New Jersey’s chronic budget problems have brought on a series of credit-rating downgrades in recent years, and now the state has landed in dead last place in two recent reviews of the fiscal health of all 50 states.
The latest “Fiscal Condition” rankings released by George Mason University’s Mercatus Center just dropped New Jersey several spots to 50th, thanks in large part to both short-term and long-run solvency issues that are detailed in the university’s review.
New Jersey also came in last place in a new Pew Charitable Trusts long-term analysis of how well state revenues matched expenses between fiscal years 2002 and 2015.
In both cases, the state’s persistent underfunding of the public-employee pension system appears to have contributed significantly to the dismal showings in the state-by-state comparisons. But the reports also highlight some of New Jersey’s other longstanding budget problems, includingand the lack of a substantial to hedge against revenue shortfalls.
The two reviews came out just weeks after Gov. Chris Christie, a second-term Republican,the eighth and final budget of his tenure, which began in early 2010 when the state was still mired in the Great Recession. Their release also follows a recent, on state finances issued by the nonpartisan Fund for New Jersey in advance of this November’s gubernatorial election that offered a number of recommendations, including new spending cuts and tax hikes.
A statement provided yesterday by the state Department of Treasury highlighted Christie’s work on New Jersey’s persistent budget problems, and also noted both the Mercatus and the Pew reviews used audited data from the 2015 fiscal year and before, a period that doesn’t cover reforms enacted by Christie and Democratic legislative leaders in recent years.
Christie has tried to emphasize both pension reform and overall fiscal responsibility during his two terms in office, but the state’s latest actuarial reports indicated the pension system’s unfunded liability has grown to. The $34.7 billion state spending plan enacted by Christie earlier this month also continues a practice of not covering the full amount of funding that actuaries say is needed for the pension system, and it also maintains a surplus account of $409 million, which is just over 1 percent of total spending.
Audited data from fiscal 2015 also showed New Jersey contributed just a fraction of the actuarial-calculated pension contribution and maintained thin reserves, two issues that are highlighted in the new 2017 fiscal-conditionreleased by the Mercatus Center.
In all, New Jersey ranked 49th in budget solvency and 50th in long-run solvency, categories that look at how well a state’s revenues match expenditures, and how well a state is prepared to cover its long-term liabilities. New Jersey fared slightly better in two other categories, ranking 37th in cash solvency, a general gauge of the state’s liquidity, and 39th for trust-fund solvency, which factors in debt and other long-term obligations. But the state’s overall ranking was still 50th, dropping from last year’s 48th showing.
“Maryland, Kentucky, Massachusetts, Illinois, and New Jersey rank in the bottom five states, largely a result of the low amounts of cash they have on hand and their large debt obligations,” the Mercatus report said. “States that fail to address long-term drivers of debt and are not prepared for recessions will continue to rank poorly.”
The new, meanwhile, also looked closely at the issue of annual revenues and expenses, using what’s known as accrual accounting to check for imbalances that were obscured by either shifting costs from one fiscal year to another or deferring them altogether.
The Pew analysts found that most states were able to collect enough revenue between the 2002 and 2015 fiscal years to cover their expenses, with a 50-state median of revenues equaling 102 percent of expenses. But 11 states, including New Jersey, were not able to collect enough revenue to fully match their expenses over the period that Pew analyzed. New Jersey also had the lowest percentage of revenues compared to expenses among all 50 states, at 92.4 percent.
While states can usually handle periodic budget deficits, chronic problems can indicate “a more serious structural deficit in which revenue will continue to fall short of spending absent policy changes,” the Pew analysis said.
“Without offsetting surpluses, long-running imbalances can create an unsustainable fiscal situation,” the analysis said.
The statement from the Treasury said the Mercatus and Pew reviews did not take into account the Christie administration’s “most recent fiscal accomplishments which continue to move New Jersey toward a solid fiscal footing following decades of mismanagement by previous administrations.”
The last three state budgets have ramped up state pension contributions, and earlier this month, Christie signed into law athat turned the state Lottery enterprise into an asset of the pension system. That change will provide roughly $1 billion in annual Lottery proceeds collected after jackpots are paid out as a direct revenue stream for the pension system.
Christie and lawmakers also worked together last year to adopt a new, quarterly pension-paymentthat is designed to help the state take advantage of investment gains throughout the year. The state’s prior practice was to make a one-time payment when each fiscal year closed at the end of June.
Treasury’s statement also said Christie has proposed additional public-worker benefit reforms in an effort to reduce costs, and it blamed Democrats for blocking those efforts.
“So despite their other shortcomings, these reports might be the necessary catalyst to spark health benefits reform,” the statement said.