NJ Seeks Advisor For Potential Deals Involving State Assets

John Reitmeyer | February 14, 2019 | Budget
Bridges, buildings, roads, parks all to be evaluated for their potential to help plug the hole in funding of New Jersey’s pension system

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Several months after a group of fiscal-policy experts urged the state to catalog all its real estate, roads and other assets to see if any could be used to help plug New Jersey’s notorious pension-funding hole, Gov. Phil Murphy’s administration is moving ahead with a plan to do just that.

New Jersey’s Department of Treasury has begun looking for a firm to serve as a financial advisor on potential state asset deals, with responses from possible candidates due by a February 22 deadline.

The state’s formal request for qualifications, or RFQ, says the Murphy administration is looking to determine whether state assets could be ripe for “sale, lease, transfer, securitization or other types of transactions.” There’s also a long list of such assets that can be evaluated, including bridges, buildings, roads, parks and other recreational facilities.

The proceeds of any asset deal would be used to either prop up the grossly underfunded public-worker pension system or to help offset retired-employee healthcare costs, according to the RFQ.

It’s been talked about for years

Treasury’s initiative comes just two years after former Gov. Chris Christie converted the state Lottery system into an asset of the pension funds; that complicated transaction now provides the retirement system with regular cash infusions worth up to $1 billion annually. The move also comes after a nonpartisan working group in August issued a call for all state assets to be inventoried and valued, among its long list of recommendations. It also hearkens back to an “asset monetization” plan floated by former Gov. Jon Corzine over a decade ago that sought to better leverage state assets like the New Jersey Turnpike to help pay down debt.

Credit: NJ Chamber of Commerce
State Treasurer Elizabeth Maher Muoio
“While the idea of maximizing the value of state assets has been discussed for many years, little concrete action has ever been taken,” Treasurer Elizabeth Maher Muoio said in a statement. “At the direction of (Murphy), we designed this RFQ to explore tangible, creative solutions to help maximize the state’s assets in order to minimize the burden to taxpayers.”

Despite a series of steps taken in recent years to improve the health of the pension system, New Jersey continues to have one of the worst-funded state retirement plans in the country. Pension funding is also among the top issues cited by Wall Street credit-rating firms that have given New Jersey one of the worst debt grades among all U.S. states.

Murphy, a first-term Democrat, has called for increased funding for the pension system and his first state budget (last year) boosted the state contribution to a record high of $3.2 billion. But that payment represents 60 percent of the total calculated as needed by actuaries. Moreover, Murphy has decided to stick to an incremental ramp-up plan established by Christie that won’t see the state making its full contribution until 2023. That means the pension-funding hole, which is already well over $100 billion by some estimates, will continue to deepen even as the state’s contribution will be rising.

To help address the growing problem, the fiscal-policy experts, assembled last year by Senate President Steve Sweeney (D-Gloucester), called for the establishment of a new, hybrid retirement plan for public workers who aren’t yet vested in the existing pension plan. They also said the state should “explore the viability of adding major assets to the pension system” and labeled the 2017 state Lottery transaction a “framework for an important pension funding solution.”

Looking at the turnpike

As another example, the experts looked closely at the New Jersey Turnpike, one of the assets Corzine eyed for monetization under a 2008 plan that never gained support among lawmakers. They found the toll road could be used to shave between $15 billion to $18 billion off the pension system’s unfunded liability without being sold off to private investors.

“Putting toll roads into the pension system would maintain public ownership and allow tolls to remain at a reasonable level,” the group’s report said.

Under the RFQ issued by Treasury earlier this month, roads are listed among the many categories of assets that the state’s financial advisor would be asked to evaluate in the quest to find more help for the pension system.

“The Advisor will be expected to examine various State assets, including those owned or operated by various independent authorities and including, but not limited to, real property, buildings, roads or other improvements, transit facilities, rights of way, air rights or other development rights, naming rights, and infrastructure such as airports, bridges, water facilities, ports, parks and recreational facilities,” the RFQ said.

At this point, the Murphy administration appears to be taking a long-term approach as the RFQ proposes a three-phase evaluation process that would take at least several months to complete. That would bring the initiative’s completion to well after the July 1 start of the state’s next fiscal year, making it unlikely that lawmakers could count on seeing any immediate budget savings from any new asset deals.

Sweeney: ready to cooperate

Still, Sweeney — who has said the state is facing a “fiscal crisis” and is holding town halls around the state to bring attention to the experts’ proposals — praised Treasury for pursuing the asset initiative.

“We look forward to working cooperatively with the Administration to implement the legislation that will be needed to achieve savings,” Sweeney said.

While state assets may produce a windfall for the pension system, they could also generate a boon for any firm that’s selected to serve as the state’s financial advisor. Last year, NJ Spotlight reported that Bank of America was paid nearly $34 million in consulting fees after it was picked by the Christie administration to lead the 2017 Lottery transfer effort. The payment is believed to have set a record for such outside work.