The drama now playing out in labor negotiations with 50,000 New Jersey state workers has roots that run more than a decade deep, when state government cut taxes and payments to public workers' pension funds, closed its saving account for retirees' health care, and ignored investment losses and the soaring costs of worker benefits.

"It's kind of like a bad fish. You put it away and take it out and it stinks worse," said State Sen. Nicholas Scutari, who headed a legislative commission that created recommendations to reduce public pension and benefit costs.

Orin Kramer, chairman of the state's Investment Council, which oversees pension investments, said the $78 billion pension funds need another $45 billion to $50 billion now to cover future obligations to retiring employees.

Another fund that covers retiree health care is short between $20 billion and nearly $80 billion, according to state estimates.

In the years since the state swept those problems under the rug, the lump has been growing.

Now it is Gov. Corzine's problem. He is trying to deal with the looming deficits, in part, by extracting givebacks from the unions.

Corzine and other elected officials are under intense pressure from New Jersey voters who have had it with ballooning property taxes and blame state spending.

The governor signaled last month in his State of the State address that he had gotten the message.

"Without a dramatic increase in taxes or a draconian reduction in services, state and local government cannot meet the benefit obligations on the books," he said.

He has made no public comments on union contract talks since then. The state's contracts with 50,000 workers expire June 30.

Recent studies of the pension funds by the executive and legislative branches of government as well as a think tank have concluded that the deficit problems started with tax cuts, raids on the pension fund, and a rocky stock market.

When Gov. Christie Whitman felt voter property-tax rage in the 1990s, she phased in a 30 percent income-tax cut.

At the same time, state expenses grew. Whitman's administration turned to the state workers' pension fund for operating expenses.

Whitman's move wasn't the first attack on the pension fund.

In 1992, Gov. Jim Florio changed the way pension assets were valued. Instead of the conservative book value of the assets, the state began using the market value - a figure that fluctuates with the stock market.

Florio's administration used the new values to reduce the state's contributions to the pension fund by a total of more than $1.5 billion in 1992 and 1993, according to the Benefits Review Task Force report ordered by acting Gov. Richard J. Codey last year.

Douglas Forrester, a former GOP gubernatorial candidate who was Gov. Thomas H. Kean's pension czar, said the Florio administration should have plowed that money back into the pension fund.

Whitman's administration also changed the way the pension fund liabilities were counted by shifting accounting policies on how much the state paid into the fund for each employee. That change, according to the Codey report, saved state and local governments a total of $1.49 billion in 1994 and 1995.

Then, in 1997, the Whitman administration issued $2.75 billion in bonds to cover its pension obligations. The state bet was that pension-fund stock-market investments would flourish. But the market sagged, leaving the state with a losing bet.

Senate Minority Leader Leonard Lance remembers getting punished by fellow Republicans for breaking with his party and voting against the pension bond because he thought it was too risky.

"We were making money hand over fist in the 1990s and we didn't pay into the pension system on a regular basis," he said.

He believes Whitman's successor, James McGreevey, "added insult to injury" by his failure to add funding for the pension system.

"The good public policy is the tortoise, not the hare," he said. "Every year you put money in the pension system."

Alan Kaufman, a benefits analyst for the largest state workers' union, the Communications Workers of America, said New Jersey went "from the best to one of the most irresponsible systems" during those years.

For almost a decade, the state and local governments stopped making pension contributions - even as the value of pension assets dipped.

Pension fund investments, which were earning 16 percent in 1999, lost 10 percent of their value in 2001. They lost another 9 percent in 2002 and have been slowly recovering since, according to the Codey report.

Corzine added more than $1.2 billion to the funds in 2006.

While governors Whitman and McGreevey were cutting contributions to the pension funds, they and the Legislature enhanced benefits for retirees. They raised the payouts to retirees and sponsored early-retirement programs.

The Legislature's own study of the pension-fund deficit, released in December, estimated these extra pension benefits raised liabilities by more than $6.8 billion since 1999.

Jon Shure, of the liberal think tank New Jersey Policy Perspective, said that without Whitman's income-tax cut and the government's failure to make pension payments, "it is very safe to say that this state would be on a stronger financial foundation. Those were two very big holes put in the budget."

Meanwhile, the state fund that pays for retired state workers' health benefits also has an explosive deficit.

When Corzine delivers his budget address on Thursday, his approach to the the pension and health-fund deficits may define the legacy of the former Goldman Sachs CEO.

Meanwhile, negotiators are discussing how to save the benefits programs without killing the taxpayers.

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Contact staff writer Cynthia Burton at 856-779-3858 or