TRENTON — Launching lawmakers into last-minute debate prior to the close of an otherwise subdued budget season, Assembly Democrats introduced and voted up a resolution at their session today that urges Gov. Chris Christie to make a an upfront $1.3 billion pension payment at the start of the coming fiscal year.
Leaders in the Senate and Assembly authored the surprise concurrent resolution (ACR244) this morning, announcing the measure in a press release prior to voting sessions in both houses. The measure calls on Christie to use the state’s line of credit to make that payment sooner than later — in July of this year rather than June of next year — in order to save some $90 million in additional investment income for the pension system.
It also comes as budget negotiations in the legislature wind down, with the current fiscal year ending tomorrow night.
At their 11 a.m. hearing, which was expected to see little more than the passage of a modified increase on the state Earned Income Tax Credit, the resolution fueled 11th hour debate over the budget, focusing largely on the $1.3 billion pension payment included in the $33.8 billion budget Christie signed last week. Lawmakers argued over the fiscal and economic merits of making that payment sooner, which would force the state to borrow more money now, rather than later, as is custom.
The debate also offered certain glimpses into the overall divisions among Republican and Democrats on the state’s fiscal future, with members of the former party opting for fiscal restraint and responsibility.
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Democrats, who saw their efforts to put up a full $3.1 billion pension payment for the coming fiscal year stonewalled by Christie last week, said the measure is in line with their continued promise to the state’s public labor workers.
“We presented the governor with a fiscally responsible budget that fully funded our obligation, but he instead chose a different course that will lead to more credit downgrades, increase state debt and hurt our economy,” said Assembly Speaker Vinnie Prieto (D-32), one of the resolution’s sponsors.
“The only way this payment would be a loss is if the market dives and never comes back,” said Assembly Majority Leader Lou Greenwald (D-6) on the floor of the Assembly.
Democratic sponsors of the bill, including Prieto but also Senate President Steve Sweeney (D-3), say that the upfront payment would help assuage the retirement fund’s fiscal squeeze, which involves some $80 billion in unfunded liabilities. They say tapping the state’s line of credit to make the $1.3 billion pension payment early next month rather than waiting until next June is simply an extension of normal state Treasury practices — and that each year, the state borrows about $2.5 billion in July to cover an annual cash flow shortfall, and the cost of the interest payments is included in each year’s budget.
The State Investment Council has projected that the state’s pension system will earn a 7% return on investment in the upcoming fiscal year, which would project out to $87 million in additional investment income over 11 ½ months. If the pension system earns the 7.9% rate of return built into the state’s actuarial projections, the additional investment income would be $98 million for that period, they said.
But Republicans in the Assembly today expressed skepticism over the veracity of those estimates, wondering aloud whether an upfront payment might cost the state more than it saves, or how it might affect the state’s already floundering credit rating. Some argued that it would be more fiscally prudent to wait for projected taxes revenues to come in before funding the payment, while others slammed the surprise nature of the measure’s introduction, which they said was dropped by Democrats prior to the voting session with little notice.
Several Republicans at one point motioned to table the measure in favor of gleaning more information from the State Treasurer, though the Democratic majority easily defeated the move.
“Keep in mind that this resolution did not come through a committee,” said Assembly Minority Leader Jon Bramnick (R-21), who sparred with Assembly Budget Officer Gary Schaer (D-36) over what savings an upfront payment might have. “This was, I am assuming, a last minute idea to borrow money. We did not ask to have this rushed through on the morning or afternoon of the budget.”
“One thing that should have been embarrassingly clear from today’s debate is that the Democrats didn’t do their homework on this idea,” said Assemblyman Declan O’Scanlon (R-13) in a statement following the vote. “The fact that the Democrats didn’t reach out to the treasurer to discuss the dynamics and ramifications of such a move make it abundantly clear that this is all about politics and nothing at all to do with thoughtful policy. It is outrageously irresponsible not to have done that essential homework.”
Still, others supported the potential to shore up the system and save taxpayer money in the short term — but stressed that such efforts must also be coupled with other, long-term reforms to the system. Republicans want Democrats to join them in working on a second overhaul to the fund, incorporating recommendations put forth by the governor’s bi-partisan pension commission.
“This has to be part of a larger solution. Not how do we get to FY2016, but how are we going to do this for our kids,” added Assemblyman Jay Webber (R-26), who said he would abstain from a vote on the issue.
Ultimately, the resolution passed 45-6-18 in the Assembly; it later passed in the Senate as well.
“Democrats are coming to the table time and time again with responsible ideas,” Greenwald said in an earlier statement. “This plan gets us closer to our goal of fully funding the pensions, all within normal fiscal practices, and in the end will result in real savings for taxpayers.”