A high-ranking New Jersey state lawmaker is raising the red flag about the state’s financial situation, expressing grave concern about how its unfunded pension and health care liabilities could consume future state spending.
Moody’s Investors Service said in its review of the state this month that New Jersey’s “wealthy economy” was “offset by significant long-term liabilities and the multi-year burden of rapidly-rising pension contributions,” resulting from “significant historic pension underfunding.”
During an interview with Bloomberg, New Jersey Senate President Stephen Sweeney said the state was in “worse shape than Illinois.” The Land of Lincoln regularly finishes at the bottom of the fiscal rankings of states.
Sweeney’s office told FOX Business that the fiscal situation is worsening as a result of pension obligations. The current budget funds just 70 percent of required actuarial contributions.
Pension contributions will grow on average $820 million annually through fiscal 2023, according to Moody’s. Meanwhile, the cost of employee and retiree health benefits will go up another $700 million during the same timeframe.
If no action is taken to reduce pension and benefit costs, the state could face a $4 billion budget deficit in four years.
The only states that compare to New Jersey in terms of unfunded pension obligations are Illinois and Kentucky, Sweeney’s office said.
By 2023, pension and health benefits will consume 25 percent of the budget. Adding in the 10 percent that will need to be allocated toward debt services, Sweeney believes the state doesn’t have much leeway to spend on other priorities.
According to estimates from Sweeney’s office, schools are underfunded by $1.3 billion.
The Garden State is also contending with a loss in tax revenue as wealthy residents flee the high-tax state to lower state and local tax obligations. The state has the highest property taxes in the country.
In order to address the state’s pension crisis, Democrats want to shift new state and local government employees to a hybrid system, while limiting eligibility for health care benefits – among other things.
New Jersey has the second-lowest bond rating, just ahead of Illinois. It was listed alongside Illinois as the two states least able to cope with a moderate economic recession by Moody’s in June.
New Jersey isn’t alone in battling unfunded pension liabilities. According to data from The Pew Charitable Trusts, no state pension was fully funded as of 2016.