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Parsing Chris Christie’s Pension Math

The New Jersey governor counts past pension borrowing as “school aid” in his budget – but not when it undercuts his claim of spending more on pensions than prior governors.

As we reported last week, Gov. Chris Christie’s rhetoric about his fiscal record in New Jersey doesn’t always match what’s in his budget. Since then, we’ve found another example of Christie’s malleable math.

On multiple occasions, the GOP governor has claimed that he put more money into public employee pensions than any prior governor – Democrat or Republican. When we noticed that the numbers didn’t support the claim, the governor’s aides had a ready explanation.

It turned out they weren’t counting a $2.75 billion pension contribution that former Gov. Christine Whitman made – because the money was borrowed in a 1997 bond sale. That’s not the same, they said, as putting taxpayer money directly into pensions. Debt, after all, has to be paid back.

We duly reported that response. Except that when it comes to his budget, Christie does count the payback on the bonds – it’s tallied under “school aid” as a teacher retirement expense picked up by the state.

The bond payments highlight the enormous weight that public employee pension obligations have put on New Jersey’s chronically troubled finances.

Christie muscled a slate of pension reforms through the Democratic legislature in 2011, but it didn’t fix the problem. Now, as he prepares a possible presidential campaign, his hope for another grand pension bargain with unions is in trouble.

When it comes to New Jersey’s school aid budget, it turns out that pension payments have been the main driver of increases in recent years. Aid for classroom and other educational uses has held flat, but it hasn’t stopped Christie from declaring a victory for education.

“We are making record investments in aid to our schools, and this year again I propose to do that for a fifth straight year,” Christie in his February budget address, citing his proposal to spend $12.7 billion on school aid.

The figure includes $185 million in payments on a portion of the pension bonds. A spokesman for the New Jersey treasury said the bond payments are considered school aid because teacher pensions are an education cost. Past governors also have counted the pension bond payments the same way, so Christie isn’t alone.

Christie has complained about the bond sale under Whitman, a fellow Republican, listing it among “deadly sins of the past” committed by previous governors.

By the time New Jersey taxpayers finish paying off the debt, they will have coughed up more than $10 billion. Data from the treasurer’s office shows the interest rates on the bonds are higher than the returns the proceeds have earned since the sale, making them a money loser overall.

Some $7 billion in principal and interest remains due on the bonds, according to the treasury. Annual payments will top $500 million a year from 2022 to 2029, when the debt will finally be repaid.

Some of these bonds were expensive clunkers known in the trade as “zero-coupon” or “capital appreciation” bonds.

Instead of making regular cash interest payments, as borrowers do on a normal bond, these securities defer interest until all the debt comes due years or decades later, often at multiples of the original amounts borrowed. (The Christie administration has stopped issuing this type of debt.)

To give an example, just one $59 million chunk of those bonds came due this past February, costing the state $219 million. Terms prohibit New Jersey from refinancing even though interest is accruing at more than 7 percent a year – a rare find in today’s low interest-rate environment.

Investors are reaping the rewards. After the bonds sold back in 1997, The Bond Buyer newspaper called Whitman’s pension debt the “deal of the year” and quoted investors who called them a “beautiful piece of paper.”

Asked about the pension borrowing, Whitman said she couldn’t recall why the state opted to sell capital appreciation bonds.

Jim DiEleuterio, Whitman’s treasurer from 1997 to 1999, also said he couldn’t recall. But he still thinks the state made the best decision at the time, based on interest rates and assumed rates of return.

“I think that given the times that we were in, it was the right thing for us to do,” he said.

What about Christie’s claim that he’s contributed more to pensions than prior New Jersey governors?

As we reported earlier, including the $2.75 billion from Whitman’s bond sale that went into state pension funds, her administration contributed $3.7 billion, versus $2.2 billion so far under Christie.

Another $2 billion in promised payments would bring his total to $4.2 billion by June 2016 – without any borrowing.

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