New Jersey’s escalating pension burden threatens to derail future budget plans, a report said.

The report released by the conservative-leaning Manhattan Institute for Policy Research Thursday said incoming Democratic governor Phil Murphy may not have much time to fix a pension system that is projected to take on debt for at least five more years.

Manhattan Institute senior fellows Steven Malanga and Josh McGee noted that the cost of fixing the state’s pension system, worst-funded in the nation according to Pew Charitable Trusts, could consume virtually any new tax revenues Murphy creates and leave little budget flexibility for other spending.

“New Jersey’s pension system may have already reached an unfixable tipping point,” said Malanga and McGee in the 16-page report. “The system is now missing so much money that even when it achieves its investment goals, it falls far short of the money it needs to remain solvent over time.”

Malanga and McGee noted that recent data from S&P Global Ratings estimated that New Jersey’s net pension liability—the amount owed to workers and retirees in excess of its assets--- numbered $124 billion putting the state’s funding status at just 30% of the money needed to pay future obligations. Legislation signed by Gov. Chris Christie last year that steers New Jersey Lottery revenues toward pension funding for the next 30 years is not a workable fix, according to Malanga and McGee.

“New Jersey’s pension system remains so steeply underfunded that the annual contribution necessary to begin reducing the unfunded liability dwarfs the revenues generated by the lottery,” the report says. “Lottery profits constitute only about one-fifth of what New Jersey needs to contribute annually and the state would need to maintain that required level of contributions for 30 years.”

Murphy, who takes office on Jan. 16, pledged during last year’s gubernatorial campaign to fulfill commitments to the pension system, but has not indicated specific funding plans. The Manhattan Institute report notes that the incoming governor, who has proposed $1.3 billion in new taxes, has also not pledged to seek further cost-saving measures similar to 2014 recommendations outlined by the New Jersey Pension and Health Benefit Study Commission that included shifting workers from defined-benefit to cash-balance plans.

“Absent some unexpectedly robust acceleration of the economy, it is highly unlikely that New Jersey will generate enough new revenues to meet its pension commitments without severely hobbling the rest of the state’s budget,” said Malanga and McGee. “At the same time, allowing its pension system to continue to accumulate debt by not contributing adequately to it will push New Jersey toward a potentially catastrophic failure of its government pensions.”

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