Source: ALEC, Unaccountable and Unaffordable, 2018
Source: ALEC, Unaccountable and Unaffordable, 2018
State Budgets

A Spark of Hope for New Jersey’s Growing Debt Problem

New Jersey may soon turn a corner in pension and financial liabilities reform. Last week, State Senate President Stephen Sweeney introduced legislation to tackle rising costs for public worker pensions and other post-employment benefits (OPEB).

This proposal is set to contribute $3.2 billion to public pensions this year by 2023. The pension system will switch to a mix of defined benefit and defined contribution plans for all new government employees and those with fewer than five years of service.

Senate President Sweeney will also look to fold the School Employees Health Benefits Plan into the State Health Benefits Plan, among other reforms as well.

New Jersey has some of the worst funded pension and OPEB plans in the country. The ALEC Unaccountable and Unaffordable 2018 report found New Jersey had $26,174 in unfunded public pension liability per capita – the ninth-highest in the nation (see figure below).

Source: ALEC, Unaccountable and Unaffordable, 2018

New Jersey also has dangerously low pension and OPEB funding ratios. Funding ratios are important indicators of the health of pension and OPEB plans. The higher the funding ratio, the better able a pension or OPEB plan can withstand periodic economic shocks without placing future benefits at risk.

The ALEC research found New Jersey’s pension funding ratio is only 27.48 percent – 46th in the nation – and New Jersey’s OPEB funding ratio is a shocking 0 percent.

To make matters worse, New Jersey’s unfunded pension liabilities are currently 39.84 percent of its gross state product (GSP) and growing. This statistic looks at a state’s debt relative to what it produces in a given year. The higher the percentage, the more difficult it is for a state to pay its debt.

Despite these enormous obstacles, there is still hope for New Jersey. Reforming pensions and OPEB liabilities represent a good start. On Twitter, Senator Sweeney and Path to Progress New Jersey mention New Jersey’s need for a “hard and honest conversation” about the fiscal of New Jersey.

So long as there are those willing to have “hard and honest conversations” about unfunded liabilities, there is hope for reform.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth