As reported by mycentraljersey.com, New Jersey’s new pension reform will save state and local governments millions of dollars now and billions of dollars over the ensuing decades. But then there is the hard part: actually paying the pension contributions for nearly 800,000 state government employees and retirees. Although New Jersey will have to pay less than it would have to without the changes, the state revenues still will have to grow by at least 3 percent a year simply to cover the added costs for increasing payments, a New Jersey Press Media analysis shows.   

Even if state revenues rise by 5 percent a year, state pension contributions still will consume nearly half of that extra revenue. That will put pressure on available funds for aid to schools, worker salaries and a host of social and other programs. Keith Brainard, research director for the National Association of State Retirement Administrators, said New Jersey’s big mistake was abandoning annual required contributions into the pension system in the late 1990s. “Once the money is gone, the revenue stream must be recreated,” he said. “They’ve taken a big step with the reforms, but ultimately they will have to find the money to make the contribution.”

State pension contributions must ramp up to $5 billion a year by fiscal year 2018, even under the new reforms. This year’s $468 million bill will double to $1 billion by next July. Because the state had largely missed its pension payments for more than a decade, the so-called unfunded liability for long-term state workers pensions had grown to $37.1 billion last year, along with a $16.7 billion liability for local government pensions. The annual contribution to meet that bill grew too. 

If the state were to pay all it should into the pension system this fiscal year, which began July 1, it would have to pay $3.3 billion. That’s an impossibly large number that would require widespread layoffs, aid cuts, and tax increases to meet. New Jersey did, however, pass a state law that requires it to pay one-seventh of what it needs this year, and increase that until it reaches the full amount in seven years. So in fiscal year 2016, only four years hence, that means the state will pay $3.4 billion into its pension funds. As if that were not enough, Governor Chris Christie’s proposed transportation infrastructure plan calls for the state to use $605 million in the state budget that year.

If state revenues grow by 5 percent a year, about average in normal times of economic expansion, then those two items alone will take up more than half of expected increase. Should tax revenues slip to 3 percent annually, pension contributions and transportation funding alone would soak up all new revenue. That would leave little or nothing for worker salary increases, aid to schools and municipalities and a host of social programs.