New Jersey appears in good financial condition, having received $9 billion of federal aid over three rounds, tax collection receipts came in above projections, the state made its first full pension contribution in decades and rating agency feedback is favorable.
Yet the positive news of late could merely be hiding warning signs of another fiscal cliff, critics say.
A
“Look, this isn’t the first report of its kind,” Thomas Kean, the state's Republican governor from 1982 to 1990, said at a press conference promoting the new study, “Toward a Fiscally Sustainable New Jersey: Analysis and Recommendations,” by Thomas Healey and Thad Calabrese.
It dovetails on the State Budget Crisis Task Force
Kean, the face of the old TV tourism campaign, “New Jersey and you: perfect together,” finds the state’s fiscal picture today not so perfect.
“For too long we’ve been putting off debts,” he said. “We’ve been passing bonds without any recommendations as to how the state and its children are going to pay off those particular bonds.”
Lawmakers in June earmarked $2.5 billion to pay down debt. Two GOP lawmakers, Sen. Steven Oroho of Franklin and Assemblyman Hal Wirths of Wantage Township, have
“Pension debt that could have been retired is causing the state to miss out on investment opportunities,” they wrote.
The lingering pandemic, meanwhile, poses as a huge variable. “We don’t know what the final impacts of COVID-19 will be,” said Regina Egea, GSI president and chief of staff under former Republican Gov. Chris Christie.
Healey and Calabrese called for holding the line on taxes; overhauling the public pension and healthcare systems; covering an estimated $50 billion infrastructure need over the next decade with better cost efficiencies; and balancing the budget with long-term sustainable revenues.
Healey is the founder and managing partner of Healey Development LLC and senior fellow at Harvard University’s John F. Kennedy School of Government. Calabrese is an associate professor of public and nonprofit financial management at New York University’s Wagner Graduate School of Public Service.
In key performance indicators that rank the states according to U.S. News and World Report, New Jersey ranked 49th in credit ratings, fiscal stability and pension deficit by percentage of liabilities, and also in the bottom five in unemployment, property tax rate and personal income tax rate.
A message seeking comment was left with Gov. Phil Murphy’s office.
Murphy, a Democrat running for re-election, still enjoys a 51% to 38% lead in the polls over Republican Jack Ciattarelli ahead of the Nov. 2 election, a recent Monmouth University poll showed.
Improved pension funding prompted S&P Global Ratings and Moody’s Investors Service to boost their outlooks on the state’s general obligation bonds to positive and stable, respectively, the past few months.
S&P rates New Jersey’s BBB-plus, three notches above junk. Moody’s rates the state A3 while Kroll Bond Rating Agency and Fitch Ratings assign A and A-minus, respectively.
New Jersey’s $46.4 billion fiscal 2022 budget included its first full contribution to the pension system in 25 years, $6.9 billion overall.
More work remains on pension liability, the GSI authors said. According to Moody’s, the state’s actual pension contributions have averaged less than 41% of the statutory required contributions in the 10 years through fiscal 2021.
The report suggested raising the benefit-eligible retirement age of public employees and increasing contributions from employees. “Retiree health care programs are also in dire need of change,” the authors said.
Fixing infrastructure and curbing expenses for its upkeep are high priority, according to Calabrese.
“There is money for that does exist for infrastructure,” he said. “One of the real issues is that the state has gotten into a bad habit of using some of this authorized money for capital projects on infrastructure on operating costs.”
Newark’s management of its lead-water crisis through a partnership with Essex County can be a blueprint for older cities.
"We can't get it done without the county and the state government,” Mayor Ras Baraka said on a Volcker Alliance webcast. The city secured a $120 million bond that enabled the city to accelerate the replacement of roughly 22,000 service lines, thanks to the county’s willingness to use its triple-A rating.
“Newark’s partnership with the county is very instructive,” William Glasgall, senior vice president and director of state and local initiatives, said on a
“What we’re seeing now in the spending of ARPA [federal American Rescue Plan Act] money are efforts to create partnerships among states, counties, cities and school districts, all of which are getting separate funding. There’s an opportunity here to eliminate a lot of duplication of effort.”
New Jersey on Oct. 1 will lower its gas tax by 8.3 cents based on a formula indexed to a revenue stream that supports the state’s transportation trust fund program.
“Don't let the decrease fool you. Drivers will pay more in a mileage tax and other Department of Motor Vehicle fees,” said David Fiorenza, a professor at Villanova School of Business.
Joseph Krist, publisher of Muni Credit News, said mileage taxes are probably fairer but political opposition is too great.
“Proponents have to do a better job of addressing concerns about a mileage tax really being just a mechanism to raise revenues above gas tax levels,” he said.
