State Treasurer’s Paltry Revenue Projection Holds Out Little Hope for FY2016
If state’s top court finds for public workers in pension litigation, administration might have to cut into large programs like education, healthcare
Facing uncertainty over public-employee pension funding thanks to a pending state Supreme Court ruling, lawmakers heard little yesterday from Gov. Chris Christie’s state treasurer to believe a swell in economic growth will make it easier for the state to live up to its growing obligations to public workers.
Instead, Treasurer Andrew Sidamon-Eristoff told members of the Senate Budget and Appropriations Committee during this budget season’s final revenue update that he was adding just $7 million to the forecast for Christie’s proposed $33.8 billion spending plan for the fiscal year that begins July 1.
With no measurable last-minute boost to the economic projection, that puts even more focus now on how the Supreme Court will rule in anover pension funding between the Christie administration and public-worker unions. A decision is expected at any time, even as lawmakers continue to evaluate the in the remaining weeks before the state Constitution’s July 1 deadline for a balanced spending plan.
Christie has said the state can only afford to make a $1.3 billion pension contribution during the next fiscal year, well below the $3.1 billion payment that he committed the state to making in athat also forced employees to contribute more toward their pensions.
Lawyers representing more than a dozen public-worker unions have sued the Christie administration in an effort to uphold the 2011 law, which was designed to reverse years of pension underfunding that Christie and prior governors from both political parties have allowed.
There was some hope heading into yesterday’s revenue update that a $204 million tax-collection windfall enjoyed during the current fiscal year would have a carryover effect to boost projections for the next fiscal year and possibly help shrink the gap between $1.3 billion and $3.1 billion.
But Sidamon-Eristoff said the windfall was the result of a dramatic stock selloff last October that created final income-tax payments that shouldn’t be expected to occur again. He called the windfall “largely a one-time event” that wouldn’t move the state off its $33.81 billion revenue projection.
“Based on this assessment and the fact that returns in the equity markets have been relatively sluggish this year -- with the S&P showing gains of just over 3 percent so far -- we would urge caution in adding this year’s ‘extra’ revenue to the base for projecting Fiscal 2016 growth,” Sidamon-Eristoff said. David Rosen, the budget and finance officer for the nonpartisan Office of Legislative Services, offered a slightly more optimistic take earlier in the day, saying the revenue forecast for the next fiscal year should be increased by $140 million, for a total of $33.94 billion. He also pegged the windfall for the current fiscal year at $271 million, putting the overall difference between Rosen’s forecast and the treasurer’s through June 30, 2016 at $200 million.
But ultimately the job of certifying state revenue falls to the administration, so Christie has final say.
Sidamon-Eristoff said the state will ask lawmakers to approve a supplemental appropriation to use the $204 million windfall to boost the payment into the pension system that’s scheduled to be made at the end of the current fiscal year. The new total for that pension payment is $893 million, which includes the $204 million and another $8 million realized from planned spending on other items that Sidamon-Eristoff said the state is no longer anticipating.
Though bigger than the budget’s original $681 million payment, $893 million is still far below the $2.25 billion contribution that’s called for under the seven-year payment schedule that’s at issue right now before the Supreme Court.
The case made it to the high court after Christie appealed athat found the larger pension payment was a contractual right of the employees, and that Christie and lawmakers needed to work together to come up with more funding for the pension system to live up to that obligation.
Yet even if the Supreme Court ultimately upholds that decision, Sidamon-Eristoff said at this point in the fiscal year nearly every dollar has been spent. “I think frankly that ship has sailed,” he said.
And Rosen, speaking to lawmakers before the treasurer, said he didn’t think it would be “fiscally or physically possible” for the state to come up with the additional money before June 30.
That means the court will likely craft its ruling with an eye toward enforcing the larger, $3.1 billion payment that’s called for under the seven-year schedule for the next fiscal year, said Committee Chair Paul Sarlo (D-Bergen). He asked whether the administration has gone over contingencies in the event it loses the court case.
Sidamon-Eristoff said he didn’t want to talk about specific plans at this point, but added “major program categories could not and would not escape scrutiny under that scenario.” Funding for local schools, higher education, and hospitals are among the bigger sections of the budget that would have to be looked at, he said.
Though Democratsthat would increase the state’s top-end income tax rate to 10.75 percent on earnings over $1 million to help bring in more cash for the pension system, Christie’s proposed budget calls for the seven-year payment schedule to be reworked. The governor wants to instead give the state 10 years to get up to the amount of pension funding that actuaries say is needed to restore the system’s solvency.
After the years of underfunding, the pension system, which covers the retirements of an estimated 773,000 current and retired workers, is between $40 billion and $83 billion in debt depending on which accounting system is used.
Sen. Jennifer Beck (R-Monmouth) compared the proposed change to a 10-year payment schedule to refinancing debt on a high-interest credit card.
“You keep making the minimum payment and you never catch up,” Beck said. “We need a strategy that’s doable.”
But Sarlo questioned whether stretching out the payment schedule would help much because the final payment that would be required would still be well over $5 billion, and the state is showing no signs of more than just sluggish annual economic growth.
“Either way, the economy still has to grow at a healthy rate to make that payment in 2023,” Sarlo said.
He was also one of many lawmakers to offer Rosen encouragement as he readies for retirement after a lengthy career as a legislative analyst.
“We cannot thank you enough,” Sarlo said. “This is a committee that is very grateful for your service.”