Some New Jersey lawmakers are pitching a proposal to allow the state's Transportation Trust Fund to sell bonds directly to its $73 billion pension system.
The proposed bill, unveiled Thursday by Senate President Steve Sweeney, D-Gloucester, would eliminate regulations that currently limit pension investments to no more than 10% of any single bond issue. The new bipartisan legislation, which is sponsored by Sweeney, State Sen. Dawn Addiego, R-Burlington, and Assemblyman Adam Taliaferro, D- Gloucester, would lift this restriction for transportation bond sales.
"This would offer an investment strategy that is mutually beneficial for New Jersey's underfunded pension system and for the Transportation Trust Fund," said Sweeney in a statement. "It would enable the TTF to borrow directly from the state pension fund, providing a guaranteed rate of return much better than the pension system is currently earning on portions of its investments."
This summer, when lawmakers could not agree with Gov. Chris Christie on an extension of TTF legislation, the fund ran out of new cash and the governor ordered a shutdown of projects that it funds.
The Republican governor forged an agreement in October with the legislature's Democratic majorities to replenish the fund at $2 billion annually for eight years by raising the state's gas tax by 23 cents a gallon. The $16 billion transportation plan includes $12 billion in borrowing.
Sweeney said his proposal would allow the transportation fund to pay up to 5% interest to the pension fund, creating a "reliable and positive return" for a system that lost 1% on its overall investments last year.
He said the state would also save money on bond underwriting fees that now average 0.5%.
Janney Capital Markets director Eric Kazatsky said the New Jersey proposal is "unique" and could prove to be an effective method of alleviating investment risks from a state's pension system.
"It locks in a return from a known entity," said Kazatsky. "If everything goes well perhaps it will be a framework for large borrowers to lock in a known return."
Neither New Jersey's bonds or pensions have fared well in recent years.
The Garden State entered 2016 with $40 billion in pension liabilities, according to Moody's Investors Service.
The underfunded pension system is a major factor in the 10 rating downgrades of New Jersey since Christie took office in 2010.
The most recent is a one notch drop by S&P Global Ratings on Nov. 14 to A-minus.
The state's general obligation bonds are rated A2 by Moody's, A by Fitch Ratings and A by Kroll Bond Rating Agency.
"Allowing the TTF to borrow directly from the pension fund is a smart move that guarantees a rate of return while helping to support the infrastructure work that is so important to our economy," Addiego said in a statement.
Christie press secretary Brian Murray said the governor won't comment on the latest proposal until there is a final bill submitted.
