Gov. Phil Murphy is planning to include another full employer pension contribution in the new state budget he is scheduled to unveil to lawmakers later this month, a key member of the administration told top state pension officials Wednesday.
The latest promise on pension funding means the state would extend its current streak of making full pension payments to four straight years after going more than two decades of shorting such contributions or, in some years, making no payment at all.
Murphy, a second-term Democrat, isn’t due to provide the full details of his budget proposal until Feb. 27. But the administration’s plan to maintain full pension funding suggests another roughly $7 billion will be set aside in the budget for the fiscal year that begins July 1, if lawmakers ultimately go along.
“That should assist the state pension as it continues to drive toward more fulsome funding levels,” said Assistant State Treasurer Michael Kanef during a public meeting of the New Jersey State Investment Council.
Last big spending item to talk through
The highlighting of the administration’s pension-funding goals marks the latest major spending item to be discussed publicly in the run-up to this month’s budget message.
Slump in tax collections, market volatility, unfunded liabilities could add up to a rough ride for public pensions — in NJ and other states
Murphy himself said during a meeting with municipal finance experts in New York City last month that the next state budget would also include another big increase in state aid for public education. That would build upon the roughly $11 billion set aside for K-12 public schools in the nearly $55 billion budget for the current fiscal year, which ends June 30.
New Jersey’s more than $90 billion pension fund covers the retirement benefits for an estimated 815,000 current and retired government workers, and how much funding the state government sets aside each year to cover promised retirement benefits is a perennial budget issue.
The two decades of prior underfunding by the state left the pension system in a deep financial hole, and actuaries estimate it will take decades to fully undo the damage.
As part of that effort, significant taxpayer contributions will be required for years to come out of the state’s annual budgets to restore the pension fund to good health.
No retiree is in immediate danger of not receiving a pension check. But cost-of-living adjustments for retirees have been suspended indefinitely as an ongoing cost-saving measure.
Restarting full employer contributions
New Jersey resumed making full employer pension contributions during the 2022 fiscal year as tax collections swelled during the recovery from the worst years of the COVID-19 pandemic.
Murphy and lawmakers continued the practice in the 2023 and 2024 fiscal years, making the pension contribution one of the line items that has increased significantly as overall state spending has also risen to a record high since Murphy took office in early 2018.
New Jersey’s pension-funding reversal has helped bring on a series of credit-rating upgrades the state has earned over the past several years after two decades that were marked by steady downgrades.
Governor promises school aid increase in next state budget, even with question marks looming
However, New Jersey and other states are now being closely watched by national experts as a cycle of moderating tax collections has become the norm in many places.
Indeed, the latest report on tax collections released by the New Jersey Department of the Treasury indicated overall revenues were off by about 3% year over year through the end of December.
Moreover, some of state government’s largest individual sources of revenue, including the income and corporation-business taxes, are among those seeing year-over-year declines this fiscal year, according to Treasury.
Despite the near-term revenue decline, Treasury officials said last month that “slight growth” is still expected during the second half of the 2024 fiscal year, which includes the always-crucial April income-tax returns.
During Wednesday’s report to the members of the investment council, Kanef noted the state’s latest revenue trends don’t represent a measurable decline in economic activity, but instead have been driven largely by increased tax refunds that have been paid to individuals and corporations over the first half of the fiscal year.
Net investment returns for the year that ended June 30 hit 9%