Senate President Steve Sweeney, Senator Dawn Addiego and Assemblyman Adam Taliaferro today unveiled bipartisan legislation that would expand the investment practices for the state’s pension funds to the Transportation Trust Fund, offering the opportunity for risk-free investments with good returns at the same time the TTF’s underwriting fees are reduced.
“Finding a long-lasting and stable source of funding for our Transportation Trust Fund is a bipartisan issue, and so too is taking advantage of smart financial opportunities,” said Senator Addiego (R-Burlington). “Allowing the TTF to borrow directly from the pension fund is a smart move that guarantees a rate of return while helping to support the infrastructure work that is so important to our economy.”
Unveiled bill w/ Senate President Sweeney & Asm. Taliaferro to allow state pension funds to invest in TTF bonds. https://t.co/ZNAp0BkPpC
— NJ's 8th District (@8thdistrictleg) December 8, 2016
“This would offer an investment strategy that is mutually beneficial for New Jersey’s underfunded pension system and for the Transportation Trust Fund,” said Senator Sweeney (D-Gloucester). “It would enable the TTF to borrow directly from the state pension fund, providing a guaranteed rate of return much better than the pension system is currently earning on portions of its investments.”
The legislation would allow the transportation fund to sell bonds directly to the pension funds, which would reduce costs and save taxpayers money. Current state regulations limit pension investments to no more than 10 percent of any single bond sale. While the bill would lift the limit for TTF investments, it would require the existing investment process to be followed, Senator Sweeney said.
Senator Sweeney said he would anticipate that the TTF would pay up to five percent a year in interest to the pension fund, a “reliable and positive return” for a pension system that lost one percent on its overall investments last year, contributing to a drop in the value of the fund from $79 billion to $73 billion after payments to retirees were deducted.
A risk-free return on investment would be a “net positive” for the state’s pension fund at a time when all pension funds have struggled to achieve solid returns on the conservative fixed asset/bond portion of their portfolio and when hedge funds – with their high Wall Street fees – have failed to provide an effective backstop against market losses, Senator Sweeney said.
“The jobs created by facilitating construction on our roads, bridges and mass transit systems will pay huge economic benefits for our state,” said Assemblyman Taliaferro (D-Gloucester). “This is just smart government, something the taxpayers of this state can appreciate. I am excited to join the Senate President in this bipartisan effort to solve our fiscal challenges.”
Placing some TTF debt with the state’s pension fund would save the average 0.5 percent cost of bond underwriting fees, resulting in lower long-term debt costs for the TTF or additional returns for the pension system.
Financial experts are not expecting high returns on pension funds in the years ahead with interest rates so low, and fixed assets and bonds have failed to provide decent returns. New Jersey is already committed to lowering its hedge fund portfolio.
“This isn’t just about money, it is also about people’s retirement,” said Senator Sweeney. “We guaranteed our teachers, police officers and other public workers financial safety and security at the end of their careers. We need to make sure we’re investing their retirement funds in a way that ensures we can make good on our promise, and investing in TTF is the way to do that.”