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March 11, 2015 at 06:18 AM
(Bloomberg) — New Jersey is confronting escalating bills from $2.8 billion of pension bonds, adding to pressure on Governor Chris Christie as the state struggles to finance its underfunded retirement system.
The payments on the debt, which was sold in 1997 to bolster the public-employee pension plans, are set to grow to almost $500 million in 2020 from $342 million this year, according to a Feb. 13 report released by the state treasurer. The annual cost will remain close to that level until the debt is paid off at the end of next decade.
“The pension debt service is skewed to the out-years,” said Richard Keevey, a fellow at Rutgers University in New Brunswick, New Jersey, who was budget director for former Governor Jim Florio, a Democrat. “It starts out low and rises sharply.”
The debt adds to taxpayers’ costs for teacher and state-employee retirement plans, which last year had about one-third of the assets needed to cover promised benefits, leaving an $83 billion shortfall. The deficit is pushing New Jersey to put more money into the funds and has contributed to a record eight credit-rating cuts under Christie, making it the lowest-ranked state after Illinois.
Pension costs
Christie, a 52-year-old Republican, last month proposed a $33.8 billion spending plan for the year beginning in July that contributes a record $1.3 billion to the retirement system. That’s still less than the $3.1 billion the state was scheduled to pay as Christie rolled it back to help close a projected $7.35 billion deficit.
The climbing debt bills will make it more difficult for New Jersey to free up cash for the retirementsystem, said Daniel Solender, who helps manage $17 billion as director of munis at Lord Abbett & Co. in Jersey City. The pension bonds will cost $349 million next fiscal year and climb to $397 million in the following 12 months, according to the state’s report.
“They have to make a pension payment, too, on top of the debt service,” he said.
Chris Santarelli and Joe Perone, spokesmen for the New Jersey Treasurer Andrew Sidamon-Eristoff, didn’t respond to e- mailed requests for comment on the pension debt.
Skipped payments
New Jersey’s pension-fund shortfall has been building for more than a decade as elected officials failed to set aside enough money to cover promised benefits, putting those funds toward other uses. The practice continued under Christie, a potential 2016 presidential candidate whose approval rating among the state’s voters dropped to an all-time low in a Rutgers-Eagleton Poll last month.
