Buoyed earlier this year by a major tax-revenue windfall, New Jersey set aside billions of dollars to pay down debt and budgeted for its first full pension payment in more than two decades.
There was also enough money in the budget enacted by Gov. Phil Murphy and lawmakers in late June to fund a set of entirely new tax-relief initiatives while also making existing relief programs more generous.
Yet despite the recent fiscal progress, New Jersey continues to carry one of the worst credit ratings among U.S. states. And concerns about taxes — including sky-high property-tax bills — remain a perennial issue.
NJ Spotlight News is taking a closer look at some of the ways Murphy, a first-term Democrat now seeking reelection, has sought to address New Jersey’s many challenges. Today’s installment examines his approach to the state pension system, debt and related fiscal issues. Future stories will look at the state’s credit rating and taxes. Other issues will include public education, social justice, the environment as well as health care and COVID-19.
Pension funding: Like many of his predecessors, Murphy added to the state’s significant public-worker pension debt by failing at first to budget enough money for what actuaries would consider to be the full annual employer pension contribution. But Murphy did stick to a pension-funding ramp-up schedule established by predecessor Chris Christie, and the current state budget earmarks nearly $7 billion for the pension system, making it the state’s first full employer pension contribution in more than two decades.
Despite hitting that pension-funding milestone — and doing so one year ahead of Christie’s schedule — there’s no detailed plan for coming up with the revenue that will be needed to maintain full pension funding beyond the current fiscal year. And so far, Murphy has resisted bipartisan calls to enact a new round of worker-benefit changes that could make it easier on taxpayers as the state seeks to maintain full pension funding.
State debt: New Jersey is one of the nation’s most indebted states, but during Murphy’s first few years in office, the state saw its total for bonded debt drop slightly as the rate of new borrowing slowed compared to the final years of the Christie administration. The recent ramp-up in state pension funding has also begun to whittle away at New Jersey’s significant pension debt.
But last year, Murphy and lawmakers agreed to issue nearly $4 billion in long-term debt without voter approval in response to the administration’s fears that the pandemic would trigger deep revenue losses. While those losses never materialized, taxpayers remain on the hook for the full principal and interest costs because the borrowing was structured in a way that prevents early repayment. Republicans have also raised concerns in more recent weeks about the Murphy administration’s delay in using a special fund established several months ago to help pay off the state’s debt.
Budget reserves: Maintaining an adequate surplus and stashing sufficient money in the state’s rainy-day fund are often overlooked as top fiscal priorities. They are tools that New Jersey policymakers can use to make sure the annual budget isn’t thrown into upheaval if revenues decline or unanticipated spending needs emerge, such as during the onset of the coronavirus pandemic last year. Soon after taking office, Murphy pushed to pad the state’s surplus account. In 2019, his administration also made the first deposit into the state’s rainy-day fund — which is supposed to only be tapped during major emergencies — in roughly a decade.
However, the state’s improved budget reserves were still no match for the revenue losses and spending needs triggered by the pandemic, and Murphy was forced to freeze about $1 billion in spending as a result. Property-tax rebates for seniors and people with disabilities were among the budget casualties. Meanwhile, after a huge revenue windfall was amassed during the final months of the last fiscal year, Murphy and lawmakers still spent down the balance of the rainy-day fund as part of their election-year budget, leaving that emergency account once again completely dry. They did set aside a little over $2 billion in the unrestricted surplus account.
Revenue forecasting: Throughout his two terms in office, Democrats who control both houses of the Legislature pressed Christie, a Republican, to make a series of budget reforms that included changing the way the state forecasts revenue for the annual budget. Those efforts came after Christie was accused of overstating revenue estimates, including to establish a basis for cutting state taxes. More recently, the Murphy administration has also seen its own revenue forecasts questioned, including amid the pandemic.
Lawmakers have for years backed legislation seeking to overhaul New Jersey’s revenue-forecasting process, now dominated by the governor’s office and its appointees. Lawmakers held up as an example a consensus-forecasting model that’s been used in dozens of other states. That model gives lawmakers a bigger role, and it also involves taking input from outside state government as the forecast comes together, all to improve accuracy. But so far, Murphy has declined to embrace the consensus forecasting option.
Find complete NJ Spotlight News election coverage here.