N.J. treasurer:
Don't fix pension by leasing assets

He warned against diverting sale or lease income to funding the state's $100 billion pension liability.

April 12, 2007

By Cynthia Burton, Inquirer Staff Writer

TRENTON - State Treasurer Bradley Abelow said yesterday that he did not want to use proceeds from the proposed lease of state assets like the New Jersey Turnpike or the Garden State Parkway to pay down New Jersey's enormous unfunded pension liability.

But Abelow told reporters that leasing the toll roads to private operators in return for large cash payments - which experts have estimated at anywhere from $12 billion to $38 billion - could help the state out of its fiscal troubles in other areas, thus freeing up money that could be diverted to pension needs.

Abelow spoke after telling the state Senate Budget and Appropriations Committee that the best ways to start reducing the state's unfunded pension liability were "a consistent contribution of cash," improved investment returns from pension assets and continuing efforts aimed at managing the growth of pension liabilities.

New Jersey has a combined $102.8 billion funding gap in its pension and retiree health-benefits programs. Gov. Corzine has talked about leasing the toll roads, and he also has cautioned against using the proceeds for pension purposes.

At an event in Camden yesterday after the committee meeting, Corzine said he did not want to look at "monetizing" state assets as "a way to solve the pensions' problems. But if we pay off all the state debt . . . we'd have more money for pensions and the debt level would be lower."

"Monetizing" assets means squeezing latent income from them by selling or leasing them.

Legislators, during and after the budget committee meeting, said they wanted the state to fully fund its pension obligations but did not specifically discuss how that could happen.

The state's fiscal crisis is the type of emergency in government that helps politicians get voters on board with things they don't really want to do.

Polls show voters don't want to lease the New Jersey Turnpike or the Garden State Parkway. But they also don't want a big tax hike or deep service cuts, which are among the possible alternatives.

Senate Minority Leader Leonard Lance (R., Hunterdon), like the Democrats, said pension obligations must be fully funded, but did not say how.

On the question of issuing bonds based on the sale or lease of assets, Lance said the financial maneuver "should only be used to pay down debt. I have a question as to whether that would occur given the complexion of the Legislature. I am suspicious monetization would be used for other purposes."

State Sen. Steven Sweeney (D., Gloucester), a member of the budget committee, would not directly say whether selling off the highways was the answer to the pension problem. But he compared the state to a family that has a main house and a Shore house and said New Jersey may soon have to make a decision to sell off its "Shore house."

As for fully funding the pension obligations now, he said: "I don't know where the money [would] come from."

The state's huge liability in its worker retirement funds comes from several factors, including its failure to make payments, starting in the 1990s and continuing until last year, when Corzine resumed putting money into the fund. The state has also suffered a decrease in investment earnings and an increase in pension payments to retirees.

It also changed its accounting in a way that has exacerbated the pension problem and confronted a difficult fact of life: Retirees are living longer.

The Senate budget committee convened to clarify questions raised in a recent New York Times article, which indicated the state was not accurately reporting how much money it put into the pensions in recent years. The right number is zero.

But in a bond document, a chart showed that the state had put in more than $500 million, a figure that was not explained in the bond document.

The State Treasurer's Office now says it merely represented a legitimate accounting procedure; it was money the state spends on retiree health benefits but passed through the pension fund. Abelow said that in the future such accountings would be explained with a clear footnote.