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  #11  
Old 12-18-2017, 04:35 PM
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Mary Pat Campbell
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https://www.moodys.com/research/Mood...--PR_904391328

Quote:
Rating Action: Moody's assigns Baa1 to $175M of New Jersey's appropriation bonds; outlook stable
Spoiler:
Global Credit Research - 14 Dec 2017
New York, December 14, 2017 -- Moody's Investors Services has assigned a Baa1 to New Jersey's $175 million State Contract Refunding Bonds (Hospital Asset Transformation Program), Series 2017 issued by the New Jersey Health Care Facilities Financing Authority. The outlook is stable.

RATINGS RATIONALE

The Baa1 is notched off the state's A3 GO rating, reflecting the need for annual legislative appropriation of state contract payments backing the bonds. A large majority of the state's net tax-supported debt is subject to appropriation, and the importance of maintaining access to the capital markets provides strong incentive for the state to make these appropriations.

New Jersey's A3 rating primarily reflects its significant pension underfunding, large and rising long-term liabilities, a persistent 11% structural budget imbalance, and weak 1.3% fund balances. Despite large increases in pension contributions since 2012, the state's contributions remain well below actuarial recommendations. Moreover, tax cuts enacted in January 2017 and a reliance on optimistic revenue growth assumptions to balance the budget may make it harder for the state to keep pace with its statutory pension contribution schedule. The state nevertheless benefits from a diverse economy and high wealth, as well as the governor's broad powers to reduce expenditures.

RATING OUTLOOK

The stable outlook reflects our view that the current A3 rating is well positioned for the next 12-18 months due to solid economic performance and the expectation that any fiscal 2018 budget gaps will remain manageable. However, in the longer term, the state's credit profile will continue to weaken as large long-term liabilities grow and the state's budget is challenged by growing pension contributions in a low revenue growth environment.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Increased pension contributions, far greater than the current 1/10 plan, that stabilize growth in the Adjusted Net Pension Liability (ANPL)

- Near-term reduction in structural imbalance through sustainable budget improvements

- Sustained improvement in budgetary balances and liquidity

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Indications that low revenue growth or high cost growth will make the 1/10 pension contribution increases unaffordable and heighten the risk of additional underfunding

- Increase in structural imbalance

- Reduced liquidity levels and/or increased liquidity support (cash-flow borrowing and other cash management tactics)

- A significant increase in unfunded pension liabilities, for example due to weak investment returns

LEGAL SECURITY

BONDS SECURED BY STATE CONTRACT PAYMENTS

The bonds are payable solely from anticipated state contract payments to be made by the State of New Jersey directly to the trustee. The state's contract payment obligation is absolute and unconditional once the legislature has appropriated sufficient funds for debt service each year.

In the event of a failure by the legislature to appropriate sufficient funds for debt service, there are no substantive remedies available to the authority or to bondholders, and there is no debt service reserve fund associated with the bonds. However, debt service payment dates on October 1 and April 1 mitigate potential risk that might arise from a delay in annual budget adoption. In addition, approximately 84% of New Jersey's net tax-supported debt is subject to appropriation. The importance of maintaining access to the capital markets provides strong incentive for the state to make these appropriations.

USE OF PROCEEDS

Bond proceeds will refund outstanding bonds for net present value savings with no extension of maturity.
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  #12  
Old 01-06-2018, 05:39 PM
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https://www.wsj.com/articles/new-jer...are-1515192882

Quote:
New Jersey’s Liberal New Governor Faces a Fiscal Nightmare
Raising taxes will be even harder now that Congress has limited the state and local tax deduction.

Spoiler:
Democrat Phil Murphy cruised to victory in New Jersey’s gubernatorial race in November. The state’s powerful public-sector unions, which endorsed his progressive vision of higher taxes and more spending, played a pivotal role in his 14-point victory. Now the hard part begins.

As he takes office later this month, Mr. Murphy must confront the state’s biggest problem—a pension system that is about $90 billion short of what it needs to pay future benefits. He has already promised to devote some of the new revenue from his proposed taxes to pensions, but he can’t fully shore up the system without benefit reductions. And the unions that supported him have fiercely resisted such cuts. Can a progressive Democrat elected with the help of unions govern responsibly in an age of exploding public-employee costs and limited tax resources?

New Jersey’s Liberal New Governor Faces a Fiscal Nightmare
PHOTO: ISTOCK/GETTY IMAGES
New Jersey’s pension woes aren’t new. A succession of governors and legislatures enhanced worker benefits without properly accounting for their costs. In 2010 the Securities and Exchange Commission cited the state for fraud because of the way it misled investors about its retirement system’s funding problems. It was the first state to earn this dubious distinction.

The state’s powerful unions have played such a key role in the crisis that even some Democrats lost patience. In 2010 state Senate President Stephen Sweeney, a Democrat, described how unions had consistently pressured legislators for higher benefits while ignoring the system’s funding problems. “The union leaders need to take off their blinders and stop ignoring their own complicity in this problem,” he wrote.

The following year Gov. Chris Christie and a bipartisan group of legislators enacted reforms that rolled back some benefit increases for employees and retirees. But the group’s optimistic assumptions of how much the state would save didn’t pan out. The state government also had trouble keeping up with the increased contributions mandated by the reform legislation, thanks to weak growth in tax revenue.

Trenton has since set out a new plan that dedicates $1 billion a year from the state lottery to pensions. But even with the lottery cash, the state must contribute an additional $5 billion a year of taxpayer money to save the system.

That’s much more than New Jersey—which has never paid more than $1.9 billion a year from tax revenue into its retirement system—can afford. The state, which will collect some $35 billion in taxes this year, now says it will gradually increase pension contributions until they reach an adequate level in 2023. But it’s hard to see how Trenton can get there without wrecking its budget.

Even if New Jerseys’s tax collections grow by the same rate as in the past five years—the current recovery’s most robust—pension contributions alone would eat up two-thirds of new revenue. According to calculations I’ve outlined in a forthcoming Manhattan Institute report, “Garden State Crowd-Out,” this would leave little room to pay for increases in other budget items. Meanwhile, Trenton must also replace the $1 billion in lottery revenue previously used to fund other budgetary programs.

The whole scenario is overly optimistic, because the nation is already in the ninth year of an expansion. The Rockefeller Institute of Government recently reported that state and local tax collections are slowing around the country. If the country faced even a mild recession sometime in the next several years, New Jersey’s prospects for bailing out the system would become even more remote. Moody’s concluded in October that a recession would harm New Jersey more than most states, causing a $3.5 billion hit to its budget.

Mr. Murphy ran pledging $1.3 billion in new taxes, targeting the rich in a state with one of the country's highest tax burdens. Some Democratic legislators already have balked at the proposed levies, given Congress’s imposition of a limit on the state and local tax deduction. But even assuming all of the governor-elect’s proposed taxes make it into law, much of the new revenue would quickly disappear into Mr. Murphy’s newly proposed spending programs. The relentless rise of pension and employee-benefit costs and the need to replace lottery revenue would only make the situation tougher.

Yet continuing to shortchange the system is untenable. The bipartisan New Jersey Pension and Health Benefits Study Commission last month warned of the unprecedented risks the Garden State faces if the system continues to deteriorate. The commission has proposed reforms that would save the system by moving workers out of their defined-benefit plan and into individual retirement accounts similar to 401(k) plans. It also proposed reducing state employees’ health-care benefits to the same level private-economy workers enjoy. The savings would be redirected into the pension system.

Unions vigorously fought the new plan in the hopes they could help elect the next governor. They succeeded. What happens next will determine who really runs the Garden State.

Mr. Malanga is a fellow at the Manhattan Institute and a senior editor for City Journal.
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  #13  
Old 01-08-2018, 07:55 PM
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Mary Pat Campbell
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http://www.pionline.com/article/2018...ng-nj-governor

Quote:
Fiscal woes greeting N.J. governor

Spoiler:
New Jersey's Republican state treasurer sharply reduced the New Jersey Pension Fund's assumed rate of return, producing a financial and political dilemma for Gov.-elect Phil Murphy, a Democrat, who will be sworn in later this month.

Last month, Treasurer Ford Scudder announced a cut in the assumed rate of return to 7% from 7.65% for the fiscal year that starts July 1, the second rate cut in 12 months. Last February, he reduced the rate to 7.65% from 7.9% for the current fiscal year.

The lower rate means cash-strapped municipalities and the state must raise more money to feed the severely underfunded New Jersey Pension Fund. Mr. Murphy will be hard-pressed to find politically palatable and sufficient additional revenue sources, even from a Democratic Party-controlled state Senate and Assembly.

RELATED COVERAGE
NASRA says N.J. reduction has companyU.S. equities approaching their ceiling; credit and emerging markets have some roomNew Jersey lowers assumed rate of return to 7%Chris Christie formally proposes legislation to use N.J. lottery to pump up pension fund
As of July 1, the funding ratio ​ was 59.3%, according to the state Treasury Department. This statutory funding status includes the estimated present value of the state lottery. Last year, Gov. Chris Christie signed a law making the lottery an asset of the pension fund, using the proceeds to cover part of the state's pension contribution.

Pension experts say the 7% assumed return figure represents a more realistic rate given forecasts for lower stock market gains and modest interest rate increases. They also said the size of the cuts within the time frame is unusual.

"It's pretty dramatic," said Richard Keevey, a lecturer at the Woodrow Wilson School, Princeton University, and a senior policy fellow at the Bloustein School of Public Planning and Policy at Rutgers University. "I would have been inclined to reduce it over time." Mr. Keevey is a former New Jersey state budget director and comptroller.

"It is significant, but we are getting realistic," said Thomas Brendan Byrne Jr., chairman of the State Investment Council, which develops policies for the Treasury Department's division of investment to manage the pension fund's investments. The Trenton-based fund has $76.6 billion in assets.

"Timing aside, the direction is clear," Mr. Byrne said. "Experts say stocks will return to single-digit gains and long-term interest rates will stay low. We can't bet the ranch on stocks."

The New Jersey Pension Fund produced a 13.07% return for the fiscal year ended June 30. The annualized return for the past three fiscal years was 5.25%; for five years, 8.75%; and for 10 years, 5.55%.

Political overtones
Some observers of New Jersey government said the rate reduction appears to have had some political overtones.

Marc Pfeiffer, assistant director, Bloustein Local Government Research Centers, Bloustein School of Planning and Public Policy, Rutgers University, New Brunswick, N.J., said the rate reduction can be seen "as a parting shot" by Mr. Christie toward his successor.

"Murphy has some very challenging decisions ahead in regard to pension funding," Mr. Pfeiffer said.

The governor-elect last month, through a spokesman, attacked the decision to lower the assumed rate of return. The spokesman, Dan Bryan, described the move as "playing politics" by "rushing this decision at the 11th hour."

In a prepared statement, Mr. Bryan said such a "significant change" should be phased in. "At a time when our taxpayers are already taking a hit, our focus should be on lessening the burden of property taxes, not increasing it," he said.

Mr. Bryan was referring to the impact on municipalities which, according to actuarial reports and the treasurer's office, must come up with an extra $422.5 million in pension fund contributions for the 2019 fiscal year under the 7% rate. By law, they must contribute 100% of their actuarially required contribution, and they don't have many choices for raising revenue.

"The change in the assumed rate of return has made budgeting more difficult at the state and local levels," said Lisa Washburn, a Summit, N.J.-based managing director for Municipal Market Analytics, a research firm.

Tax tension
In New Jersey, "the No. 1 anger point is local real estate taxes," said Thomas J. Healey, chairman of the New Jersey Pension and Health Benefit Study Commission, noting local governments have few revenue-raising choices. "There's not a lot of room or flexibility in the (state) budget."

The goal of the commission, created in 2014, was to make multiple changes in the management of state benefits including reducing health-care expenditures and making revisions to the pension system.

Major pension recommendations from the commission included freezing the New Jersey Pension Fund and creating a cash balance plan for current and future participants. The Legislature didn't act on these suggestions.

Of the seven systems in the New Jersey Pension Fund, two rely on contributions from the state and municipalities — the Public Employees' Retirement System and the Police and Fire Retirement System. These systems plus the Teachers' Pension and Annuity Fund, which relies solely on state contributions, account for about 97.5% of the New Jersey Pension Fund assets.

"After much analysis, the treasurer concluded that the assumed rate of return of 7.65% warranted further reduction," Will Rijksen, a spokesman for Mr. Scudder, wrote in an email on Jan. 2.

Mr. Scudder's decision was based on "Division of Investment internal return assumptions, feedback from the actuaries of the respective retirement systems (and) market return assumptions from external consultants," Mr. Rijksen wrote. The treasurer's analysis also included a "general understanding of market return expectations of external financial professionals and (discussions with) members of the state investment council."

Reducing the return assumption also means the state must contribute more for the next fiscal year. If it were contributing its full actuarially required amount, the extra cost would be $390 million. Because the state is scheduled to pay 60% of the required amount the next fiscal year, it will contribute an extra $234 million under the lower return assumption, Mr. Rijksen wrote.

The state legally doesn't have to make full payments each year — and it doesn't. Over the years, governors have ignored payments, made fractional contributions or cited fiscal crises for last-minute cuts in the state's annual contribution. For the current fiscal year, for example, the $2.5 billion state contribution represents 50% of the actuarially required contribution.

Securing more money to expand the state's contribution will prove tough for Mr. Murphy, who, during his gubernatorial campaign, advocated a tax on the state's wealthiest residents to help pay for improved pension system funding.

However, some legislators have cooled on this idea following the passage of federal tax reform. The federal law affects high-tax states, including New Jersey, because it limits the deduction from federal taxable income of state and local property taxes and sales and state income taxes to $10,000.

Seeking a new tax on wealthy residents losing many federal deductions of state and local taxes will be a tough sell for Mr. Murphy.

"This puts a lot of pressure on the 'millionaires' tax,'" said Mr. Healey.

A 'challenging' increase
The pressure on the state's finances was outlined recently in a report by Moody's Investors Service. If the state sticks to its schedule of raising its annual pension contribution 10 percentage points at a time, "the largest year-over-year increase will be in fiscal 2019 when the combined contribution from the state lottery and the general fund will increase to $3.4 billion," based on the 7% return assumption vs. $2.5 billion for the current fiscal year based on the 7.65% return assumption. The lottery is good for about $1 billion annually of the state's contribution.

"The state's ability to increase its pension contributions on schedule will be critical to reversing its pension cash flow deficit and maintaining a stable credit profile," the Moody's report said.

S&P Global Ratings has a glum view of New Jersey's prospects. "Putting off paying the 100% is putting themselves in a hole for future years," said David Hitchcock, senior director in the U.S. public finance-states group at S&P Global, referring to state payments below the actuarially determined contributions.

Although S&P rates New Jersey's general obligation bonds A minus with a stable outlook, a December report said the state's pension system "remains among the worst funded in the nation and a primary reason why our GO (general obligation) rating on New Jersey is the second lowest of all the states." S&P's analysis doubted the state could raise it contributions to reach full annual pension contributions within five fiscal years.

The size and speed of the New Jersey rate reduction was "unusual, but it's a move in the right direction," said Alicia Munnell, director of the Center for Retirement Research at Boston College, describing as "untenable" the state's pension predicament.

"The problem won't be solved by reducing the assumed rate of return," she added. "New Jersey needs to get everyone to the table, divvy up the pain and reach a solution."


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  #14  
Old 01-16-2018, 01:18 PM
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http://www.nj.com/politics/index.ssf...lenges_re.html

Quote:
N.J. and towns could be slammed by Christie pension move, Trump tax law and more
Spoiler:
Looks like 2018 is going to be a tough year for New Jersey's state and local governments.

A Wall Street agency said Wednesday that New Jersey and its local governments will be fighting pressures on multiple fronts as they grapple with the expiration of a key property tax control, a changing federal tax landscape and rising pension bills.

S&P Global Ratings warned that these three developments, which emerged as Gov.-elect Phil Murphy prepares to take office, risk "potentially straining both state and local budgets."

One, a reduction in the rate of return the state assumes it will make on its pension investments, will jack up state and local employers' recommended contributions to the public pension fund by $813 million next year, as first reported by NJ Advance Media.

These extra dollars going in will be a boost to the grossly underfunded system but pose yet another challenge to already tight state and local budgets.

Christie move boosts NJ pension price tag
Christie move boosts NJ pension price tag

Gov. Chris Christie's administration is reducing the pension fund's assumed rate of return from 7.65 percent to 7 percent.


Gov. Chris Christie's administration cut the assumed rate of return from 7.65 percent to 7 percent, which is in line with other large funds and is a more conservative estimate of what pension investments can achieve over the long term.

Local governments, which by law have to pay the full contribution recommended by actuaries, will have to come up with an additional $422.5 million for the fiscal year that begins in July.


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"How this increase is spread across the more than 1,600 local government employers in the plans remains to be seen, but we anticipate pension costs will materially increase for some issuers," S&P said. "Municipalities and counties can exceed the property tax cap for pension costs, but they must be willing to do so."

Meanwhile, the state's contributions will be largely left to Murphy, who will introduce a proposed budget next month. If he keeps to Christie's payment schedule and kicks in 60 percent of the actuarial recommendation, Murphy will have to find another $234 million in the budget.

The second change, the expiration of a 2 percent cap on the salary increases police and firefighters can win in arbitration, "could cause municipal public safety costs to increase faster than the 2 percent local property tax increase limitation, which still remains in effect," analysts said.

The 2 percent cap expired at the end of December. Local government leaders who favored its extension said these arbitration awards, which are rare, set the tone for and helped keep raises reached through voluntary contract negotiations in check.

Prior to the cap, arbitration awards ranged from 2 percent to nearly 6 percent, according to data from the Public Employment Relations Commission.


Local government budgets are still hemmed in by a 2 percent limit on increases in spending that local government officials say will force them to slash spending or go around the spending cap to increase revenue.

In addition, analysts said, "the effects of federal tax reform will also ripple throughout the state."

S&P warned of a potential influx of reported income and tax payments but of a drop-off in corporate income tax collections as corporations seek to benefit from lower federal corporate tax rates in 2018.

"It might take time to determine what portion of the increased revenue is of a one-time versus an ongoing nature, which will increase forecasting uncertainty in the first half of fiscal 2018," the report said.

"At the local level," S&P cautioned that the $10,000 federal income tax cap on state and local tax deductions could depress home values and sour potential homebuyers.

"This could result in weaker tax bases, higher tax rates, and political resistance to levy increases at the local levels as residents in turn face higher federal and state taxes," the report said.
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