By David Cruz
Gov. Chris Christie gets annoyed when reporters talk about all the state’s credit downgrades. We count 11; he says it’s more like five. Just numbers, in the end, because not too many people will deny that the reason for all the downgrades is the state’s underfunded pension system — a $49 billion unfunded liability, which the governor insists he’s going to leave off better than when he found it.
“I am proposing to contribute revenues from the lottery to eligible pension plans,” Christie announced during his budget address in February. “The contribution would have the immediate effect of reducing the unfunded liability of the pension system by approximately $13 billion and would increase the funded ratio of the entire pension system by almost 15 percent in one fell swoop.”
That sounds really good, if you can understand it. For the rest of us, the governor deployed Treasurer Ford Scudder who, this morning, unveiled the details of the plan, which makes the $13.5 billion lottery enterprise now an asset of the pension system. The treasurer said today the net effect would be “$37 billion of net proceeds to be deposited into the retirement saving system over the next 30 years,” he said.
At this morning’s briefing Scudder explained that the state funded system is funded at 45 percent and the state and local combined system is at 57 percent.
“By adding the value of the lottery enterprise contribution immediately, those ratios increase to 59 percent for the state and 65 percent for state and local,” he explained. “Absent this contribution, the pension system would not reach such funding ratios until 2037.”
But, you may ask, isn’t the lottery money already dedicated to education and state institutions? Yes, says Scudder, but the fact is that money has been coming from the general fund, where the lottery system money ends up anyway. So, if that lottery money’s now being removed from the general fund, how does the general fund recoup that loss?
“You know, it’s like robbing Peter to pay Paul,” suggested Assemblyman John McKeon, who sits on the Assembly Budget Committee. “But, in this instance, to have the pension system get dedicated funding source will at least from the sake of financial stability be able to send a signal to those who look at our credit rating and then we’ll deal with where, in the future, it’s growing the economy or other ways to find money that we need.”
But Peter’s not robbing Paul, says Scudder. It’s like if mom and dad are working and dad’s salary is equal to the kid’s college tuition. Once the kid graduates, dad can stop working.
“While the general fund will lose the lottery proceeds, the general fund contribution to the pension will be reduced by exactly the same amount, leaving the same amount of resources available to fund all current programs,” he countered.
The plan, which, to be honest, is quite nuanced, was distributed to lawmakers and other stakeholders this morning. We showed it to Communications Workers of America State Director Hetty Rosenstein, who was scheduled to meet with state officials to discuss the plan today. It was her first close look but she expressed very cautious optimism.