Most peoples' image of New Jersey Gov. Chris Christie these days is the Star-Ledger photo of him sunning himself on an empty public beach that he'd closed because of a budget dispute with the state legislature.
Christie said the lottery deal, part of the state budget passed on July 4, will "provide an immediate reduction in the state's long-term retiree obligations by $13.5 billion" and has increased the pension plans' funding ratio to 59 percent from 45 percent.
But although this deal helps the pensions a bit by forcing the state to contribute the Lottery's profits (currently around $1 billion) to the funds rather than totally stiffing them as it did in some years, Christie's $13.5 billion claim is silly at best, misleading at worst.
Think of it as moving a dollar to your right pocket from your left pocket, then proclaiming that your right pocket has $13.50 in it.
"This is a questionable maneuver designed to produce a better-looking funding ratio," said Lisa Washburn, managing director of Municipal Market Analytics. "I see it as more of an optical benefit for the state than a material improvement in the state's fiscal dilemma."
Sticking the Lottery into the pension funds for 30 years — please note that it's not a permanent transfer, as has been generally reported — doesn't come close to solving their problems. As I'll show you in a bit.
Why haven't Christie's financial exaggerations gotten anything resembling the reaction his sunbathing pictures got?
Because parsing the Lottery deal and explaining it clearly and simply is no day at the beach. (You can groan now.)
This isn't a parochial issue affecting just my fellow Jersey residents and me. If Christie's Lottery lollapalooza somehow gets blessed by the major credit rating agencies and the Government Accounting Standards Board (all of which declined to comment), other states with underfunded pensions and lucrative lotteries will doubtless try similar maneuvers. That would make misleading state bookkeeping a national issue rather than a local issue.
Now, let me take you through all of this, as clearly and simply as I can.
The Acacia Financial Group, an analytical firm hired by the state, projected that the Lottery will earn about $37 billion in profits during the 30 years the pension funds will own it.
Because it's not clear how much the Lottery will make over 30 years — and because a good chunk of whatever shows up won't arrive for decades — Acacia says today's value of the Lottery's projected profits is a marvelously precise $13,535,079,104.
However, even if credit rating agencies and accounting regulators agree to treat the Lottery a multibillion-dollar asset, which I consider unlikely, the Lottery's value on the pension funds' books will gradually drop to zero by mid-2047, when the Lottery reverts to the state. As years go by, the Lottery's value to the pension fund declines because there are fewer years of profits left to collect.
In addition — this is my favorite part — for the first five years of this deal, the state will reduce payments to the pension funds from its general fund by almost exactly the amount that the Lottery produces. This means that for the remaining six months of Christie's term and the first term of his successor, owning the Lottery won't help the pension funds at all.
A May presentation by the state treasurer's office shows the pension plans' funded ratio — their assets divided by the amount they need to cover payments to current and future pensioners — falls from about 60 percent when Christie leaves office at year-end into the 50s.
The ratio then begins to head up. But that rise assumes that future governors and legislatures will put lots more money into the funds than is currently going in. Lottery proceeds, currently just over $1 billion annually and projected to grow about 1 percent a year, compounded, are only a small portion of what's needed to make the funds financially sound.
The Christie administration, as you might expect, takes issue with my conclusions, which I shared with both the Treasury and Christie's chief spokesman.
"Independent, outside analysts assessed the Lottery's fair market value and what it will add to the pension portfolio," the Treasury said in a statement. "Its value is based on its proven business model, decades of revenue history, projections of future returns totaling $37 billion in dedicated pension funding over 30 years, and the relevant actuarial standards. Adding this value to the portfolio reduces the state's pension obligation by $13.5 billion."
If you think, as I said before, that moving a dollar from your left pocket to your right pocket and valuing it at $13.50 passes muster, you'll agree with the Treasury.
If not, you'll agree with me. And that's the bottom line.
Disclosure: I voted for Christie twice.