Sunlight has long warned about New Jersey’s fiscal condition. In particular, we have focused on Gov. Murphy’s decision to accommodate his biggest political supporter, the NJEA, by choosing to make the full required pension payment rather than doing the hard work of reforming the teachers’ pension fund (TPAF), the largest and most distressed of the state’s pension plans. A new report by the Steve Sweeney Center for Public Policy at Rowan University adds hard data to Sunlight’s warning.
Rather than reforming TPAF, which would have highlighted the NJEA’s past neglect of its members’ pensions, Murphy has chosen to make the full, required pension payments for TPAF and all the state’s pension plans, which total about $7 billion per year. This amounts to 13% of Murphy’s proposed FY2024 $53.1 billion budget. (FY2024 runs from July 1, 2023 to June 30, 2024). Murphy has been able to do this because of a windfall in state revenues from billion in federal COVID relief and surging tax revenues due to high investment returns and a burst of post-pandemic spending. But the Sweeney Center report warns that the days of tax-revenue windfalls are coming to an end.
We’ll let the report speak for itself:
- “New Jersey faces a looming fiscal crisis.” For FY2025-29, state revenues are projected to fall $3-4.5 billion short annually of the amount needed to maintain state programs at current service levels.
- Cumulatively, the Sweeney Center’s policy experts project “an 80% probability that revenue collection will fall $12.5 – $18.5 billion short of projected expenditures” for FY2025-28.
- Such revenue shortfalls would completely wipe out New Jersey’s rainy-day fund (that is, the $8 billion budget surplus) by FY2027. The Wall Street bond-rating agencies, which recently upgraded New Jersey’s bonds twice, “would certainly look askance at future treasurers spending that surplus down below $3 billion.”
- Should these projections prove accurate, the state would then have to “cut spending or seek additional revenues [that is, raise taxes] for future budgets, rather than letting the surplus plummet to unacceptably low levels.”
- These projections do NOT include the StayNJ senior property tax relief initiative, which would add a total of $4.2 billion to the state’s budget costs through FY2028. As of now, it looks as if StayNJ will be enacted, so all of the Sweeney Center’s numbers would be worse.
All of which is to say that spending $7 billion a year on a structurally unsound, unreformed pension system will become more and more burdensome as revenues fall and spending cuts ensue.
The tragedy of all this is that, despite sinking $18 billion into the pension system from FY2021-23 (the fat years of revenue windfalls), TPAF remains about 33% funded (meaning that there are only 33 cents set aside for each dollar owed to retirees). With such a low funded ratio, the Urban Institute places TPAF in its “Deep Red” category along with a handful of the very worst pension plans in the nation. More alarmingly, TPAF is “projected to become insolvent in 20 years.”
No doubt Murphy hopes to be long gone when the fiscal crisis hits. He reportedly has his eyes set on higher office and is counting on his biggest political supporter, the NJEA, to help him get there. So he insists on pouring billions of precious tax dollars into a broken TPAF. As the Sweeney Center shows, it’s not sustainable.