New Jersey wants to loan money to itself, a move that has not been tried by any other state, according to the sponsor of the bill that would authorize the action.
A bill is pending in the New Jersey Legislature that would allow the state’s struggling pension fund to buy bonds issued by the state Transportation Trust Fund.
Senate President Steve Sweeney, sponsor of the bill that has bipartisan support, says the creative approach is a win-win situation that gets double duty out of the state’s money. Sweeney, a Democrat, is vice president of the Ironworkers International of North America and is the head of two pension funds, which gives him experience in these types of financial issues.
The pension fund for public employees is one of the worst funded pensions in the nation after losing $135.7 billion in 2015. S&P Global Ratings downgraded New Jersey’s debt one step to A-, the fourth-lowest investment grade, on Nov. 14, due in part to the government’s growing debt to the pension fund.
Transportation Trust Fund bonds guarantee a 5 percent return, therefore allowing the pension fund to buy the bonds at no risk to the pension fund, Sweeney says.
The bill also lifts the cap that prohibits the pension fund from buying more than 10 percent of any bond offering.
“Some legislators wanted to put a new cap of 20 percent on the pension fund, but the state Investment Council should be allowed to make the decision on how much the pension fund can invest in Transportation Trust Fund bonds,” Sweeney says.
The state’s pension has been underfunded for decades, which lowers the state’s bond rating and makes it more expensive for the state to raise money.
"This would offer an investment strategy that is mutually beneficial for New Jersey’s underfunded pension system and the Transportation Trust Fund," Sweeney says.