After making several partially successful attempts to solve the funding problems plaguing the public-employee pension system, Gov. Chris Christie is giving it one more shot, turning the state Lottery into an asset of the troubled system.
Christie insists the move will do the trick, but many state legislators are less enthusiastic, although they acquiesced to his plan.
The official shifting of the profitable Lottery enterprise to the pension system started during the early morning hours of July 4th, as Christie signed into law the final state spending plan of his tenure.
What now remains to be seen is whether the Christie administration’s lofty estimates of the potential benefits of the asset transfer — including projections of decades of annual revenue growth and a multibillion dollar valuation of the Lottery enterprise itself — will hold up over the next 30 years to prove it was a wise policy change.
Not a solution?
Christie, a second-term Republican set to leave office early next year, seemed to be certain of its success while speaking to reporters just hours before the transfer won final approval from the Legislature’s majority Democrats. He called the Lottery proposal a “significant accomplishment” that will end up leaving the pension system “much better off than where we found it in 2010.” But others are not so sure, including the New Jersey Education Association, which is labelling the change “not anywhere near a solution” to the state’s longstanding pension-funding problems.
“The solution to this problem is going to come from future governors and future legislators,” NJEA spokesman Steve Baker said yesterday. “Somebody else is going to have to take the ultimate responsibility.”
Christie first proposed the Lottery transfer in his late February budget address, suggesting the nearly $1 billion in annual revenue that the Lottery produces could be better leveraged by the state to help prop up a pension system that was recently named by Bloomberg as the worst-funded state retirement system in the country. According to the latest official estimates, New Jersey’s pension funds were saddled with a nearly $50 billion unfunded liability, and a funded ratio of less than 50 percent despite Christie’s attempts to enact major reforms in 2010 and 2011.
Terms of the transfer
But under the transfer that was enacted earlier this week, the Lottery enterprise goes into the pension system with a valuation of $13.5 billion, according to an outside firm’s estimate. And it is also projected to produce $37 billion in revenue for the pension system over the next 30 years.
Because the state constitution restricts how Lottery proceeds can be used, the shift will only benefit the retirement funds for teachers (TPAF), general state workers (PERS), and state-employed police officers and firefighters (PFRS). Under the administration’s estimates, 78 percent of the Lottery revenues will go to the teachers’ fund, 21 percent to the general public-workers’ fund, and 1 percent to the police and firefighters. As a result of the shift, funds from the general state budget are now covering programs Lottery proceeds have previously paid for, including higher education, veterans, psychiatric hospitals, and programs for the developmentally disabled.
The benefits reforms of 2010 and 2011 were aimed at correcting years of underfunding by prior governors, and they included getting employees to pay more toward their pensions in 2011. After those changes were adopted, Christie took credit for putting the pension system back on course, and he frequently emphasized the size of the annual payments the state was contributing into the pension system compared with prior governors.
Talking up the ratio
But Christie throughout his second term in office was never able to make the full payments that were called for under a 2010 law, and he’s now started highlighting the pension system’s funded ratio as a measuring stick. Under his administration’s estimates, the funded ratio will improve from a 45 percent to near 60 percent as a result of the Lottery transfer.
“This is the best the funded ratio has been in more than a decade and a half,” Christie said while speaking to reporters during Monday’s late-night news conference on the budget.
“While there is still more work to be done, there can be no doubt that we are leaving the pension system much better off than where we found it in 2010,” he went on to say.
But Baker, the NJEA spokesman, spoke far less glowingly about the Lottery transfer yesterday, and the teachers’ union itself was neutral as the Legislature began to discuss the proposal in earnest a just few weeks ago as the fiscal year 2018 budget also began to take form.
A review of the proposal prepared last month by the bond-analysis firm Municipal Market Analytics also raised questions, including whether the transfer would pass muster under the Governmental Accounting Standards Board.
Since the Lottery produces roughly $1 billion in annual revenue — much less than the amount needed to keep the pension system solvent — it will still be up to future governors and lawmakers to increase pension contributions enough to satisfy the actuaries, said Baker, whose union scored a victory against Christie earlier this week that stopped signs from being posted on state buildings that blamed NJEA ally Vince Prieto (D-Hudson) for causing the government shutdown.
Prieto, the Assembly speaker, was initially not on board with the Lottery transfer. But he eventually signed off on it after Christie insisted it be passed along with a controversial bill rewriting how the state regulates Horizon Blue Cross Blue Shield in exchange for his adoption of the Democrats’ budget with only minor changes.
“It really doesn’t do much one way or the other,” Baker said yesterday, adding that Christie’s legacy on the pension issue will ultimately be one marked by failure.
“It’s a legacy of failure, it’s a legacy of lies, it’s a legacy of finger-pointing,” Baker said.