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NJ Christie administration details plan to use lottery to shore up pensions

Gov. Chris Christie's administration revealed details Thursday of its one-of-a-kind plan to use the state lottery to shore up its financially troubled public employee pension system.

Lawmakers, unions and the news media have been eager to learn the details of his plan ever since he   outlined it during his budget speech in February. Christie's treasurer, Ford Scudder, briefed reporters on the proposal and provided the first details of how it would work, including legislation, a memorandum and a legal opinion from state Attorney General Christopher Porrino. 

Lottery revenue is currently allocated to the various institutions and programs the state is legally required to cover through the appropriations act that the governor signs each fiscal year. 

Under Christie's plan, the lottery revenue would instead be funneled into what the administration calls a Lottery Enterprise to Common Pension Fund L. That fund would specifically benefit the Teachers' Pension and Annuity Fund, the Public Employeers' Retirement System and the Police and Firemen's Retirement System. 

 That leaves all those programs and social-service institutions about $1 billion short every year. Scudder said that money would now come from the state's general or property tax relief fund.  "There will be absolutely no negative impact to that funding," Scudder said. 

 By shifting lottery revenue into the pensions, the state's liability would be reduced. So, taking roughly $1 billion from the lottery and transferring it into the common pension fund would mean the state's defined pension contribution would be less than it is now — about $2.5 billion. If Christie's plan were in place now, that means he would only spend about $1.5 from the state budget to pay for pensions, with the other $1 billion coming from lottery revenue.  Scudder said this plan would be revenue neutral for the first five years. After that, Scudder said, there would be a "modest impact" on the budget of .05 percent a year "before we are in the clear." 

 Shifting the lottery's revenue from the general fund to the retiree accounts lowers the pensions' unfunded liability, currently the highest in the nation and a leading cause of the state's repeated credit-rating downgrades. The combined state and local retirement systems are 57 percent funded, according to the Treasury Department; adding lottery revenue would instantly bring that funding ratio to 65 percent, which the department said would not otherwise be reached until 2037. 

 The administration proposes this arrangement to last 30 years, or until 2047. At that point, Scudder said, the pension fund would be 90 percent funded.  This plan would also provide more stability to the pension fund, Scudder said, because it would get money on a monthly basis to be used for investment or to pay retiree benefits. The plan would ease the fears of bondholders, ratings agencies and public employees by "significantly" reducing the unfunded liability of the pension system. And that reduction would be greater under the lottery plan than if the state were to fully pay its annually defined contributions "permanently" beginning in 2018, Scudder said. 

 What's next

Scudder said the administration will also "certainly be looking for further reforms" from public employee unions in an effort to further reduce the state's unfunded liability and the state's annual obligation. Health benefit concessions are not part of the administration's reform plans, he said, just on pensions.  

 Legislative leaders were provided the detailed proposal on Thursday morning.

 Lawmakers have said they are open to the idea of using the lottery to aid the pension system, but have also said they need to see more information before taking a firm position. If they agree to post the bill, then it would go through the normal legislative process. If not, then there could be another policy battle ahead between Christie and the Democrats. But Christie's leverage is nearing an end: Once he signs the budget, which is typically done the last week in June, he becomes a lame duck and this year's gubernatorial and legislative races take center stage. 

 The Democratic leaders of the Legislature, Assembly Speaker Vincent Prieto and Senate President Stephen Sweeney, had not been able to fully review the proposal Thursday. Sweeney said he was "pleased" to finally see the idea on paper and that he will continue to review it. But based on the details he saw Thursday, Sweeney said it looked like a "promising endeavor" and that its initial impact on the budget is "positive news." 

 “The information provided by Treasury shows that utilizing the value of the lottery would improve the fiscal health of both the teachers’ pension fund and the state employees’ pension fund," Sweeney said in a statement. "In fact, it would advance our funding ratio schedule by 20 years, bringing funding ratios immediately to levels we would not otherwise achieve until (fiscal year) 2037. This is important not only for employees but also for the financial health of the state." 

Prieto said he needs to absorb the details. 

 “I continue to have questions about whether this is an effective plan or a gimmick, but will review the proposal and give it proper consideration," Prieto said in a statement. "Regardless of where this goes, it’s unfortunate we’re even discussing it, since the pension system, after all, would be in better shape already had the governor just fully funded it as he had promised.”

 Background The state lottery was established in 1970 after voters approved a constitutional amendment the prior year. The new law required that at least 30 percent of lottery revenues go to state institutions and education aid. Since then, the lottery has contributed nearly $25 billion to those social institutions, including places such as the Marie Katzenbach School for the Deaf, college tuition aid grants, operations for state psychiatric hospitals and homes for disabled veterans. 

 Christie, facing fiscal constraints in the budget, pushed through a privatization of the lottery's sales and marketing in 2013, signing a 15-year contract with the gaming conglomerate Northstar New Jersey. Also amid those financial pressures, Christie reneged on his end of a deal with unions and slashed the state's contributions to the pension fund, growing its unfunded liability. 

 http://www.northjersey.com/story/news/new-jersey/2017/05/12/christie-administration-details-plan-use-lottery-shore-up-pensions/317888001/