(The Center Square) – New Jersey’s debt obligation grew to more than $200 billion in part because the state Legislature passed a budget reflecting only the current year’s policy priorities, pension and benefit obligations before moving on to the next crisis, the director of a public policy center said.
In the state Treasury Department Fiscal Year 2021 Debt Report released July 1, state debt obligations grew from $204 million to $248 million from June 30 of 2020 to a year later.
“The overwhelming share of this debt is tied to public employee pensions and benefits. Most of it isn’t even bonded debt – it’s long-term obligations due to retirees and employees,” Micah Rasmussen told The Center Square. He’s director of the Rebovich Institute for New Jersey Politics. “So, it’s not directly tied into the state budget, except of course the state revenue we’re spending every year on servicing the debt.”
Most of the increase in nonbonded debt came from a $36.1 billion hike in state retirement benefits liabilities, the New Jersey Monitor reported. Those benefits include health and life insurance and other types of nonpension compensation owed to active, inactive and retired public workers.
A record $6.8 billion surplus was included in the $50.6 billion fiscal year 2023 budget, according to the governor’s office. That equals approximately three times the surplus proposed in last year’s budget. And the budget included a $6.82 billion pension payment, which the press release on the budget said is the second consecutive year that New Jersey will meet 100% of the Actuarially Determined Contribution.
An additional $5.15 billion deposit into the state’s Debt Defeasance and Prevention Fund was made to cover capital construction on a pay-as-you-go basis rather than incurring more debt for the projects.
Rasmussen agreed that was a step in the right direction and the administration deserves credit for starting to pay down the debt. Credit rating firms have responded well to what’s been done so far, he said.
“To their credit, Governor Murphy and legislative leaders have set aside a healthy surplus for a rainy day, but the question is not just whether we will have enough to balance the next budget, but whether we are prepared to pay down our debts when the going gets tough,” Rasmussen said.
The state budget’s expansion during Murphy’s time in office is no surprise, Rasmussen said. Pension and benefit obligation costs have risen at the same time.
“Without intervention on either side, our obligations become more and more expensive,” Rasmussen said.