New Jersey to Postpone Pension Payments

A September payment has been deferred to October, or the start of the next fiscal year, as the state makes deep cuts and deferrals to stanch revenue losses.

New Jersey’s state government pension fund, projected to lose billions in revenue to the coronavirus crisis, is planning to defer some pension payments to the next fiscal year. 

The state is planning to postpone a September pension payment of $950.9 million to October, the start of the next fiscal year, according to a grim budget report from the state treasury released last week. Its current fiscal year has already been extended to September from June. 

New Jersey, expecting a $10 billion shortfall through the end of fiscal year 2021, is looking to cut more than $5 billion in planned spending across nearly all sectors of government. That includes delaying more pension contributions, as well as school aid and municipal property tax relief. 

“While there are many moving parts, what is clear is that a decline of this magnitude would be worse than the Great Recession,” state Treasurer Elizabeth Maher Muoio said in the budget report. “This means the sizable surplus and rainy day fund we have built together will easily be depleted.” 

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Prior to the pandemic, New Jersey had been making strides to improve its economic situation, worsened by its large debt load and pension liabilities. Over the past two years, the state made record payments into its retirement system, and it made its first rainy day fund deposit in over a decade. 

However, any surplus in the budget will soon be drained, as the coronavirus compounds the state’s financial problems. Even before the economic fallout, the state had budgeted just 70% of its annual actuarially determined contribution (ADC) for the pension fund. The state pension fund is roughly 40% funded. 

New Jersey is also losing tax revenues at a time when health care and unemployment costs are spiking as a result of the public health crisis. The state has reported about 11,200 deaths through this week, roughly one-tenth of the national death toll from the coronavirus. 

The state treasurer also noted that more “significant” budget cuts will be needed in fiscal year 2021 to stem the losses if the state is not allowed to borrow or if it does not get additional federal funding. 

As it is, Gov. Phil Murphy has been appealing for additional federal aid for state governments over the past month. He argued the state may have to lay off front line workers, such as teachers, police officers, firefighters, emergency medical personnel, and health care employees without it. 

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University of California Now Fossil Fuel Free, Cornell Votes to Halt Carbon Investments

Downturn in traditional energy sector helps spur universities’ shift to clean energy projects.

The University of California (UC)’s investment portfolios are now completely divested from fossil fuels after the investment committee of the university’s board of regents sold more than $1 billion in assets from its pension, endowment, and working capital pools. Meanwhile, the university’s office of the CIO said it has reached its five-year goal of investing $1 billion in clean energy projects.

“We remain convinced that continuing to invest in fossil fuels poses an unacceptable financial risk to UC’s portfolios and therefore to the students, faculty, staff, and retirees of the University of California,” Jagdeep Singh Bachher, CIO for the University of California, said in a statement.

“While we certainly could not have predicted the speed nor depth of the recent downturn in the traditional energy sector, signs point to a structural shift—not merely another cycle of boom or bust,” Bachher added. “Given geopolitical tensions and, likely, a bumpy and slow global financial recovery in a post-pandemic world, lowered demand and oversupply could portend an even longer price drought in oil and gas.”

Since September, the university has sold $900 million of fossil fuel assets in the pension and in the working capital pool, which is on top the endowment’s sale of approximately $150 million in fossil fuel investments last year.

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As of April 30, UC Investments had a total of $126 billion in assets under management, including $68 billion in the pension, $13.4 billion in the endowment, and $15.9 billion in working capital.

In addition to the divestment, the university’s investment commitment to clean energy is now $1.04 billion, $750 million of which is allocated to two wind and solar developers and an aggregator strategy to own and operate commercial and industrial solar opportunities. Other investments include renewable energy, waste conversion, and sustainable agriculture and supply chains.

“As long-term investors, we believe the university and its stakeholders are much better served by investing in promising opportunities in the alternative energy field rather than gambling on oil and gas,” said Richard Sherman, chair of the University of California Board of Regents’ Investments Committee.

On the other side of the country, Cornell University’s board of trustees voted to support a resolution from its investment committee to institute a moratorium on new private investments focused on fossil fuels and to grow its investments in alternative energy technologies.

“There’s a growing recognition that we’re transitioning away from fossil fuels globally, and the economic competitiveness of renewable energy sources is rising,” Ken Miranda, Cornell’s CIO, said in a statement. “We’re doing the right thing from an investment perspective, particularly for an endowment with a perpetual time horizon.”

The moratorium came after the investment committee reviewed the near- and medium-term financial outlook for the coal, oil, and gas industries, as well as the potential threat posed by climate change on the university’s $6.9 billion endowment portfolio.

Effective as of May 22, the moratorium applies to new private equity and bond vehicles focused on fossil fuels, which make up approximately 4.2% of Cornell’s long-term investments. That figure is expected to be whittled down to zero over time as existing investments mature and assets are redeployed to other areas, including renewable energy, the university said.

However, the new policy does not apply to indexed and other public equity mandates, such as the S&P 500, where the university is among hundreds or thousands of investors and does not have the ability to alter an index’s composition or direct managers to include or exclude particular securities via active engagement.

Cornell’s investment committee has also directed the endowment to increase its investments in energy-efficient and new technologies, such as carbon reduction and carbon capture “that offer competitive risk-adjusted rates of return and which help in a transition to a more sustainable future,” according to the resolution passed by the board of trustees.

Additionally, the resolution said the investment committee determined that the moratorium and other new measures were “consistent with its fiduciary and stewardship responsibilities.”

Related Stories:

University of California Endowment, Pension to Divest All Fossil Fuels

Cornell, Penn State Endowments Return 5.3%, 7.7% for Fiscal 2019

Study Bolsters Case for Endowments’ Sustainable Investing

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