New Jersey

State Budget Practice Report Cards and Budget Resource Guide

New Jersey received an average of D-minus in legacy costs for fiscal 2016 through 2018, the lowest mark possible. The grade shows how a precipitous drop in pension funding can compromise a state’s ability to balance its budget and threaten its fiscal sustainability.

New Jersey’s public worker pensions were over 100 percent funded in the first three years of the twenty-first century, partly because of the sale of $2.8 billion in pension obligation bonds in the 1990s. But the state slipped into underfunded territory in fiscal 2004, with a liability of $5.5 billion and a funded ratio of 93 percent. Pension funding slid relentlessly over the next thirteen years. Though New Jersey is one of the nation’s wealthiest states, trailing only Connecticut and New York in personal income per capita, by June 30, 2017, its unfunded pension liability had reached $142.3 billion. That left it with only 35.8 percent of the assets needed to pay promised benefits.

The decline was exacerbated by the state’s chronic underfunding of annual pension contributions and badly timed issuance of the pension bonds, which were sold at an annual interest rate of about 8 percent before the stock market plunge of 2000-02. The rout consumed part of the borrowed cash and left New Jersey to pay about $500 million annually in debt service costs through 2029. 

In the face of its struggle to meet pension obligations, the state has resorted to one-time actions to keep budgets balanced. As a result, New Jersey scored a D average in budget maneuvers. While it did not defer recurring expenditures in 2018, it was one of only two states—alongside Illinois—to use planned asset sales to maintain budgetary balance that year. The 2018 budget included $321 million from the sale of excess broadband capacity, among other scheduled transactions. New Jersey also received a D average in budget forecasting for its lack of consensus revenue estimates and multiyear expenditure and revenue forecasts.

Download Printable State Report Card

To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.

The report cards presented here are taken from the 2018 Volcker Alliance report, Truth and Integrity in State Budgeting: Preventing the Next Fiscal Crisis which proposes a set of best practices for policymakers. For those wishing to gain greater insight into state fiscal issues, the accompanying budget resource guide is derived from the Alliance publication State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses (2016). 

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