NJ details latest plan for paying for retirement: Hit up the lottery

TRENTON — State Treasurer Ford Scudder provided additional details Thursday supporting Gov. Chris Christie’s complicated plan to boost the value of New Jersey’s public-worker pension funds by handing it the New Jersey Lottery for three decades.

“The contribution thus positively addresses the chief fiscal burden on the state, mitigating the fears of bondholders, rating agencies and public employees by significantly reducing the unfunded liability of the retirement system,” Scudder said.

“Not only do we improve the solvency of the pension system and thus secure the retirement of state employees and retirees, but we also improve the future prospects of every priority in the state budget and reduce the state’s cost of borrowing in the process. If ever there were a true win-win-win, this is it,” he said.

The plan requires approval of a 47-page bill by the Legislature, which the Christie administration would like next month. Lawmakers have said since Christie floated the idea in late February that they’re intrigued but need additional details.

“I continue to have questions about whether this is an effective plan or a gimmick, but will review the proposal and give it proper consideration,” said Assembly Speaker Vincent Prieto, D-Hudson.

Senate President Stephen Sweeney, D-Gloucester, said the plan would advance the schedule for restoring the pensions' funding by 20 years.

"The details we received from the Treasurer show that this could be a promising endeavor," Sweeney said.

Because this is a lottery story, here’s a Pick-6 look at the plan.

1: IMPACT ON THE PENSIONS

The plan projects that around $37 billion will be generated for the pensions over 30 years, so the donation is being valued at $13.535 billion – and would immediately boost the pension funds’ value by that amount.

Right now, the pensions are considered to be 57 percent funded. That would increase to 65 percent. State-funded plans are in worse shape than local-funded ones, at 45 percent, but that would jump to 59 percent. Without the transaction, the plans wouldn’t reach those levels until 2037, Scudder said.

Scudder said the reduction in the liability would be greater than if the state were to immediately start making full contributions to the pension without doing the lottery transaction.

“Even if the budget could support the billions of additional funds that would be needed, that path is vastly inferior to that presented by the lottery contribution,” Scudder said.

In order to make sure it complies with requirements of how lottery money can be used, and to direct the financial help to the individual pension funds that need it most, almost 78 percent of the revenues would go toward the teachers’ pension, 21 percent to regular public employees and 1 percent to the fund for police officers and firefighters.

Eventually, the healthier pensions would mean smaller contributions being made into the fund, but Scudder indicated the payments – regular budget and lottery revenues combined – wouldn’t be altered until fiscal 2023.

“For the first five years, the total payments in the pension system would be exactly the same as they otherwise would have been, just a portion of that will be coming from that lottery proceeds,” Scudder said.

2: IMPACT ON LOTTERY-FUNDED PROGRAMS

Lottery revenues, under the state constitution, must be used to support education and institutions.

“The obvious question is if the lottery is transferred to the pension, what happens to the funding for those programs? And I want to be crystal clear on this. The answer is that there will be absolutely no negative impact to that funding,” Scudder said. “I know that seems counterintuitive.”

Scudder said the plan is “explicitly budget neutral for the near term.” For five years, the pension payment required from the general budget will be reduced by precisely the amount of lottery revenue that’s no longer available to the state. And those savings can pay for lottery-funded programs.

Scudder put it this way: If two parents work, with one drawing the salary needed to cover their child’s college tuition, the family’s budget wouldn’t be affected if that person stopped working when the child graduated college.

3: IMPACT ON THE BUDGET

Scudder contends the state budget would benefit along with the pensions, in part because it could become cheaper for the state to borrow if the pension pressures aren’t as great.

“Totally budget neutral for the first five years. There’s then a short period of modest impact on the budget on the order of one-half of 1 percent or less per year, before we are in the clear,” Scudder said.

Beginning in fiscal 2023, there is a negative impact on the state budget projected — $1.4 billion over seven years, starting at $235 million the first year and then shrinking gradually.

The negative impact of the pensions on the state budget flip to a positive one starting in 2030, because that’s when debt payments on the 1997 pension bonds conclude. That money would therefore become available for general-fund needs, theoretically.

4: GOLF, WHISKEY AND NOW GAMBLING

Scudder said no states have pursed transactions exactly like the one New Jersey is planning but that there are examples of assets being placed into pension funds, such as toll roads and, in Pittsburgh, parking revenues.

“There’s pretty cool examples, actually, like Diageo transferring whiskey into their employees’ pension. So there are plenty of other examples. Alabama, for example, retirement system owns the Robert Trent Jones Golf Trail.”

5: HEALTH OF THE LOTTERY

Scudder said the proposal’s valuation of the lottery contribution at $13.5 billion includes a projection that lottery revenues will grow by an average annual rate of 1.59 percent through 2029, then 1 percent growth after that.

“When you look at the historical rate of revenue growth, we find that to be very conservative. We purposefully made it conservative,” Scudder said.

If revenues exceed those forecasts, all the additional money would go to the pension system.

6: STILL LOOKING FOR MORE

Scudder said Christie still wants additional pension changes to save the state money. He said that even with the plan, the pensions aren’t 90 percent funded for 30 years, requiring “incredibly high” payments along the way.

“We’ll certainly be looking for further reforms on the pension side. I’m not going to step out in front of those negotiations to say what exactly we’re looking for, but yes, we’ll be looking for some,” Scudder said.

New Jersey: Decoded cuts through the cruft and gets to what matters in New Jersey news and politics. Follow on Facebook and Twitter.

Michael Symons is State House bureau chief for New Jersey 101.5 and the editor of New Jersey: Decoded. Follow @NJDecoded on Twitter and Facebook. Contact him at michael.symons@townsquaremedia.com