We Will Get Through Covid19 but with Severe Damage to NJ’s Public Pensions
April 6, 2020Not What We Want to Hear, But More Bad News on NJ Public Pensions
April 14, 2020SPCNJ is mindful that this does not seem like the best time to be the amplifier of not-so-good or bad news, but we have been following NJ’s debt profile for many years and believe that the facts should be presented to the public, who deserve to know the truth. No spin, no sugarcoating, just the facts about the newly released NJ State Debt Report.
THE GOOD NEWS: NJ’s total debt has dropped from a record of $261bn in FY 2017 to $217bn in FY2019. Unfunded pension liabilities fell from $115bn to $93bn, and retiree healthcare liabilities (OPEB) fell from $97bn to $75bn. The drop in OPEB is particularly welcome and appears to be the result of changes to state worker plans implemented under both Govs. Christie and Murphy, but particularly under Gov. Murphy.
THE NOT-SO-GOOD NEWS: The drop in unfunded pension liabilities came from the contribution of lottery proceeds for 30 years and, apparently, strong investment returns. The lottery proceeds went to the state government anyway, and so diverting these to the pension funds may help the pension funds but will not help the state overall. Investment returns come and go, and, unfortunately, due to Covid19, they are likely to be very negatively impacted this year. And remember that, even with Gov. Murphy’s record contribution last year, the state was still paying only 70% of what was due. This year’s contribution will also likely be negatively impacted by Covid19.
THE BAD NEWS: Even after the increased contributions, strong investment returns and reduced liabilities, the state’s overall funded ratio for public pensions stands at 39.73%, which is a very low number – probably the lowest in the nation (again). As detailed in yesterday’s blog, Aaron Brown, writing for Bloomberg News, estimated that pension assets had dropped 25% nationwide due falling markets, and that NJ’s funded ratio had dropped to 24%.
SPCNJ has come up with slightly different back-of-the-envelope estimates based on NJ’s Debt Report. As of July 1, 2019, NJ’s public pensions had $82bn in assets. A 25% decline would bring that to $61bn, as against $207bn of total liabilities. These liabilities are growing every year as people retire, and they grew $2bn from 2017 to 2018, so SPCNJ will add $2bn to get to $209bn. This results in an overall funded ratio of 29%. Not Brown’s 24%, but not good – and probably still the worst in the nation.
Of even more concern is NJ’s largest public pension fund, the Teachers Pension and Annuity Fund (TPAF). As of July 1, 2019, TPAF had $23bn in assets against $84bn in total liabilities for a funded ratio of 26.95%. Taking into account the Covid19 crash and a $1bn increase in liabilities, the funded ratio drops to 19.91%. This is a very low number and brings into question TPAF’s future solvency.
These are just estimates at a point in time, and hopefully (for everyone’s sake) the economy and the markets rebound strongly and improve the underlying situation. Unfortunately, it is also possible that diminished investment returns, tax revenues and state contributions, combined with NJ’s worst-in-the-nation negative pension cashflows and an increase in liabilities, make the numbers worse.
Along with the rest of NJ, SPCNJ is strongly rooting for the former.