- Associated Press - Saturday, May 20, 2017

TRENTON, N.J. (AP) - New Jersey’s next governor will inherit a public pension system that Gov. Chris Christie’s Democratic and Republican predecessors underfunded for years.

Christie will be leaving a fund whose payments he has ramped up in recent years after a rocky period beginning in 2014. The Republican governor backed out of a 2010 deal between public workers’ unions and the Democrat-led Legislature to increase the state’s payments in exchange for benefits cuts.

Republican candidates in the primary race for governor say they support a Christie-commissioned panel’s plan that includes cutting health benefits and transforming pensions into 401k-style accounts. Democrats, on the other hand, promise that the state would live up to its obligation to pay into the pension.

The primary is June 6. The general election is Nov. 7.

Christie is term-limited.

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THE ISSUE

New Jersey’s pension covers about 800,000 active and retired public workers - including teachers, police and fire workers, and state employees - and has a balance of about $73 billion. It is almost constantly at the center of debate in the statehouse, going back to previous governors’ failure to pay the state’s share into the fund, while workers continued to contribute. That’s a problem because the pension carries an unfunded liability estimated to about $50 billion.

The issue came to a head in 2010 when Christie and the Legislature reached a deal that would require the state to ramp up payments. In return, workers agreed to give up pay increases among other benefits.

But in 2014, Christie’s budget faced unexpected revenue shortfalls and he went back on the deal, cutting the pension. He has since lowered the payments but has paid them in recent fiscal years.

Despite going back on the deal and angering unions and Democrats, Christie has paid more into the fund than previous governors. Christie’s $35.5 billion 2018 budget calls for a $2.5 billion pension payment.

Christie has also recently proposed transferring the state lottery as an asset to the pension to reduce the state’s obligation, but the Legislature has so far not acted on the idea.

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CANDIDATE PROMISES AND PLANS

Democratic front-runner Phil Murphy served as an executive at Goldman Sachs and in the Obama administration as ambassador to Germany, but has never held elective office. He was the chairman of a 2005 pension overhaul committee commissioned by then Democratic Gov. Richard Codey. The committee made a number of recommendations, some of which Murphy endorses today, including a promise for no more “pension holidays,” or failure on the state’s part to fund the pension.

He has also promised to divest the pension from hedge and private equity funds since they also carry fees, but members of the State Investment Council have argued the funds help balance the pension and other costs could arise in pulling out if markets perform poorly.

Democratic Assemblyman John Wisniewski and two other party primary contestants also promise to live up to the state’s requirement to fund the pension. Jim Johnson, a former Clinton administration Treasury official, is calling for increasing payments. State Sen. Ray Lesniak wants to prohibit hedge fund investments, however, and favors prohibiting multiple public pensions.

Among Republicans, front-runner Lt. Gov. Kim Guadagno and Assemblyman Jack Ciattarelli both endorsed a 2015 commission report that called for changing the pension to a so-called cash balance plan, which is similar to a 401k in the private sector, and for reducing the platinum-level health benefits. Guadagno, similar to the Democrats, has called for cutting fees paid by the state to Wall Street management firms for handling the pension.

Ciattarelli has also called for ending the accumulation of sick leave, transferring pension obligations from the state to school districts for new teachers, and requiring those with pensions and benefits above $50,000 to contribute to health benefits.

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WHAT THE EXPERTS SAY

Peter Woolley, a political science professor at Fairleigh Dickinson University, called the pension the “gorilla in the room” in New Jersey politics. The state’s ballooning pension debts have indeed burdened Christie and the state. Credit rating agencies have cited the liabilities in their decisions to slash the state’s credit ratings. The ratings have been cut 11 times under Christie. “The state’s precarious economic position has several deep roots, but the tap root is public employee pensions,” Woolley said.

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Follow Catalini at https://www.twitter.com/mikecatalini.

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