(Bloomberg) -- New Jersey Governor Phil Murphy received a round of applause Tuesday during his budget address when he touted a proposed $3.2 billion pension payment, with the goal to fully-fund the struggling system by 2023.
New Jersey has the worst-funded state retirement system in the nation. While the state needs to address the pension issue, higher yearly contributions from its budget may crowd out spending for other programs, said Howard Cure, managing director at Evercore Wealth Management.
“They really need to address that because that is the sword of Damocles hanging over the state’s head and rating,” Cure said. “The sooner they address it and start fully funding what they’re required to do is welcome. The question is, what does that mean for the rest of the budget?”
Murphy, a Democrat who took office in January, also wants to increase spending on education and mass-transit and make community college tuition-free as part of his $37.4 billion budget. His plan to pay for the additional spending includes a potential tax increase on millionaires, raising the sales-tax to 7 percent along with taxing online-room booking and ride-sharing.
Murphy may face resistance from the legislature on his plan to increase taxes on income above $1 million to 10.75 percent from 8.97 percent. Senate President Stephen Sweeney, a Democrat, has said that residents are being penalized enough by President Donald Trump’s federal tax changes, which limit deductions for individual’s state and local taxes.
“That creates essentially a bigger burden than it ordinary would have if they still had the ability to make the deduction,” Cure said about Murphy’s tax hike on millionaires.
The $3.2 billion pension payment would be the biggest single-year contribution to the system, according to budget documents. Such an allocation would be "an all-time high" Murphy said during his budget speech, drawing applause from state lawmakers. It would allow New Jersey to resume full funding by 2023, according to budget officials.
“I do not have a magic wand capable of making everything whole again in one budget, but I am committed to continuing to ramp up our payments until we get there,” Murphy said.
Some New Jersey bonds increased in yield Tuesday. General obligations maturing in 2033 traded with an average yield of 3.6 percent, up from 3.5 percent the day before, according to data compiled by Bloomberg.
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