New Jersey 'Path to Progress' plan touted as boost to low bond rating

NEW BRUNSWICK, N.J. — New Jersey Senate President Steve Sweeney says the state needs to move forward with a proposed pension and health benefits overhaul to protect its bond ratings.

The proposals outlined in an August 2018 “Path to Progress” report aimed at combating New Jersey’s escalating pension and benefit costs are necessary to re-establish high bond ratings for the state, Sweeney, D-Gloucester, said at the Garden State Initiative’s second Annual Economic Policy Forum Thursday at Rutgers University in New Brunswick. Sweeney noted that lower-rated general obligation debt was a big factor in forcing the state last year to cut a planned $1 billion educational bond referendum for school security and vocational training upgrades in half.

“If the state can’t borrow a billion dollars without receiving a downgrade ... time for a new system,” Sweeney said. “We are not going to get a rating upgrade until we fix it.”

Some of the core recommendations in Path to Progress include creating a hybrid pension plan, merging the high-cost School Employees Health Benefits Plan into the lower-cost State Health Benefits Plan and shifting employee healthcare coverage from Platinum to Gold level plans. The report, which was crafted by the bipartisan Economic and Fiscal Policy Workgroup, also suggested exploring the feasibility of transferring assets such as the New Jersey Turnpike system to the state pension system as a way of lower a heavy unfunded liability burden.

Gov. Phil Murphy budgeted $3.8 billion toward pensions in his proposed $38.6 billion 2020 fiscal year spending plan, which which would mark a 10% increase and put the state at 70% of the actuarially determined contribution. The state’s pension system is pace to be at a full ADC funding level in 2023, but is only at a 38.4% funded ratio, according to a May 7 S&P Global Ratings report affirming the state’s GO bonds at A-minus with a stable outlook.

“The state's pension system remains among the worst funded in the nation and a primary reason why our GO rating on New Jersey is the second-lowest of all the states,” S&P analyst David Hitchcock wrote in his report. “The state's high costs and need to increase pension funding limits its ability to pursue major new spending initiatives.”

New Jersey’s debt is rated A3 by Moody’s Investors Service and A by Fitch Ratings and Kroll Bond Rating Agency. Only Illinois bonds are rated lower.

Sweeney noted that neighboring Pennsylvania recently changed its pension system to a hybrid model with little to no resistance from public sector unions. He credited Pennsylvania unions for recognizing that the status quo was not sustainable and stressed that New Jersey needs to also be receptive to major changes because of high tax burden to fund an estimated $115 billion in pension liabilities.

“You can’t raise taxes like we have in the past,” Sweeney said. “We need to cut taxes.”

Regina Egea, president of GSI, a business-oriented policy group, noted a recent survey by New Jersey CPAs found that 75% of them had advised some clients to relocate their homes or their businesses outside of the state because of a high tax burden. She said proposals like those in Path to Progress have to be explored in order to assure New Jersey can stay competitive with other states in the region.

“The Path to Progress report is the product of thorough research and clear thinking to recommend the types of reforms to make New Jersey more affordable for residents and businesses alike,” Egea said. “If we don’t make progress on the fiscal problems that confront the state, everyone will suffer the consequences.”