New Jersey’s fiscal practices have come under harsh criticism by national budget watchdogs, just as the state’s Supreme Court is set to issue an opinion this morning in a much-watched public-employee pension-funding case that’s rooted in recent state budget problems.
New Jersey’s failure to properly fund its pension system drew one of many unfavorable scores for the state in a report released yesterday by the Volcker Alliance, an organization led by former Federal Reserve Bank Chairman Paul Volcker.
The report comes as Volcker’s group is trying to bring more attention to the fiscal challenges that states across the country are facing coming out of the most recent recession — and the lengths that many states are going to in order to obscure those challenges.
“The continued fiscal stress is tempting states to continue, and even intensify, budgeting and accounting practices that obscure their true financial position, shift current costs onto future generations, and push off the need to make hard choices on spending priorities and revenue practices,” Volcker, a former economic adviser to President Barack Obama, writes in the report’s preface.
New Jersey was one of three states reviewed by the organization for the report, which is entitled “Truth and Integrity in State Budgeting: Lessons from Three States.” The budgeting practices in California and Virginia were also scrutinized, and the effort will likely be expanded soon to cover more states.
But so far, it’s New Jersey that scores the worst.
“New Jersey is a state that is continually challenged, both in Republican and Democratic administrations,” said William Glasgall, a former Bloomberg News managing editor who now serves as the Volcker Alliance’s program and editorial director for state and local accountability and improvement programs.
“This is a state that’s got a lot of challenges,” Glasgall said while speaking at a news conference inside the Roosevelt House in Manhattan that coincided with the release of the report. “It’s not a secret. They know they have problems too.”
New Jersey is not following several good budgeting practices that are identified in the report, including conducting consensus-revenue forecasting and regularly putting aside adequate funding into a rainy-day surplus account. The state raiding funds raised to promote the use of clean energy, was also knocked for delaying property-tax relief payments to homeowners and using revenue from bond premiums and from refinancing debt to fill budget gaps.
But it’s the skipped pension payments that could have the most direct consequences for Gov. Chris Christie’s administration, which has been dealing for months with a lawsuit filed by public-employee unions that has progressed this year all the way to the state Supreme Court.
A ruling that’s due to be released at 10 a.m. this morning by the high court will have significant ramifications on the latest state budget that Christie, a Republican, is asking Democrats, who control the Legislature, to approve in the final weeks before the July 1 deadline for a balanced budget that is set in New Jersey’s Constitution.
Public-worker unions want the court to mandate a series of increasing pension payments that Christie committed the state to making in a 2011 reform law that also required employees to pay more toward their pensions as well.
But even as the workers have been paying more, Christie has since backtracked, saying the state can’t afford to live up to its end of the deal because tax collections haven’t grown at the rate that was originally projected when the 2011 deal was struck and revenue forecasts were more promising.
[related]And Christie — who is now exploring a run for president in 2016 — has proposed a budget for the next fiscal year that would contribute $1.3 billion into the pension system, which covers the retirements of 773,000 current and retired workers. That’s far short of the $3.1 billion he previously promised to pay.
California and Virginia have also struggled to fund their respective pension systems, though Virginia has made improvements in more recent years, the Volcker foundation’s report says.
A spokesman for the New Jersey Department of Treasury issued a lengthy statement yesterday afternoon that took issue with much of the report’s findings, saying many of the budget issues are longstanding and that the report omits improvements the administration is attempting to make in the budget that’s been proposed for the fiscal year that begins July 1, including more pension reform.
Spokesman Christopher Santarelli said the Christie administration has made “significant progress in righting the budget ills that we inherited after 20 or more years of mismanagement and irresponsibility.”
“The administration continues to acknowledge the importance of structurally sound budgeting and will continue to build on past progress,” Santarelli said. “To that end — and in contrast with tax increases advanced by public-employee unions — the administration continues to advocate sustainable increases in pension payments made possible by spending restraint, coupled with reforms to bring benefit levels in line with the private sector.”
The report follows up on work that Volcker and former New York Lieutenant Governor Richard Ravitch did together in 2012 when they published the “State Budget Crisis Task Force,” which also took a hard look at New Jersey. Ultimately, they said they envision expanding the close scrutiny of state governments to cover all 50 states and possibly even local governments.
“Consider this an introduction — an important introduction,” Volcker said yesterday.
The report’s focus on revenue forecasting comes even as lawmakers here have been working on legislation to improve the state’s projections. This comes in response to recent gaps that Christie, who took office in early 2010, has had to close after forecasts came up short, though the current budget is running about $200 million ahead of projections.
A total of 28 states already use a consensus-revenue forecasting model that includes input from both the executive branch and lawmakers, but New Jersey still does not, according to the report. A legislative budget analyst here prepares a forecast for lawmakers to consider, but it’s only advisory.
Consensus forecasting with agreement among the branches can “remove revenue estimates from politics and allow leaders to focus more attention on allocating available resources where they are most needed,” the report says.
And though not a perfect system, the report noted that in Virginia, where consensus forecasting is part of the annual budget process, revenue projections were off by $350 million during the 2014 fiscal year, the same year that many other states faced wider shortfalls. New Jersey’s revenue forecast was off by more than $1 billion that year.
The Senate Budget and Appropriations Committee late yesterday afternoon advanced a bill sponsored by Sen. Robert Gordon (D-Bergen) that would establish, among other changes, consensus-revenue forecasting in New Jersey. An identical version of the bill has already passed the full Assembly.
Santarelli, the Treasury spokesman, did not comment when asked about the measure yesterday.