Wednesday, July 29, 2015

Your number of the day: 4.58%.


It's a number everyone who cares about NJ school finance should know.


Because it's what the investment return was on NJ's pension funds was through May for FY 2014 (meaning ending this June). The final, exact figure won't be known until September, but it is expected to be lower since May 2015 was a bad month on the stock market.

From the Star-Ledger:

New Jersey's $80 billion pension fund likely won't hit its target investment return for the fiscal year that wrapped up in June after several years of double-digit gains that kept the giant pension system from falling into even deeper trouble.

Tom Byrne, chairman of the panel overseeing the pension fund investment portfolio, reported a gain of 4.58 percent through May, one month shy of the full fiscal year that ended June 30. Because of a weak June, final results, which won't be available until September, are expected to be even lower, he said at Wednesday's State Investment Council meeting.

New Jersey's assumed rate of return, the amount actuaries say it needs to avoid adding to its liabilities, is 7.9 percent. And while 4.58 percent is "decent" and outperformed its benchmark, Byrne said, it's a departure from the 16.9 percent the fund reaped the year before, the fourth consecutive year churning out double-digits.
Whatever the final amount is, the result for the state's school aid distribution is the same: without higher investment returns the state's pension liability is even higher and we cannot afford to fully SFRA.

What the lower return means is that the zero-out dates for New Jersey's pension funds move up. Instead of the Judges' fund zeroing-out in 2021, maybe it will zero-out in 2019 or 2020. Maybe instead of PERS zeroing-out in 2024 it will zero-out in 2022 or 2023. Maybe instead of zeroing-out in 2027 the Teachers' fund, TPAF, will zero-out in 2025 or 2026.  The pension funds' official value fell from $81 billion to $78 billion.

The scale of the Pension Crisis is so large that the exact time of the funds going broke is immaterial from the POV of state aid. The result is the same: New Jersey can never afford to fully fund SFRA and even the $8.6 billion Pre-K+K-12 aid stream is unsustainable.  Those of us from underaided, overtaxed districts cannot wait: we need redistribution now!

Update Sept 24th: 

The final number of FY 2014 has just come out and New Jersey's pension funds returned 4.16%.

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