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.
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 found here contain grades of the state's budgetary practices during the fiscal years of 2016 through 2018. Each state received marks in five critical categories, based on their adherence to best practices in several key budgeting indicators. The five categories covered methods used to achieve budgetary balance as well as how budgets and other financial information are disclosed to the public.
States received grades of A to D-minus (there are no “failed states”) for their procedures in estimating revenues and expenditures; their use of one-time actions to balance budgets; how they oversee and use rainy day funds and other fiscal reserves; the adequacy of their funding of public worker retirement and other postemployment benefits; and the quality of transparency of budget and related financial information. The grades are based on research conducted by public finance and budgeting professors and students at eight US schools of public administration or policy. The universities’ research efforts were augmented by Volcker Alliance staff, data consultants at Municipal Market Analytics, and special project consultants Katherine Barrett and Richard Greene.
State Budget Sources
State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses is a resource published by the Volcker Alliance designed to help public officials, policy advocates, journalists, academics, and concerned citizens fully understand the critical fiscal decisions that governors and legislators must make. The guide includes the links below to budgets for this state as well as legislative analyses of budget bills and treasurers’ or comptrollers’ monthly state cash-flow statements; capital spending plans; reports on public-worker pension funding and returns; and reports by local and national fiscal research organizations, bond rating firms, and associations of state fiscal and finance officials.