NCPA - National Center for Policy Analysis


July 25, 2007

In 1994, New Jersey decided to stop setting aside money in a fund to pay for health care for its retired public workers.  Meanwhile, hundreds of thousands of public workers were being told that as long as they worked 25 years, the system would provide virtually free health care for them when they retired, often when they were as young as 55.

No one added up the cost -- until now:

  • It turns out that New Jersey needs about $58 billion, in today's dollars, to provide all the care it has promised its current and future retirees.
  • That's nearly twice the state budget and nearly twice the amount of its outstanding debt.
  • And because of the step it took in 1994, the state has virtually no money in reserve to cover those costs.
  • Additionally, New Jersey's towns and other local governments owe about $10 billion for health care for their own retirees.

Many other states have been promising retiree health care without keeping track of the cost.  They, too, are tallying what they owe, to comply with a new accounting rule that applies to all state and local governments.  The numbers tend to be big, but so far, New Jersey's obligation, which the state planned to announce tomorrow, appears to be the biggest.

"This is a very pressing situation that can't go on much longer without being repaired," said Clifford A. Goldman, New Jersey's treasurer from 1976 to 1982.

When New Jersey stopped funding its retiree health plan 13 years ago, it also stopped trying to keep track of the cost.  That created the illusion that the long-term obligation was zero, not billions of dollars, and made it easy for the state to enhance its already rich benefits.

Source: Mary Williams Walsh, "$58 Billion Shortfall for New Jersey Retiree Care," New York Times, July 25, 2007.

For text: 


Browse more articles on Tax and Spending Issues