As a lifelong NJ resident, there are many things about my home state that I love. This is clearly not one of them.
The SEC has charged the state of NJ
with securities fraud for misrepresenting and failing to disclose to investors in billions of dollars worth of municipal bond offerings that it was underfunding the state's two largest pension plans
.
You can read the press release here.
Follow me below the fold for a short commentary and rant.
In the spirit of full disclosure, I should say I was raised in NJ, attended NJ public schools, and left from 1989-1998 for college and graduate school. Since returning to NJ, I worked in a local urban high school, and am currently a professor at a NY state university. While I have no children in NJ public schools, as a teacher educator I am very committed to NJ public education.
The fact that the state has been underfunding (or not funding at all) state workers' pensions plans is not new information to anyone who has followed NJ state politics for the last several years. Governor Chris Christie has made it his personal business to radically reform the state pension system. On the one hand, the state is clearly in trouble. Like CA and NY, it is terribly debt-ridden.
From Reuters:
New Jersey, the first state ever hit with securities fraud charges by the Securities and Exchange Commission, agreed to settle the case without admitting or denying the findings, the SEC said. The state was not required to pay any civil fines or penalties, but ordered to cease and desist from future violations. New Jersey offered and sold more than $26 billion of municipal bonds in 79 deals between August, 2001 and April, 2007, according to the SEC. The offering documents "created the false impression that the Teachers' Pension and Annuity Fund (TPAF) and the Public Employees' Retirement System (PERS) were being adequately funded, masking the fact that New Jersey was unable to make contributions to TPAF and PERS without raising taxes, cutting other services or otherwise affecting its budget," the SEC said.
What makes the charges interesting to me is not so much that NJ is the first state to face such charges from the SEC. Nor is it the fact that is relates to the fact that the state misled investors about funding the pension system, and the need to raise taxes if it were to do so. What interests me, what enrages me, is that reports from Reuters say that the state has already settled the charges.
By promising not to do it again.
For the SEC, the issue is not the fact that the state has failed its obligations to those it employs. The issue is not the fact that fiscal insolvency hurts the state's bond ratings, which makes it more difficult for schools and universities to get funding for construction projects (and NJ is notorious for underfunding higher education and higher ed construction). Nor is the fact that higher education allocations are the lowest they've been in decades, which has further contributed to tuition increases. Nor is it the fact that NJ governors have consistently failed to fully fund the pension system so that reports in February noted that it was underfunded by 45 BILLION dollars.
No, it's the fact that the state misrepresented itself in disclosing to investors.
I get the fact the this is the charge of the SEC: to protect investors in securities. But it still makes me want to scream that what they lied about--funding state workers' pensions-- has no consequences for the state. Could you imagine if I lied about my finances and got caught? Somehow, I don't think I'd get a way with just promising to never do it again.
The next issue, of course, is to wait and see how Governor Christie responds to this. My fear is that he will use it to further attack teachers, police, firefighters, and other state workers. The state legislature is working on a series of bills that will address some of the biggest issues, but even so, will the state ever be held accountable for the money it already owes?