TRENTON — With less than two weeks remaining before the date Gov. Chris Christie’s administration hopes the Legislature approves a complicated transaction involving the pension funds and lottery, the idea sits in a peculiar place.

It’s not part of the state budget, but the administration would like it adopted before the beginning of the new fiscal year. It’s seemingly supported by many lawmakers, but has had just one hearing and no votes. As of the start of this week, it doesn’t even yet have a sponsor in the state Assembly.

And if lawmakers opt to vote on the proposal to commit 30 years of lottery revenues to the public workers’ pension funds, they’ll likely have to do so without the formal analysis of the major Wall Street financial rating agencies.

Sen. Jennifer Beck, R-Monmouth, says the lottery transaction is unusual and will give people pause, so she’d like to hear from outside experts.

"It would be nice to have some affirmation, in advance of the legislation passing, to know with some certainty that the rating agencies and those that are in the financial world view this as a sound, thoughtful initiative and that we don't undertake what is a significant effort only to find that, gee, we were wrong and they are uncomfortable with it," Beck said.

“I certainly would feel more confident if I knew that those that are doing this on a regular basis and really do this kind of analysis for a living embrace the idea at the outset, before the legislation is passed. After the legislation has passed is too late,” Beck said.

State Treasurer Ford Scudder said rating agencies have been briefed but won’t get a full presentation until the bill is passed. He said that it’s too early to do that because the legislation has only recently been introduced – though a draft has been ready for more than a month – and isn’t finalized.

Scudder said the Treasury Department believes rating agencies will view the transaction positively because it adds $13.5 billion in assets to the pension funds’ bottom line.

“I would expect, if it is passed, that we would certainly see some upgrades as well as a reduction in our yield on our debt as investors view it more positively,” Scudder said.

However the first voice to chime in, the bond-market research firm Municipal Market Analytics, wasn’t so positive.

"The details of the transaction suggest the greater benefit is more of an accounting
scheme (and gamble) for optics and budgetary relief,"  the company said in a report last week, in which it also questioned whether accounting standards permit the state do what it wants.

“If implemented, we believe the transaction is unlikely to generate the positive response the state is anticipating from the market participants, including rating agencies,” said MMA. "Absent real pension reform or a commitment to full funding, the state’s fiscal situation is likely to continue to deteriorate under the weight of its legacy liabilities. We believe that, at best, this transaction delays an honestly confronting the pension liability problem.”

As calculated by actuaries, the state-funded pension funds have $40 billion in assets. But that’s almost $50 billion short of what the state would need over time to pay promised benefits.

In a move that would boost that funded ratio from 45 percent to 59 percent, the state proposes to transfer the lottery to the pension funds for 30 years. It assigns a $13.535 billion value to the transfer – the present-day value of a projected $37 billion in revenue over 30 years.

Seventy-eight percent of the money going into the pensions from the lottery transaction would be deposited in the teachers’ retirement fund – largely because state law requires lottery revenues to support education and institutions.

Though the Teachers’ Pension and Annuity Fund’s actuarial liability would be slashed by almost one-third, close to $10 billion, the New Jersey Education Association is neutral on the idea – and skeptical it’ll hold up in court, said executive director Ed Richardson.

“The commitment of a billion dollars in funding guaranteed for a 30-year period to offset the pension liability is a significant commitment. Where the skepticism comes in is with that word guarantee,” said Richardson.

“We have of course over the years seen other multi-year commitments adopted by the Legislature only to be undone by the courts,” Richardson said. “And so we have a serious question about whether, in fact, this guarantee is a guarantee.”

Rex Reid, a political director for American Federation of State County & Municipal Employees, which represents around 6,000 state workers, worries about his union members’ jobs beyond the five years the plan guarantees there won’t be an impact on the state budget.

“I have an open mind, but I also have history that says the state they’re going to be one thing and then when it comes time to do it – that’s why the pension is in the situation it’s in,” Reid said.

Currently, the roughly $1 billion a year in lottery profits helps fund things such as aid to public universities and colleges, Tuition Aid Grants, veterans homes, psychiatric hospitals and centers for people with developmental disabilities.

That lottery money would no longer be available to support the general budget. The state says that would be offset by a reduction in the size of payments required into a healthier pension fund. For the first five years, fiscal 2018 through 2022, the proposal guarantees no net impact on the budget.

Then in the sixth year, the budget would be $235 million short. That shortfall would then shrink during the following six years, with the deficits ending at that point only because the final payment on the 1997 pension bonds would be made in 2029.

“The five-year stream is great for the first five years, but what happens the sixth year, the seventh year, the eighth year?” said Reid, who says the union sees the plan “as a gimmick that’s failed.”

Sen. Paul Sarlo, D-Bergen, said the transaction is “clearly something that we should seriously consider.”

“Regardless of who’s sitting there, who the next treasurer is, in the next five years we have some tough decisions to make to make those payments. I see this as a long-term solution,” Sarlo said.

Sen. Steve Oroho, R-Sussex, said the plan seems to be a win-win.

“The only risk is, unfortunately, people don’t necessarily trust us – government in total, not just this admin, government in total, because of the diversions of funds that have happened in the past and whatnot,” Oroho said.

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