Senate President Says Episode Also Highlights Importance of State Meeting Pension Obligations
TRENTON – Senate President Stephen M. Sweeney said news that the U.S. Securities and Exchange Commission had charged the state with securities fraud for failure to tell potential investors that public pension funds were being chronically underfunded highlights the need for the Governor to take the current $3.5 billion pension obligation more seriously.
Sweeney also questioned why the Treasurer’s office, through its lawyers in the matter, tried to keep the settlement – entered into nearly two months ago – secret. The SEC announced the charges and settlement in a press release earlier today.
“Full transparency is only one lesson that the Governor needs to make sure his Treasurer takes from the SEC’s charges – the other is that we need to start properly funding the pension system so we do not scare potential investors away,” said Sweeney (D-Gloucester/Cumberland/Salem). “New Jersey still needs investors to play a part in our economic recovery, but this administration has not done one single thing to make them feel better about our finances and accounting.”
In response to the news of the SEC’s charges, Sweeney said he would draft reform legislation that would require the state and other governmental entities to prepare their books in accordance with Generally Accepted Accounting Principles (GAAP) – like the private sector – and to require that annual financial statements and future bond issuances be audited by an independent, certified public accounting firm – not just state employees.
“Using GAAP and having an independent third-party review the state’s books are the most basic principles of good accounting and transparent financial management,” said Sweeney.
The SEC charged the state with securities fraud for not disclosing the state of the pension funds prior to the sale of more than $26 billion in bonds between 2001 and 2007. The SEC said the state’s actions “created the false impression that the Teachers’ Pension and Annuity Fund (TPAF) and the Public Employees’ Retirement System (PERS) were being adequately funded … As a result, investors were not provided adequate information to evaluate the state’s ability to fund the pensions or assess their impact on the state’s financial condition.”
The state has disclosed pension information to investors since the SEC first began investigating the matter in 2007.
Sweeney noted that the state’s current pension obligation stands at $3.5 billion – one-third of the state’s estimated $10.5 billion structural deficit for next year – since the administration did not invest anything into the system for the current fiscal year. Several weeks ago, state Treasurer Andrew Eristoff said the state would look to make a minimum $512 million payment next year, as required by law, but the Governor shrugged off that statement two days later.
“Obviously, the state of the pension system doesn’t just matter to the people who are relying on it for their retirements, it also matters to every taxpayer and potential investor in our state,” said Sweeney. “If the Treasurer wants to really send a message to the financial markets that this administration is different, he could begin by having a budget that actually pays into the system.”