A bill that will allow local towns to put off paying certain employee pension amounts is designed to save money in this year’s city budgets during tough economic times, but will force the towns to pay the amount starting next year.
Towns that plan to take the option to reduce budget shortfalls this year include West New York, Jersey City, and Bayonne. Other towns may follow suit.
On Monday, the state Senate voted 21-17 and Assembly voted 42-36 to approve the bill, allowing New Jersey towns to defer for half of their payments to the state’s pension system for one year.
Some towns, including Bayonne, were anxiously awaiting the vote because they will to save a good chunk of money this year, helping them avoid layoffs or tax increases.
And with Gov. Jon Corzine’s proposed $29.8 bill budget proposing less state aid for many Hudson County municipalities than last year, any extra money for towns to keep helps to cushion the blow.
Specific legislation
The legislation specifically allows towns – only in the current fiscal year – to defer 50 percent of their annual pension contribution to the Public Employees’ Retirement System (PERS) and the Police and Firemen’s Retirement System (PFRS). Towns normally would have to pay their respective pension contributions by April 1, 2009 for the current fiscal year ending on June 30.
The portion deferred will have to be paid back over a 15-year period at 8.25 percent interest, starting next year. Also, in the next fiscal year, towns that deferred will have to resume paying their pension payments in full.
One town welcoming the pension deferral option is West New York, which is currently facing a $15 million deficit in its current $70 million-plus budget. West New York Mayor Sal Vega said in an interview that it will help the town as they seek savings in all corners, and give tax relief to residents socked with a 27 percent tax increase in the first and second tax quarters of this year.
“We have to take whatever savings we can get.” – West New York Mayor Sal Vega
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“This is a relief with the hope that the economy is going to get better,” said Vega, a former state legislator. “We have to take whatever savings we can get.”
Towns must give rationale
Towns that choose to defer their pension payments will also have to adopt a resolution, separate from other budget resolutions, which provide an explanation for the need to defer the payment. Then the resolution will have to be submitted to the Local Finance Board for approval before towns can adopt their budgets.
Jersey City would have been facing a $15 million budget shortfall if it did not have the option to defer $14.8 out of $30 million in pension contributions. The city held off passing its proposed $460.3 budget until the legislation was approved.
Jersey City Business Administrator Brian O’Reilly said last week that with the legislation passed, the city will be to “stabilize the taxes not decrease the tax rate” and adopt their budget within the next month.
Altered for bipartisan support
State Assemblyman Anthony Chiappone, who represents the 31st District covering all of Bayonne and parts of Jersey City, is also a Bayonne city councilman. Chiappone said Bayonne will seek the deferral as the town currently faces a budget deficit at around $25 million.
The deferral amount could be $4.8 million for Bayonne.
“As a councilman, I would not want to vote to raise taxes, and people can’t afford to pay higher taxes in this tough economy,” Chiappone said. “This is a valid time to use this tool.”
Chiappone said the deferral legislation had to be amended several times from its original incarnation in order to get Democratic officials in both the House and Senate to agree to pass it. The original legislation, proposed by Gov. Corzine at the League of Municipalities Convention in November, allowed for towns to defer pension payments over a three-year period with 50 percent in the first year, 40 percent in the second year, and 20 percent in the third year.
Chiappone said the close voting on Monday was a result of state Republicans “playing politics” in an election year with the governor’s seat up for grabs.
Bayonne will look to adopt its proposed $122 million budget in the next 30 days with savings from the deferral and other cost-saving measures factored into the budget.
Ricardo Kaulessar can be reached at rkaulessar@hudsonrreporter.com.