NJ gas tax could be used to prop up public pension system
In a roundabout way, revenues from the increased gas tax might help shore up New Jersey’s beleaguered pension funds.
A proposed bill, S2842/A4388, would enable the Transportation Trust Fund to borrow directly from the pension funds, rather than sell bonds to investors. There would be no cap to how much could be borrowed. The pension funds are typically limited to buying 10 percent of any single bond sale.
Senate President Stephen Sweeney, D-Gloucester, said the pension funds would benefit from earning a higher interest rate than they do buying U.S. Treasury bonds. And the TTF would avoid paying the fees normally associated with a bond sale, Sweeney said.
“Why are we giving fees to Wall Street? Why are we letting other people make interest off of us when we have a pension fund that is woefully underfunded?” Sweeney said.
Sweeney estimated the impact by talking about a hypothetical $1.2 billion in borrowing by the TTF, which he said would cost the TTF $60 million in interest, at an interest rate of 5 percent, and $6 million in underwriting fees to Wall Street.
“The money is there. This is a safe bet. This is not a risk. We don’t want to risk people’s pension funds,” Sweeney said. “Why pay someone else 5 percent when we could pay ourselves?”
The bill wouldn’t require the pension funds to invest in TTF and New Jersey Infrastructure Bank bonds, but it would lift the limits on what the State Investment Council could choose to do. Other types of state debt, such as for school construction, would not be included.
The pension funds had $73 billion in investments as of the end of August. This fiscal year, the state will put close to $2 billion more into the pensions. However, the Department of the Treasury calculates the state’s net pension liability at $79 billion.
“It’s not a lot of money, but every penny you can squeeze is a lot of money to put the pension back into fiscal health,” Sweeney said.
The bill is cosponsored by Sen. Dawn Marie Addiego, R-Burlington, who described the proposal as “lifting the cap on investing in New Jersey.”
“By doing this, we are doing something that people in the private sector wish they could do. We are guaranteeing a rate of return for our pension system while avoiding fees,” Addiego said.
“This is just smart government. Something the taxpayers of this state can appreciate,” she said.
In the Assembly, the bill is being sponsored by Assemblyman Adam Taliaferro, D-Gloucester.
“The bottom line is we should be doing everything we can to help strengthen our pension fund and our Transportation Trust Fund. In this instance, I think we can do both,” Taliaferro said.
Sweeney said he hasn’t spoken about the idea with Gov. Chris Christie.
Sweeney said he’d like the bill to become law before the next time the TTF issues debt.
The TTF financing plan approved in October allows the state to borrow $12 billion over eight years, equal to $1.5 billion annually if divided into equal installments. It also envisions spending $500 million a year directly from the budget, meaning three-quarters of spending would be borrowed.
“We knew we were going to bond some money on the TTF, and this gives us a chance to capture those dollars and not give them to someone else. So we’re actually paying ourselves back,” Sweeney said.
Nonpartisan legislative analysts had projected the payments on each $1.5 billion borrowed would amount to $86 million a year for 31 years. That money would come from the revenues derived from the gas-tax hike of nearly 23 cents a gallon that took effect Nov. 1.