Gov. Chris Christie’s administration has finally detailed how he plans to have the New Jersey Lottery help ease some of the financial burden on the state’s beleaguered public-employee pension system.
And while State Treasurer Ford Scudder labeled the proposal a “true win-win-win” at last week’s briefing, some Democrats are less than impressed.
Phil Murphy, Democratic frontrunner for his party’s gubernatorial nomination, compared it to the boardwalk-arcade game Whac-A-Mole during a gubernatorial debate that was held in Newark last week.
“That’s what this is,” said Murphy, a former Goldman Sachs executive. “You’re going to pile down some source of funding over here, and you’re going to expose another source of expense required over there.”
Democratic hopeful Jim Johnson, a lawyer and former U.S. Treasury official from Montclair, dismissed the scheme as a gimmick intended to distract from Christie’s decision to once again short the full payment. Indeed, Christie is budgeting $2.5 billion for the pension system during the 2018 fiscal year, which is only half the amount he committed to paying in a 2011 deal.
And in a year that will see all 120 legislative seats on the November ballot, lawmakers will also be listening closely over the next several weeks to public-employee union officials, and those union officials are already raising some concerns about the Lottery proposal itself, as well as the threat that Christie will seek a new set of worker givebacks to go along with any asset transfer.
Or as Scudder summed it up, “I’m not going to step out in front of those negotiations to say what exactly we’re looking for, but yes, we’ll be asking for something,” he went on to say.
Looks good on paper
On paper, the pension system would benefit for the next 30 years by having the Lottery – which generates nearly $1 billion in annual revenue and was recently valued at $13.5 billion – effectively transferred onto its balance sheet.
That shift would create a new and dedicated source of revenue for the pension system. In fact, the Christie administration expects the Lottery transfer will improve the state pension system’s overall funded ratio from a disastrous 45 percent to near 60 percent.
The fiscal maneuver should also have little immediate impact on the state budget because it will reduce an unfunded pension liability that right now measures close to $50 billion, and that figure is used by actuaries each year to determine how much the state should be putting into the pension system out of the budget to help maintain its solvency.
Leveraging the Lottery
Christie first floated the idea of leveraging the Lottery to help address the pension system’s immense unfunded liability during his budget address in February. But the second-term Republican did not put forward a detailed proposal at the time, and he also left open the question of how the state would offset nearly $1 billion in Lottery revenues that right now flow into the annual budget. Also left unclear was the legality of the shift, since Lottery revenue is dedicated to funding only “education and state institutions” by the state constitution.
That gap in information about the Lottery proposal was finally filled last week when the Treasury called reporters to Trenton for the policy briefing about how the transfer would be set in motion. A legal opinion from the state attorney general’s office said the proposed transaction would “comport with the State Constitution and other applicable state laws” was also released by Treasury last week.
To adhere to the restrictions of the state constitution’s language, Christie’s proposal calls for proceeds from the nearly 50-year old Lottery to benefit only the retirement funds for teachers (TPAF), general state workers (PERS), and state-employed police officers and firefighters (PFRS). In fact, under the proposal, 78 percent of the revenues would go to the teachers’ fund, 21 percent to the general public workers’ fund, and 1 percent to the police and firefighters fund.
Christie’s proposal also calls for the asset transfer to be “budget neutral” for the first five years, largely because the actuarial calculations of the annual state contributions into the pension system will result in a lower required payment, freeing up that money to fill in for the current programs that are being funded with Lottery revenues. But Treasury’s plan also assumes that Lottery revenues will continue to grow between 1.6 percent and 1 percent over the next 30 years, something that could be a long-term concern given some recent studies indicate millennials are far less interested in playing lotteries than prior generations.
“We’re consistently working towards bringing on new games that do target the younger generation,’” Scudder said after being pressed by a reporter on that issue during the briefing.
“We’re confident that the projections we have put forth are very conservative,” he said.
Open but uncertain
Legislative leaders have also been given more details about the Lottery proposal by the Christie administration, and Senate President Stephen Sweeney (D-Gloucester) issued a statement last week that suggested he remains open to the asset transfer, but not yet convinced it should be done.
“The details we received from the Treasurer show that this could be a promising endeavor,” Sweeney said. “We will continue our review of this proposal to make sure that we have all of the information about how this would impact the funds as well as state programs.”
A statement from Assembly Speaker Vince Prieto (D-Hudson) also called for more review of the proposal, while at the same bringing up Christie’s 2014 decision to go back on the state funding commitments made as part of the earlier bipartisan deals on pension reform.
“I continue to have questions about whether this is an effective plan or a gimmick, but will review the proposal and give it proper consideration,” Prieto said. “Regardless of where this goes, it’s unfortunate we’re even discussing it, since the pension system, after all, would be in better shape already had the governor just fully funded it as he had promised.”
Johnson, one of four Democratic gubernatorial candidates who participated in a debate last week in Newark, also criticized Christie’s record on pension contributions when asked about the Lottery proposal and said the goal for the state has to be full funding of the pension obligation.
“We need to be committed to real math, not gimmicks, to push forward and make sure that the pensions are funded appropriately,” said Johnson,
And still looming in the background is Christie’s suggestions that he could ask lawmakers to pass new employee givebacks as a price for improving the health of the overall pension system. Christie has previously told reporters he would be seeking “some additional pension efficiencies” along with the Lottery proposal, but he hasn’t identified any specific proposals, and Scudder didn’t propose any during last week’s briefing.
But when asked by a reporter if there will be any “strings attached” to the Lottery transfer, Scudder responded “we’ll certainly be looking for further reforms on the pension side.”
Drawing a line
The New Jersey Education Association — one of the key unions whose members would be impacted by any new pension change — issued a statement on Friday that immediately drew a firm line against any new givebacks.
“There will be no discussion or negotiation of benefit cuts for public-school employees, regardless of any position we take on the lottery proposal,” the NJEA statement said. “Our members have already had deep cuts imposed on them by this administration, which then deliberately refused to live up to its pension funding obligations.”
The union also questioned Scudder projections, saying the members remain “deeply skeptical” of the proposal.
“While the treasurer presented an unrealistically rosy picture of what could happen under the proposal, there is little reason to trust his projections,” the statement said. “His projections assume significant additional funding by the state in future years, but the proposal does not provide for any additional revenue to support that funding.”
Hetty Rosenstein, state director of the Communications Workers of America, said her organization is still reviewing Treasury’s draft legislation, and union actuaries are still evaluating the full proposal. But she also cautioned against thinking the shift could have a major impact on the health of the retirement plan for CWA’s workers.
“We’re not rejecting it, but my general view is I don’t think it’s going to do anything huge,” Rosenstein said.
She also made it clear that the union is firmly opposed to the Lottery transfer occurring in exchange for more employee concessions. Public workers have been contributing more toward their pensions after the bipartisan reform effort that was enacted in 2011 even as the Christie administration has reneged on its end of the bargain.
“The concession stand is closed,” Rosenstein said. “We won’t consider anything with strings. That’s just not happening.”