KBRA Releases Research – New Jersey Aims to Broaden Public Asset Contributions to Fund Pensions

Kroll Bond Rating Agency (KBRA) releases research which discusses a proposed bill in the New Jersey legislature that would further enable the contribution of public sector assets such as water systems, toll roads, parking systems and other infrastructure to fund the pension liabilities of the state’s pension system.

New Jersey Senate Bill 3637 has a similar intent to the Lottery Enterprise Contribution Act (LECA) of 2017, under which the state contributed its Lottery Enterprise system to the three largest pension funds and improved its actuarial funded ratio. However, the new proposal goes further by enabling not just the state but all local governments within the state (counties, cities, townships, community college districts, etc.) to contribute their public assets, in order to reduce their respective liabilities to the state’s pension systems.

Key Takeaways

• The bill would broaden the type of public entity in New Jersey that could use public assets to finance their unfunded pension liabilities. Counties, cities, townships, and districts would be eligible and some of these entities have significant liabilities to the state administered pension systems.
• The purpose is limited to funding of the state-administered pension funds. Other public purposes are not addressed in the proposal.
• The bill details the mechanisms to accomplish such transactions and provides for a process of analyzing the costs and benefits. In KBRA’s opinion, it is important that this analysis be rigorously applied in a manner that includes citizen input and expertise commensurate with the complexity of the transaction.
• KBRA believes three issues could help determine the soundness of such programs:
  • To be credit positive or credit neutral, an asset transfer program would typically be part of a well-considered, efficient, long-term plan, not simply to manage arbitrary financial ratios.
  • Similarly, large public assets are important public resources that should be used to finance only long-term needs, not short-term budget imbalances.
  • KBRA observes that public entities that do not also address the underlying deficits that led to the need to transfer public assets in the first instance (e.g., structural budget imbalances), are likely to see a recurrence of the problem, with the potential of a downward spiral.

Click here to view the report.

Related Publications

• Untapped Resources May Help Fund Pension and Infrastructure Shortfalls
• A Significant Step but Still a Long Way to Go: New Jersey Contributes Lottery Enterprise to Pension Funds

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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