A block of brick rowhouses in Jersey City (Photo: Allison Bell/ALM)

Wall Street’s biggest worry about New Jersey is the government’s $100 billion debt to its workers’ pension funds. But because of a shift in accounting rules, its unfunded obligation for retirees’ health care benefits has tripled — and is now nearly as large.

(Related: We Can Still Save Postal Retiree Health Benefits: Union Leader)

The Garden State’s latest audited financial statements said that the new rules increased the estimate for what it owes for medical benefits, or “other post-employment benefits” (OPEB), to $97.1 billion in fiscal 2017, up from the $36.5 billion it previously reported. While it dropped to $90.5 billion in 2018, that’s still more than any other state, according to data compiled by Bloomberg, and amounts to about $10,000 for every New Jersey resident. Even California, with more than four times the population, doesn’t owe as much.

The surge illustrates how big a role accounting changes can have on estimating the cost of promised benefits that will be paid out over decades. The latest rules require governments to use a lower rate — akin to what they pay to borrow in the bond market — to calculate what those liabilities amount to in today’s dollars. And the lower that rate, the higher the estimate.

In New Jersey’s case, Fitch Ratings said in a report Wednesday that the bigger health care liability also reflects the state’s obligation to pay benefits for local police and firefighters, which wasn’t previously accounted for.

While retiree health care costs have received far less attention than pension bills, they also promise to consume an escalating share of governments’ funds as the population ages. S&P Global Ratings warned in November that if states don’t address their heath-care obligations in a timely manner “they may be exposed to large future swings in contributions and an increased likelihood that rapidly increasing benefits become unaffordable if no other action is taken to reduce costs.”

—With assistance from Francis Yatzun and Elise Young.

— Read 7 Ways the New Retiree Health Accounting Rules Make You a Hero, on ThinkAdvisor.

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