a major driver in past fiscal year budget increases. Maintaining the current system in today’s economic climate is no longer an option. This is not the fault of the employees in the system; it’s a reflection of today’s economic realities and a pension and health benefit system that has long been out of synch with economic realities. Taxpayers simply cannot sustain providing this level of benefits, and really have not been able to for the past several years.

Benefits for state employees alone cost about $3.5 billion annually and are funded through business, sales and income taxes. Benefits for local and county government employees cost additional taxpayer dollars which are funded by property taxes. New Jersey taxpayers live in one of the most heavily taxed states in the country. Tax freedom day in New Jersey is April 29 – so, private and public employees work a full four months just to pay their taxes. Business and property tax payers simply cannot afford to continue paying – year after year – the increases needed to fund the current level of public employee benefits, the level of which has not been provided in the private sector for decades.

We recognize that the benefits received by today’s public employees were initiated at a time when their salaries were significantly less than their private sector counterparts. These benefits were also provided at a time when many private sector companies provided similar benefits to their employees, including defined benefit retirement plans and comprehensive health insurance at no cost to employees, including during retirement. Times have changed!

Since 2003, our Chamber has been on record in testimony before both the Senate and Assembly Budget Committees sounding the alarm on the growing cost of providing pension and health benefits to state employees, and the fact that these increases were driving the need to increase taxes. That year, the state budget contained $357 million in increased taxes, fees and surcharges on the business community, diverted $325 million from the unemployment insurance fund, and cut $75 million from programs that benefitted the business community. These increases came on the heels of a $1 billion tax increase on business that was put into place to balance the previous year’s budget.

In fact, the increased cost of providing benefits to public employees has routinely comprised about half of what is characterized as “mandated growth” in each year’s state budget. Typically, about $500 million per year has been attributable to INCREASES in the cost of providing public employee benefits. Last year’s budget contained close to $480 million in increased costs associated with providing benefits to active and retired state employees.

In recognizing the trend of increased spending driving the need to increase taxes, our Chamber focused our efforts on providing a blueprint for government to reduce spending by adopting best business practices. In 2005, we issued the first of three reports of our Board Council on Responsible Government Spending. A major theme in the first two reports was the need to bring state government employee benefits more in line with the private sector. Our Phase II Board Council report studied the difference between benefits received by state employees versus private sector employees. That report issued in 2006 concluded, “While State government salaries have over time gained significant ground on their private sector counterparts, the State government has failed to contain employee benefits consistent with the private sector.”

In the area of ever-growing health care costs, our research reflected that requiring employees to pay a percentage of health care premiums was and continues to be common private sector practice, including for businesses whose employees were represented by collective bargaining units. Our research indicated that the minimum employee contribution rate in the private sector was 9% (for single coverage) among surveyed companies, and the maximum was 39%. Anecdotally, I can say with certainty that private sector employee contributions toward health insurance premiums have increased since that time, as employers seek ways to hold the line on expenses in order to continue to operate in this economic climate.

In terms of retirement benefits, our 2006 study reflected that very few private sector companies offered defined benefit retirement plans. At that time, only four companies who responded to our survey offered a defined benefit plan; one company was in the process of phasing out that plan in favor of a defined contribution plan, and one was freezing the plan and accruing no additional benefits. Five years ago, the private sector had largely moved away from offering this expensive benefit and even fewer offer this benefit today in favor of a defined contribution plan with a company match. This legislation moves toward offsetting the huge cost associated with a defined benefit plan by requiring employees to contribute more toward such a plan.

The state can no longer afford to fund public employee health and retirement benefits at their current levels and taxpayers, who pay among the highest taxes in the nation, have reached their limit. Today’s economic climate makes reforming public employee benefits a must, not an option.

The public employee benefits reforms proposed in this legislation are long overdue. There have been small, incremental and sensible changes over the last few years, and we have supported the efforts of legislators to make these changes. But, clearly, more is needed.

The Chamber applauds Governor Christie and Senate President Sweeney for standing up for the taxpayer – 9.3% of whom are jobless -- by proposing these fair, sensible and long overdue reforms.