New Jersey’s pension contribution may consume almost one-fifth of its annual budget by 2018 under a law enacted by Republican Governor Chris Christie, according to a group led by former Federal Reserve Chairman Paul Volcker and Richard Ravitch, the former New York lieutenant governor.
The contribution must rise by about $4.5 billion over the next five years, from $1.03 billion in 2013, to comply with the 2010 law, the State Budget Crisis Task Force said in a report. A $5.5 billion payment equals two-thirds of the school aid in Christie’s spending plan for the year that began July 1.
New Jersey has underfunded its pensions since the mid-1990s and not provided for future costs of retiree health care, the report said. It’s now required to boost pension payments each year until 2018. While Christie “has moved in the right direction and recognizes the problem,” Ravitch said he has “some skepticism” that the governor will be able to reach full funding by then.
“I don’t know how that can be done without a Draconian tax increase,” Ravitch, 79, said during a Dec. 12 interview in Washington.
Michael Drewniak, a spokesman for Christie, said in an e-mail today that the full payment is years off. “I’m not going to speculate on that at this early stage,” he wrote in reference to a possible tax increase.
Ravitch and Volcker created the task force of former government officials in 2011 to examine U.S. state finances. The group released a main report in July on California, Illinois, New Jersey, New York, Texas and Virginia, and is preparing reports on individual states.
Christie, 50, has vetoed efforts by Democrats who control the legislature to raise income taxes on millionaires. The governor, who plans to seek re-election next year, spent much of 2012 campaigning for lower taxes to boost the economy.
The governor told reporters last month that Hurricane Sandy, which hit the state on Oct. 29, may throw a tax cut into doubt. Revenue from July through October trailed his budget forecasts by $263.8 million, or about 4.1 percent.
The law he signed required the state to make one-seventh of its pension contribution in fiscal 2012, and then raise the payment each year until it is making the full amount in 2018.
“As I understand, what’s already been decided requires a big expenditure,” Volcker said in an interview today in Trenton, where the report’s findings were made public.
New Jersey’s pension deficit reached $53.9 billion in 2010 after the state expanded benefits and skipped payments over a decade. The gap fell to $36.3 billion after Christie signed bills that boosted employee pension and health-care contributions, raised the minimum retirement age for new workers and froze cost-of-living adjustments.
“As the Volcker-Ravitch report rightly notes, Governor Christie’s administration was the first to enact a path to reform the pension and benefits systems,” Drewniak said. “Had the governor not led and accomplished these reforms, the challenges before us would be insurmountable.”
The unfunded pension liability swelled to $41.8 billion by June 2011 after Christie skipped a $3 billion pension payment. The deficit would have been more than $61 billion without his benefits overhaul, the state treasury has estimated.
The governor’s fiscal 2013 pension payment was $2.6 billion less than required, according to the Volcker-Ravitch report. Still, it was one of the largest contributions in state history. Christie made no pension payment during his first year in office and a $484 million contribution in fiscal 2012.
New Jersey’s pension system was 68 percent funded as of 2011, up from 66 percent in 2010 but down from 78 percent in 2007, according to data compiled by Bloomberg.
When he took office in 2010, Christie pledged an end to one-shot tricks to balance budgets. Nonrecurring revenue made up 4 percent of his 2012 and 2013 budgets, down from 13.2 percent in former Democratic Governor Jon Corzine’s last year in office and 6.2 percent in Christie’s first, according to today’s report.
The group called for state officials to limit the use of nonrecurring revenues, set aside enough money for pensions and retiree benefits, review the tax code, strengthen the rainy-day fund and adopt multiyear budgeting.
Volcker, 85, was chairman of the Federal Reserve under Presidents Jimmy Carter, a Democrat, and Ronald Reagan, a Republican. Ravitch served under former New York Governor David Paterson, a Democrat. The group’s work is funded by grants, and its purpose is to draw attention to issues affecting state finances.