New Jersey Freezes Nearly $1 Billion in Spending Over COVID-19

The financial impact of the coronavirus pandemic will lead to “precipitous declines” in New Jersey’s state revenue for this year and next and could damage the valuation of the state’s pension plans, according to state treasurer Elizabeth Maher Muoio.

“The impact of COVID-19 on the state, its economy, and budget and finances is unpredictable and rapidly changing,” Muoio said in a statement. “But the state believes that events surrounding COVID-19 will negatively impact the state’s economy and financial condition.”

To help New Jersey brace for the economic damage caused by the pandemic, Muoio issued a disclosure statement detailing a freeze of more than $920 million in state spending.

In the disclosure statement, New Jersey’s treasury department said the economic impact “may be significant for the state’s economy” depending on the length and breadth of the pandemic.

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“The long-term and short-term capital markets have experienced significant deterioration in value and volatility,” the statement said, “which can affect the liquidity and results of operations of companies in the state, the state economy as a whole, and which also could materially affect the levels of the state’s revenues for fiscal year 2020 and fiscal year 2021.”

The state treasury also said it is possible that the economic fallout could lead to increases in the state’s actuarially recommended contributions to the state’s pension plans “to the extent that the valuation of pension plans is affected by the deterioration in value in the investment markets.”

This is particularly bad news for a state that regularly ranks among the worst funded state pension funds in the country, and by some estimates has a funded ratio of less than 40%. Years of contributing less to the state pension than recommended have led to the significant under-funding, which could be exacerbated by the economic downturn caused by the pandemic.

Earlier this year, Steve Sweeney, the president of New Jersey’s state Senate, announced a proposal to boost the state’s pension fund with a $1 billion contribution. This was in addition to the $4.6 billion pension payment proposed by New Jersey Gov. Phil Murphy in his state budget for fiscal year 2021. However, in the wake of the economic downturn, Murphy this week cast doubt on whether that would now happen.

“Steve did want more money in the pension fund. By the way, so did we,” Murphy said at a COVID-19 briefing on Thursday, adding that “it’s too early to tell.”

The treasury also said that it is likely that the full fiscal impact of COVID-19 on the state will change significantly as it is a fluid situation that’s impossible to predict.

“The actual impact of COVID-19 on the state, its economy, and its budget and finances will heavily depend on future events, including future events outside of the control of the state,” the disclosure statement said. “It may be some time before the state is able to determine the full impact that the various events surrounding COVID-19 have on the state’s economy and its financial condition.”