Gov. Phil Murphy’s $45 billion budget outlined on Feb. 23 calls for fully funding the public worker pension fund for the first time since 1996. Should he convince lawmakers to sign off on that measure, the governor would ultimately fulfill a key campaign promise.
The unfunded pension system was the source of 11 credit downgrades under Murphy’s predecessor, Republican Gov. Chris Christie.
For Murphy, S&P Global downgraded New Jersey this past November, citing the infusion of $4 billion in debt on top of the state’s unfunded pension obligations.
The upcoming spending plan calls for $6.4 billion in payments to the pension system, the full amount actuarially recommended for the state. Under the current budget, the state is making $4.7 billion in pension payments, and Murphy’s first enacted budget in 2018 called for $3.2 billion of pension payments through June 30, 2019.
Top lawmakers like Senate President Stephen Sweeney, D-3rd District, have proposed major cuts to the public worker pension system. Sweeney’s “Path to Progress” includes ideas such as the implementation of a 401k-style retirement plan for newer public employees, or a combination of a defined pension system and a 401k plan.
Sweeney has maintained that such proposals could take decades to yield savings, but that they would ultimately shape up the state’s financial picture in the long run.
While those plans have been met with resistance from the governor, the two and Assembly Speaker Craig Coughlin, D-19th District, came to an agreement last year with the state’s largest teacher’s union – the New Jersey Education Association – on health care reforms which they say would save teachers and the school districts hundreds of millions of dollars each year.
Financial analysts have warned that mounting pension costs, nonetheless, could still crowd out spending on other state priorities.
S&P cautioned last year that the state could resort to cutting expenses elsewhere in future budgets in order to pay for the pension costs.