$4.9B public-worker pension payment in budget is not negotiable, Murphy says

Murphy budget address 2020

Gov. Phil Murphy delivers his fiscal year 2021 budget address at Rutgers University's SHI Stadium on Tuesday.Michael Mancuso | NJ Advance Media for NJ.com

Gov. Phil Murphy on Wednesday defended his plan to contribute $4.9 billion to New Jersey’s pension fund for public workers while also borrowing $4 billion to close a projected state budget hole.

Murphy on Tuesday unveiled a revised spending plan for the fiscal year beginning Oct. 1 that, despite upheaval in tax collections caused by the pandemic and economic crises, makes a record payment to the government worker pension fund.

“If the pension payment in the budget is $4.9 billion, then the minimum amount that I’m prepared to make in the final deal is $4.9 billion. Period. There’s no negotiating room,” he told reporters Wednesday at his latest coronavirus briefing in Trenton.

The $4.9 billion proposed payment is 80% of what’s recommended by actuaries to avoid piling on more debt. Murphy has been gradually increasing the size of the contribution each year by one-tenth of what’s recommended by actuaries, and the planned payment has him staying the course in the face of what he’s described as tremendous financial turmoil.

The state hasn’t made a full payment in decades and has, from time to time, skipped it altogether to balance budgets. As of last June, the system had enough assets to cover just 40.4% of what it owes some 800,000 active and retired public workers.

Asked Wednesday if he considered the pension contribution up for negotiation with the state Legislature, whose support he needs to win to pass a budget, the governor said there is no wiggle room.

He then responded forcefully to Republican candidate for governor Jack Ciattarelli, who told the New Jersey Globe on Tuesday it would be better to skip a pension payment than issue debt to fund it.

“At every single level, that is incredibly dumb,” Murphy said.

“That’s exactly what got us into the mess we’re in today that I got elected to fix: When in doubt, let’s figure out how to not make the pension payment and then kick the can down the road, which, by the way, guess what that’s more borrowing at very high rates.”

Ciattarelli is not alone in suggesting the state cut the pension contribution for the sake of reducing any borrowing.

Richard Keevey, budget director under former Govs. Jim Florio, a Democrat, and Tom Kean, a Republican, described the choice as a tradeoff between locking the state into a “hard,” inflexible debt, like bonds, and growing a “soft debt” like the pension payment, which can be massaged or reduced.

But Murphy’s administration has argued that deferring the pension statement could cost the state more than a low-interest loan because the pension fund assumes a 7% rate of return.

“I’m not wild about borrowing, but the borrowing we’re doing that we announced yesterday is probably 2-percent interest rate. That’s about as good as it’s ever going to get,” he said Wednesday.

“I can’t even believe people are raising it,” Murphy continued. “The house is on fire ... Let’s go back to figuring out what we did to start the fire and do it again.”

Ciattarelli, a former state assemblyman who lost the 2017 Republican gubernatorial primary, told NJ Advance Media he considers it “terrible public policy to borrow to make a pension payment.”

“When the governor says that he was brought to Trenton to fix all the errors that past governors have made, it sounds terribly hypocritical. This is the Christie Todd Whitman borrowing scheme on steroids,” he said, referring to the former Republican governor’s notorious zero-coupon pension bond.

Murphy cannot borrow without the approval of a special legislative commission created by the New Jersey COVID-19 Emergency Bond Act, which authorized as much as $9.9 billion in borrowing. The state Supreme Court sided with Murphy in a GOP-led legal challenge to the borrowing. Ciattarelli joined the case as a friend of the court.

Treasury officials say they are still determining whether they will borrow from the Federal Reserve’s low-interest Municipal Liquidity Facility or on the public or private markets.

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Samantha Marcus may be reached at smarcus@njadvancemedia.com.

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