file photo by Boyd Loving

January 21,2018

the  staff of the Ridgewood blog

Ridgewood NJ, according to the Manhattan Institute for Policy Research New Jersey is running out of time projections show that the pension system, already the worst-funded in the nation, will continue taking on debt for at least five more years.

The Rockefeller Institute of Government at the State University of New York defines a government pension system that’s below 40% funded as in crisis. New Jersey’s pension system is well below that line, and the cost to fix the system, even under optimistic economic and financial-market projections, is already enormous. After a nine-year expansion, if America’s economy turns down in the coming months, the price of fixing New Jersey’s pension system will surge higher still. Yet even when the costs were considerably less, the state’s political leaders balked at fixing the system. We’ve now reached the point where neglecting to construct an adequate and lasting fix pushes the pension system on a path toward failure, a catastrophic scenario for New Jersey’s public employees and taxpayers.

Key takeaways from the report :

As this report demonstrates, to stay on pace to reach the new plan’s required yearly contributions into the pension system by 2023, state government must increase the revenue that it dedicates to its pension system by more than threefold. At that point, pension payments could equal 12%–15% of New Jersey’s budget.

Based on the historical growth of New Jersey’s revenues, rising pension payments alone will likely consume virtually all the state’s additional tax collections over the next five years, even under an optimistic scenario where tax collections accelerate. That would leave little money for increasing funding of local schools, higher education, municipal services, or property-tax relief.

If the economy were to experience even a mild recession, the resulting slowdown in tax collections would likely mean that New Jersey would fall short by at least an additional $3.5 billion in meeting its pension obligations, sparking a more substantial rise in new pension debt.

After years of relying on unrealistic investment assumptions, New Jersey recently cut its projected rate of investment returns to a more realistic 7%. Even so, this is higher than forecasts made by independent experts for pension fund performance over the next five to 10 years. If the outside experts are correct, the investment returns on the state’s pension portfolio will fall significantly short, requiring New Jersey to dedicate further tax revenues to its pension system or allow additional new debt to pile up—a dangerous situation because the system’s funding levels are already so low that some pension experts fear that fixing a system this poorly funded is nearly impossible.

Absent some unexpectedly robust acceleration of the economy, it is highly unlikely that New Jersey will generate enough new revenues to meet its pension commitments without severely hobbling the rest of the state’s budget. At the same time, allowing its pension system to continue to accumulate debt by not contributing adequately to it will push New Jersey toward a potentially catastrophic failure of its government pensions.

full report :

https://www.manhattan-institute.org/sites/default/files/R-SMJM-0118.pdf