Pension payment plan aside, NJ has fiscal issues, report says

Survey of state budgeting practices gives poor grades to NJ on forecasting and more
Credit: (AP Photo/Matt Rourke)
New Jersey State House

New Jersey could improve its budget practices beyond Gov. Phil Murphy’s promise to fully fund the public-worker pension system for the first time in 25 years, according to an in-depth report on state fiscal policies.

The latest installment of the Volcker Alliance’s “Truth and Integrity in State Budgeting” fiscal-policy analysis uses a grading system to indicate which states followed best practices in the wake of the 2007-2009 Great Recession.

The nonpartisan group’s report also reveals the areas where many states strayed from those best practices over a five-year period, and it includes general recommendations on how to make improvements.

On New Jersey’s report card are several poor grades, including in categories related to pension funding and budget forecasting.

Where NJ did better

But New Jersey did fare better in some of the other categories analyzed by the Volcker Alliance, which was founded by the late Paul Volcker, a former Federal Reserve Bank chairman and New Jersey native.

They include budget transparency and the management of reserve funds, according to the report, which was released publicly on Wednesday.

READ: Murphy’s promise of full public-worker pension payment breaks 25 years of underfunding

WATCH: Deep dive into Gov. Murphy’s budget proposal

The Volcker Alliance began analyzing states’ budget policies in 2015, releasing an initial report scrutinizing the fiscal practices of New Jersey, California and Virginia. The analysis was then widened to include other states, with consultants and faculty and staff at numerous universities helping.

The group’s latest report evaluates budget practices in all 50 states between 2015 and 2019, a year period that, for New Jersey, overlapped with the administrations of both Murphy and former Gov. Chris Christie.

For the 50 states as a whole, the new report suggests a sign of encouragement could be found over the years that were studied. The states, as a group, showed “steady increases in their annual grades,” according to the report, which also includes a special section on the measures that states have implemented in response to the economic downturn triggered by the ongoing coronavirus pandemic.

“The report analyzes the budgetary foundation states laid in the five years prior to the pandemic, which directly impacted how well-equipped states were to deal with the fiscal crisis of 2020,” said William Glasgall, the group’s senior vice president and director of state and local initiatives.

Not a single A grade

For its part, New Jersey did not receive an A grades in any of the categories the group evaluated during any of the five years reviewed.

And in the category of legacy costs — which includes things like pension funding — New Jersey received a of D- grade over all five years. Since the group does not issue F grades, a D- is the lowest possible grade a state could get.

Murphy, a first-term Democrat, announced last month that his administration is planning to cover the total cost of making a full state pension contribution during the state’s 2022 fiscal year, which begins on July 1. If Murphy follows through on that promise, it would be the first full pension contribution made by state government since 1996.

The proposed full payment would also set the stage for New Jersey to begin following one of the core policy recommendations listed in the new report’s conclusion. It says states should “consistently make contributions that actuaries recommend for public employee pension and retiree health care benefits.”

Murphy’s budget plan for the 2022 fiscal year would see the state support more than 10% of its proposed annual spending with nonrecurring, or “one-shot,” sources of revenue. Murphy’s spending plan would also continue to divert some funding from its intended purposes, such as by transferring $82 million from the state’s Clean Energy Fund to New Jersey Transit.

New Jersey’s grades

Those same kinds of practices and others that were followed between 2015 and 2019 earned New Jersey a D grade from the Volcker Alliance in the category of budget maneuvers in all but one of the years that were studied.

“To avoid creating long-term structural deficits that burden future budgets, states should pay for expenditures with recurring revenues earned the same year,” the new report recommends. In the category of budget forecasting, New Jersey also consistently was given D grades. The state was flagged in the review for not doing multiyear forecasting either for expenditures or revenues, and for not following a consensus revenue forecasting model as many other states do.

Senate President Steve Sweeney (D-Gloucester) and other lawmakers have introduced legislation in recent years that sought to reform New Jersey’s revenue-forecasting procedures, which currently are heavily dominated by the executive branch. But the Murphy administration has yet to embrace those proposals. .

Last year, it was a forecast generated by the executive branch, since revised, that laid the foundation for nearly $4 billion in COVID-19 emergency borrowing that taxpayers will be paying off with interest over the next decade. Under New Jersey’s current revenue forecasting process, a more sanguine forecast produced by the nonpartisan Office of Legislative Services last year was only advisory in nature and was largely ignored by the administration.

A better way to budget?

“States should adopt binding consensus estimates for revenues and make predictions about both revenues and expenditures for more than the next fiscal year,” according to the report.

“A one-year estimate does little to reveal structural deficits that may burden subsequent budgets,” it continues.

New Jersey maintained B grades in the categories of reserve funds and transparency throughout the five years studied by the Volcker Alliance, including for maintaining a positive reserve fund balance and for putting detailed information online about the state budget and debt.

The nearly $45 billion budget Murphy has proposed for fiscal year 2022 calls for spending down about $4 billion in budget reserves as a one-time source of revenue, but it would also carry more than $2 billion in surplus into fiscal year 2023.

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