Update on Proposed Pension Deferral Initiative

As many local officials are aware, Governor Corzine has proposed a short-term pension deferral program that would reduce core pension obligations by 50 percent for FY 2009 budgets.  The proposal affects FY 2009 budgets for all local units: counties, municipalities, and local authorities (including fire districts).

This proposal, currently pending as S-7 in the State Legislature, is an effort to provide property tax relief to taxpayers in these most challenging economic times, and also provide property levy cap relief to municipalities, counties and fire districts that are faced with increasing costs.  This includes addressing the PFRS liability increases that are now part of the property tax levy cap. The challenge of this initiative is to provide the relief while, at the same time, prudently balancing pension costs, property tax relief, spending increases, and local unit flexibility.

For FY 2009, the pending legislation does not adjust tax levy or appropriation cap laws; therefore, the reduced pension cost will not reduce cap bases, except that PFRS costs for FY 2009 will be moved outside the cap.

As presently drafted, the pending legislation allows local units to appropriate up to 100 percent of their full pension obligation.  The amount over the the final April billing will be reserved and invested.  The local unit will have the option to invest the reserved funds with the State Division of Investments who will invest them in a new program that is similar to how pension funds are invested, or deposited in the State Cash Management Fund, or invested pursuant to the local unit’s cash management plan.  The proposal requires all pension appropriations made in excess of the amount billed to be invested as described above and subsequently used only for pension purposes.

FY 2009 Budget Issues

While it is not known if and when the legislation will pass, the FY 2009 local budget process must proceed.  It is not expected that any legislation will pass until mid-January at the earliest.  The following guidance can be used by local officials who are currently planning or in the process of adopting their FY 2009 budgets: