According to the State Treasurer Ford Scudder, Gov. Chris Christie’s plan to dedicate lottery revenue to support public employee pensions would raise the funded ratio of the state’s overall retirement system to about 90 percent over the next three decades — much sooner than if the state immediately began making full contributions. But, the strategy is to inject a $13.5 billion asset into the pension fund and give it a guaranteed source of revenue for the next 30 years. But, what about the details?
In a briefing with reporters late last week, the state treasurer outlined some of the specifics. What we know is that the plan involves pledging the lottery, which generates about $1 billion a year, as an asset to the pension fund, just like all of the fund’s stocks, bonds and other investments.
An outside consultant valued the lottery at about $13.5 billion. Its deposit in the pension fund would cut the unfunded liabilities to $36.5 billion. And it would lift the ratio of assets to liabilities from about 45 percent to 59 percent.
Specifically, the Lottery Enterprise would be transferred for 30 years to three of the seven “eligible” state retirement systems, with the Teachers’ Pension and Annuity Fund seeing the greatest financial gain. The Public Employees Retirement System would receive about 21 percent of the assets and the Police and Firemen’s Retirement System would get 1 percent.
Over the next 30 years, the revenue generated from ticket sales would add $37 billion to the pension fund. The lottery would revert to the state budget after those 30 years.
Under the state Constitution, lottery proceeds must be spent on education and state institutions. But, Scudder insisted the plan passes constitutional muster and released an opinion from the state attorney general in support of the proposal. The opinion says that the three pension funds qualify, as teacher pensions “constitute state aid for education,” and some members of PERS and PFRS work at state institutions or public universities, according to the governor’s proposed legislation. The treasurer also said the changes do not require the state to go to voters; the transfer could be achieved, he said, through legislation and a “memorandum of lottery contribution.”
By transferring money from the Lottery Enterprise, the Treasurer also argues the State would free up more money from the general fund to pay other expenses, including programs now funded by lottery revenue. The plan’s impact on the budget would be net neutral for the first five years and result in a “modest impact” of about half-a-percent for a few years before the state would be in the clear, he said.
Scudder sought to assuage concerns from some Democratic lawmakers, including the Assembly Speaker who has voiced concerns, saying the changes would not pull funding from education and other programs currently funded through lottery revenue, since such expenses would not receive more money from the general fund. The changes offer something of a one-for-one tradeoff, giving the pensions about $1 billion in annual revenue and a new asset, in turn allowing the state to reduce its annual payment by the same amount.
“The contribution does positively addresses the chief fiscal burden on the state, mitigating the fears of bondholders, ratings agencies and public employees by significantly reducing unfunded liabilities of the retirement system,” Scudder said.
The new details about Christie’s proposal emerged during a briefing with reporters at the Statehouse, and offered the first look at a plan Christie announced during his budget address in February but which has only been described in vague terms since.
Other Concessions Requested
Still, a rocky road could be ahead as Christie takes the proposal to lawmakers. Because the funded ratio would not reach 90 percent until 2047, Scudder said, further negotiations with labor groups would be beneficial to lowering the state’s unfunded liability further.
Moreover, existing fund recipients – higher education programs, psychiatric hospitals, centers for people with developmental disabilities and homes for disabled soldiers – must still be addressed. According to Scudder those programs won’t be left behind. Once the lottery revenue is rerouted to the pension system, they will be funded out of the state budget. Today those costs amount to $965 million this year. Scudder’s analysis shows that the state budget will be able to absorb those costs without any impact for five years. From 2023 to 2029, there will be a hit of about $160 million to $235 million a year.
Which is why further ‘reforms’ are expected to be proferred soon.
“We’ll certainly be looking for further reforms on the pension side,” he said. “Yes, we’ll be asking for stuff.”
Treasurer Scudder did not specify what sort of concessions the governor might seek, but said changes would be sought on the pension side and that further cuts to employee health care benefits were not on the table. Christie also said last week he had no plans to seek health benefits reform.
New Jersey has faced a record 11 credit downgrades in large part because of the pension liability issue. All five of the state’s active pension funds are projected to reach insolvency in coming decades, with the first failing in as few as five years, according to Moody’s Investors Service.
The governor’s proposed budget for the next fiscal year includes a $2.5 billion payment to the funds — just half of what experts say the system needs to become healthy again. The lottery proposal could move the state significantly closer to having a stable pension system, reducing the unfunded liability by some $13 billion in one swoop if the administration’s estimates are correct.
Labor leaders have avoided criticizing the lottery proposal, but they also haven’t outright praised it, saying meetings with the administration ended with many unanswered questions.
Senate President Stephen Sweeney said Thursday he will support Gov. Chris Christie’s plan to dedicate lottery revenue to support public employee pensions, the Assembly Speaker remains uncommitted.
The treasurer’s office released a number of documents, including the proposed statute and the memorandum: