fy 2020 ida printfinalother services appropriations increase due to the shift of costs to the...

Prepared by the

May 2019

Of f i c e o f Of f i c e o f L E G I S L AT I V E S E R V I C E SL E G I S L AT I V E S E R V I C E SNew Jersey LegislatureNew Jersey Legislature

INTERDEPARTMENTAL ACCOUNTS

A N A LY S I S O F T H E N E W J E R S E Y B U D G E T

F I S C A L Y E A R 2019-2020

S E N AT E B U D G E T A N D A P P R O P R I AT I O N S C O M M I T T E E

Paul A. Sarlo (D), 36th District (Parts of Bergen and Passaic), ChairSandra B. Cunningham (D), 31st District (Part of Hudson), Vice-ChairDawn Marie Addiego (D), 8th District (Parts of Atlantic, Burlington and Camden)Bob Andrzejczak (D), 1st District (All of Cape May, Parts of Atlantic and Cumberland)Nilsa Cruz-Perez (D), 5th District (Parts of Camden and Gloucester)Patrick J. Diegnan Jr. (D), 18th District (Part of Middlesex)Linda R. Greenstein (D), 14th District (Parts of Mercer and Middlesex)Declan J. O’Scanlon, Jr. (R), 13th District (Part of Monmouth)Steven V. Oroho (R), 24th District (All of Sussex, and parts of Morris and Warren)M. Teresa Ruiz (D), 29th District (Part of Essex)Troy Singleton (D), 7th District (Part of Burlington)Samuel D. Thompson (R), 12th District (Parts of Burlington, Middlesex, Monmouth and Ocean)

G E N E R A L A S S E M B LY B U D G E T C O M M I T T E E

Eliana Pintor Marin (D), 29th District (Part of Essex), ChairJohn J. Burzichelli (D), 3rd District (All of Salem, parts of Cumberland and Gloucester), Vice-ChairDaniel R. Benson (D), 14th District (Parts of Mercer and Middlesex)Robert D. Clifton (R), 12th District (Parts of Burlington, Middlesex, Monmouth and Ocean)John DiMaio (R), 23rd District (Parts of Hunterdon, Somerset and Warren)Gordon M. Johnson (D), 37th District (Part of Bergen)Patricia Egan Jones (D), 5th District (Parts of Camden and Gloucester)John F. McKeon (D), 27th District (Parts of Essex and Morris)Raj Mukherji (D), 33rd District (Part of Hudson)Nancy F. Munoz (R), 21st District (Parts of Morris, Somerset and Union)Carol A. Murphy (D), 7th District (Part of Burlington)Edward H. Thomson (R), 30th District (Parts of Monmouth and Ocean)Benjie E. Wimberly (D), 35th District (Parts of Bergen and Passaic)

O F F I C E O F L E G I S L AT I V E S E R V I C E S

Frank W. Haines III, Legislative Budget and Finance Offi cerThomas Koenig, Assistant Legislative Budget and Finance Offi cer

Marvin W. Jiggetts, Director, Central Staff Aggie Szilagyi, Section Chief, State Government Section

NEW JERSEY STATE LEGISLATURENEW JERSEY STATE LEGISLATURE

This report was prepared by the State Government Section of the Offi ce of Legislative Services under the direction of the Legislative Budget and Finance Offi cer.

The primary author was Kimberly M. Clemmensen.

Questions or comments may be directed to the OLS State Government Section (Tel. 609 847-3890) or the Legislative Budget and Finance Offi ce (Tel. 609 847-3105).

INTERDEPARTMENTAL ACCOUNTS

Budget Pages....... C-7,C-15, D-429 to D-444

Fiscal Summary ($000)

Expended FY 2018

Adjusted Appropriation

FY 2019 Recommended

FY 2020

Percent Change

2019-20 State Budgeted $4,220,807 $4,597,427 $4,695,115 2.1%

Federal Funds $0 $0 $0 —

Other $26,617 $48,313 $813 ( 98.3%)

Grand Total $4,247,424 $4,645,740 $4,695,928 1.1%

Personnel Summary - Positions By Funding Source

Actual FY 2018

Revised FY 2019

Funded FY 2020

Percent Change

2019-20 State 0 0 0 —

Federal 0 0 0 —

Other 0 0 0 —

Total Positions 0 0 0 —

FY 2018 (as of December) and revised FY 2019 (as of January) personnel data reflect actual payroll counts. FY 2020 data reflect the number of positions funded.

Link to Website: http://www.njleg.state.nj.us/legislativepub/finance.asp

Interdepartmental Accounts FY 2019-2020

Highlights

2

Property Rentals

The FY 2020 Budget recommends an increase of $43.266 million in Property Rentals, Insurance, and Utilities. Net Property Rental appropriations increase by $4.182 million, primarily due to an increase in Economic Development Authority debt service on bonds for the State House Project and for Capitol Place One (Trenton) improvements. Insurance and Other Services appropriations are reduced by $8.146 million, resulting from a reduction in projected spending for tort claims, the Workers’ Compensation Self Insurance Fund and the Vehicle Claims Liability Fund. Utilities and Other Services appropriations increase due to the shift of costs to the General Fund from the Clean Energy Fund.

Property Rentals, Insurance, and Utilities ($000) Program Area FY 2019 FY 2020 $ Change % Change Property Rentals (Net) $ 179,920 $ 184,102 $ 4,182 2.3% Insurance and Other Services

$ 135,144 $ 126,728 $ (8,146) (6.2%)

Utilities and Other Services

$ 14,093 $ 61,593 $ 47,500 337.0%

Total $ 329,157 $ 372,423 $ 43,266 13.1%

Aid to Independent Authorities

The FY 2020 Budget recommends a reduction of $9.943 million in appropriations to

fund debt service on bonds issued by independent authorities as well as operating support in certain cases. Debt service on outstanding State contract bonds issued for the New Jersey Sports and Exposition Authority declines by $10.3 million, offset by a net increase of $300,000in funding for the New Jersey Performing Arts Center (NJPAC). Capital improvements for the NJPAC are complete, thereby eliminating the need for $1.7 million in funding for capital improvements (a legislative initiative), and a new appropriation of $2 million provides operating aid to the center.

Pensions

The FY 2020 Budget provides total combined appropriations of $3.792 billion in

employer contributions and Lottery Enterprise contributions to the defined benefit retirement systems, 7/10ths of the actuarially determined contribution (ADC) of approximately $5.417 billion, continuing the modified phase-in plan commenced by the previous Administration. The modified phase-in plan provides contributions on a schedule starting at 3/10ths of the actuarial determined contribution in FY 2016 and increasing annually in 1/10th increments, to full funding in FY 2023. As the fifth annual payment under the modified phase-in plan, the FY 2020 pension payment is $579 million (18 percent) above the FY 2019 contribution, of which $546 million is from the budget.


Highlights (Cont’d)

3

Approximately $1.13 billion of the proposed FY 2020 appropriations are budgeted in

Interdepartmental Accounts and those appropriations increase by 21.22 percent, or $198.195 million. The remaining portion of the employer contribution is included in the budgets for the Department of Education ($1.435 billion) and the Department of the Treasury ($154.4 million).

Total Defined Benefit Contributions by Department ($000)

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 $ Change Interdepartmental Total $ 484,227 $ 691,725 $ 679,478 $ 933,948 $ 1,132,143 $ 198,195 Education $ 761,169 $ 1,083,157 $ 719,396 $ 1,111,690 $ 1,435,009 $ 323,319 Treasury $ 61,708 $ 87,176 $ 108,924 $ 130,281 $ 154,411 $ 24,130 Total State Contribution $ 1,307,104 $ 1,861,608 $ 1,508,231 $ 2,175,919 $ 2,721,563 $ 545,644 Total Lottery Contribution $ 1,000,977 $ 1,037,148 $ 1,070,451 $ 33,303 Total Pension Contribution $ 1,307,104 $ 1,861,608 $ 2,509,100 $ 3,213,067 $ 3,792,014 $ 578,947

The funded ratios of each State-administered defined benefit retirement system are itemized

in the table below. As of the time of this writing, the 2018 Actuarial Valuations have not been released. As such, the most recent publicly available official funded ratios are shown below.

2017 Actuarial Valuation – July 1, 2017 - Revised

Funded Ratios Pension Fund Market Value Actuarial Value PERS - State 32.24% 46.57% PERS - Local 66.60% 69.86% TPAF 40.86% 60.66% PFRS - State 34.5% 41.8% PFRS - Local 70.6% 73.1% SPRS 54.7% 57.5% JRS 30.56% 33.56%

FY 2016 @ 3/10 FY 2017 @4/10 FY 2018 @5/10 FY 2019@6/10 FY 2020@7/10 FY 2020 ADCPERS Budget Appropriations 354,612$ 507,178$ 451,752$ 628,000$ 763,017$ Lottery Enterprise -$ -$ 210,405$ 218,008$ 225,009$ PERS Sub-total 354,612$ 507,178$ 662,157$ 846,008$ 988,026$ 1,411,466$ PFRS Budget Appropriations 138,324$ 195,221$ 239,447$ 307,999$ 367,061$ Lottery Enterprise -$ -$ 12,012$ 12,446$ 12,845$ PFRS Sub-total 138,324$ 195,221$ 251,459$ 320,445$ 379,906$ 542,724$ SPRS Budget Appropriations 35,580$ 51,038$ 72,104$ 96,000$ 115,920$ 165,600$ JRS Budget Appropriations 13,951$ 19,677$ 23,266$ 29,000$ 36,610$ 52,300$ TPAF Budget Appropriations 764,489$ 1,087,919$ 721,230$ 1,114,920$ 1,438,954$ Lottery Enterprise -$ -$ 778,560$ 806,694$ 832,597$ TPAF Sub-total 764,489$ 1,087,919$ 1,499,790$ 1,921,614$ 2,271,551$ 3,245,073$ CPFPF Budget Appropriations 148$ 575$ 325$ -$ -$ -$

Total State Contribution 1,307,104$ 1,861,608$ 1,508,124$ 2,175,919$ 2,721,562$ Total State Lottery Enterprise Contribution 1,000,977$ 1,037,148$ 1,070,451$ Total ADC 4,357,013$ 4,653,148$ 5,018,202$ 5,355,112$ 5,417,163$ 5,417,163$ Total State & Lottery Enterprise Contribution/ADC 30% 40% 50% 60% 70% 100%

Total Defined Benefits Contributions: Budget Appropriations and Lottery Enterprise



4

Health Care Benefits

Summary of Total State Active and Retired Health Care Benefits FY 2020 appropriations for active and retired employee health care benefits throughout the

budget total about $2.72 billion, a reduction of 16.1 percent, or $524.4 million. According to the Executive, the budget reflects about $800 million in savings from health benefit reforms and plan design changes, the largest components of which are: $217 million from optimizing health plans for cost efficiency, including recent approval of a new CWA PPO plan; $196 million in Medicare Advantage savings; $160 million from improving procurement methodology, and $115 million in health benefit trend savings. These total savings are net of decreases in fringe benefit cost recovery revenue, and also include estimated cost avoidance, i.e., increases that would otherwise be required in FY 2020 above current year spending levels.

State Employees’ Health Benefits (Active) Interdepartmental Accounts

The FY 2020 Budget recommends total appropriations of $1.209 billion to fund health care benefits for active State employees and employees of institutions of higher education in FY 2020. This represents a reduction of $117.764 million, or 8.9 percent, for medical, prescription drug, dental, and vision coverage.

FY 2018 FY 2019 FY 2020 $ Change % ChangeDirect State ServicesHealth Benefits Active Members 654,442$ 689,851$ 592,986$ (96,865)$ -14.0%Prescription Drugs Active Members 180,659$ 120,793$ 164,210$ 43,417$ 35.9%Dental Benefits Active Members 22,140$ 22,925$ 22,478$ (447)$ -1.9%Vision Benefits Active Members 170$ 500$ 500$ 0.0%Management Efficiencies (32,500)$ Total Direct State Services 824,911$ 834,069$ 780,174$ (53,895)$ -6.5%Grants-In-AidHealth Benefits Active Members 357,219$ 376,624$ 323,028$ (53,596)$ -14.2%Prescription Drugs Active Members 87,124$ 105,269$ 95,148$ (10,121)$ -9.6%Dental Benefits Active Members 11,232$ 11,584$ 11,432$ (152)$ -1.3%Total Grants-In-Aid 455,575$ 493,477$ 429,608$ (63,869)$ -12.9%Total

Health Benefits Active Members 1,011,661$ 1,066,475$ 916,014$ (150,461)$ -14.1%Prescription Drugs Active Members 267,783$ 226,062$ 259,358$ 33,296$ 14.7%Dental Benefits Active Members 33,372$ 34,509$ 33,910$ (599)$ -1.7%Vision Benefits Active Members 170$ 500$ 500$ -$ 0.0%Total Direct State Services and Grants-In-Aid 1,280,486$ 1,327,546$ 1,209,782$ (117,764)$ -8.9%

FY 2020 GOVERNOR'S BUDGET ACTIVE EMPLOYEES' STATE HEALTH BENEFITS DETAIL



5

Post-Retirement Medical Benefits The FY 2020 Budget proposes total appropriations Post-Retirement Medical Benefits (PRM)

of $1.513 billion, a reduction of $406.679 million, or 20.6 percent, below FY 2019 adjusted appropriations. The reduction in costs is primarily due to the enrollment of most retirees in 2018 Medicare Advantage plans. Within the Interdepartmental Accounts budget, PRM appropriations decline by $143.076 million, from $627.868 million to $484.792 million.

State-Funded Post-Retirement Medical Benefits ($000)

Department FY 2018 FY 2019 FY 2020 $ Change

FY19 to FY20 Interdepartmental DSS

$ 546,092 $ 515,023 $ 397,951 $ ($117,072)

Interdepartmental GIA

$ 106,867 $ 112,845 $ 86,841 $ ($26,004)

Interdepartmental Total

$ 652,959 $ 627,868 $ 484,792 $ (143,076)

Education State Aid

$ 1,171,177 $ 1,204,870 $ 961,405 $ (243,465)

Treasury State Aid

$ 83,835 $ 87,741 $ 67,603 $ (20,138)

Total PRM $ 1,907,971 $ 1,920,479 $ 1,513,800 $ (406,679)

Salary Increases and Other Benefits The FY 2020 Budget recommends funding of $142.5 million for the Executive Branch and

$16.3 million for the Judiciary for compensation increases that accrue in FY 2020.These appropriations assume 2 percent cost of living adjustments as of October 1, 2019 and payment of step increments, bonuses and progression increases.


Fiscal and Personnel Summary

AGENCY FUNDING BY SOURCE OF FUNDS ($000)

6

Adj. Expended Approp. Recom. Percent Change

FY 2018 FY 2019 FY 2020 2018-20 2019-20

General Fund

Direct State Services $2,977,964 $3,247,699 $3,452,602 15.9% 6.3%

Grants-In-Aid 1,038,405 1,137,246 1,075,851 3.6% ( 5.4%)

State Aid 0 0 0

Capital Construction 159,413 167,081 121,257 ( 23.9%) ( 27.4%)

Debt Service 0 0 0

Sub-Total $4,175,782 $4,552,026 $4,649,710 11.3% 2.1%

Property Tax Relief Fund

Grants-In-Aid $14,119 $14,142 $14,141 0.2% ( 0.0%)

State Aid 0 0 0

Capital Construction 30,906 31,259 31,264 1.2% 0.0%

Sub-Total $45,025 $45,401 $45,405 0.8% 0.0%

Casino Revenue Fund $0 $0 $0

Casino Control Fund $0 $0 $0

State Total $4,220,807 $4,597,427 $4,695,115 11.2% 2.1%

Federal Funds $0 $0 $0

Other Funds $26,617 $48,313 $813 ( 96.9%) ( 98.3%)

Grand Total $4,247,424 $4,645,740 $4,695,928 10.6% 1.1%

PERSONNEL SUMMARY - POSITIONS BY FUNDING SOURCE

Actual Revised Funded Percent Change FY 2018 FY 2019 FY 2020 2018-20 2019-20

State 0 0 0 0.0% 0.0%

Federal 0 0 0 0.0% 0.0%

All Other 0 0 0 0.0% 0.0%

Total Positions 0 0 0 0.0% 0.0% FY 2018 (as of December) and revised FY 2019 (as of January) personnel data reflect actual payroll counts. FY 2020 data reflect the number of positions funded.

AFFIRMATIVE ACTION DATA

Total Minority Percent N/A N/A N/A ---- ----


Significant Changes/New Programs ($000)

Budget Item Adj. Approp.

FY 2019Recomm.FY 2020

DollarChange

PercentChange

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GENERAL GOVERNMENT SERVICES

Direct State Services Property Rentals Property Rentals appropriations encompass funding for existing and anticipated leases of office and other facilities used by State agencies, payments for debt service leases, and payments in lieu of property taxes on facilities occupied by State agencies, as well as payments for various fire safety systems and office furnishings. The accounts also reflect the cost of rent for agencies that is ultimately financed from sources other than the General Fund, such as federal funds. The State recovers, from non-State fund sources, the cost of renting and maintaining office space. These recoveries, referred to as “direct rent,” serve to reduce the cost to the General Fund. The net cost to the General Fund is referred to as “central rent.”

Property Rentals $264,064 $268,246 $ 4,182 1.6% D-433 This line item represents gross property rentals costs. This proposed increase reflects higher costs directly related to the rental of real property for the conduct of State business. The factors causing this change are discussed below with respect to each component of the Property Rentals total. Existing and Anticipated Leases $186,963 $186,963 0 — D-433

The Existing and Anticipated Leases appropriation comprises the gross cost for office space and other property rentals for State agencies and includes (but is not limited to) rent payments, taxes, janitorial services, utilities, snow removal, advertising, moving, and security costs. The budget anticipates no changes in existing and anticipated lease costs in FY 2020. Costs associated with existing and anticipated leases include: rent, taxes, utilities, janitorial and other services, operating escalations (increases in payments from automatic escalation clauses in multi-year leases), and costs associated with approved new space. These costs are shown in Table 1 below.


Significant Changes/New Programs ($000) (Cont’d)



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Table 1

Existing and Anticipated Leases ($000) Existing and

Anticipated Leases FY 2019

Adjusted Appropriation FY 2020

Recommendation

Change

Rent $ 121,083 $ 121,083 $ 0

Taxes $ 763 $ 763 $ 0 Janitorial $ 3,568 $ 3,568 $ 0 Utilities $ 9,554 $ 9,554 $ 0 Operating Escalations $ 42,472 $ 42,472 $ 0 Other Lease Services $ 3,908 $ 3,908 $ 0 Approved New Space $ 4,865 $ 4,865 $ 0 Other $ 750 $ 750 $ 0 Total $ 186,963 $ 186,963 $ 0 Source: Office of Management and Budget

Economic Development Authority $39,831 $43,881 $ 4,050 10.2% D-433

The State has capital lease agreements with the New Jersey Economic Development Authority (EDA) for various facilities and facility improvements that the EDA has financed around the State. As lessee, the State is required to make rental payments sufficient to cover the debt service and other amounts payable to the EDA. The line item above represents the debt service on bonds issued for the acquisition, renovation, and construction of certain land, office buildings and improvements in Camden, Capitol Place One (Trenton), five State Police barracks properties, the rehabilitation, renovation, and improvement of the Executive Statehouse, and the replacement of office buildings and facilities for the Department of Health/Agriculture and the Juvenile justice Commission. The FY 2020 increase for EDA costs is due primarily to annualizing debt service for the State House Project (+$3.262 million) and proposed new debt service of $845,000 for Capitol Place One. These increases are offset by $55,000 in remaining defeasance savings resulting from the sale of the Camden Office Building in November 2017 and other minor reductions. The proceeds from the sale of the Camden Office building were deposited into an escrow account and used to call bonds for redemption on December 21, 2017 for Asbury Park, Cherry Hill, and Liberty State Park. The EDA remarketed bonds previously issued for the State House Project on October 24, 2018 to convert the notes to interest at fixed rates before they matured in December 2018. Annual debt service on the remarketed bonds is $10.207 million in FY 2019 and $23.798 million in FY 2020. The FY 2019 adjusted appropriation for debt service on the 2017 Series bonds for the State House Project is $3.925 million higher than actual debt service. The FY 2020 debt service appropriation is $6.34 million less than the actual FY 2020 debt service, with the





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difference to be paid from the premium received from the remarketing transaction. The proposed changes in debt service with the EDA are shown in Table 2 below. Table 2

Economic Development Authority ($000) Economic

Development Authority

FY 2019 Adjusted

Appropriation

FY 2020

Recommendation

Change Camden $ 55 $ 0 $ (55) Capital Place One $ 0 $ 845 $ 845 State Police Barracks $ 970 $ 969 $ (1) State House Project $ 14,196 $ 17,458 $ 3,262 State Office Building Project Bonds

$ 24,610 $ 24,609 $ (1)

Total $ 39,831 $ 43,881 $ 4,050 Source: Office of Management and Budget

Other Debt Service Leases and Tax Payments $37,270 $37,402 $ 132 .4% D-433

The Other Debt Service Leases and Tax Payments appropriation consists primarily of debt service costs, taxes, and payments in lieu of taxes (PILOTs) for facilities financed by independent public entities and occupied by State agencies, including costs other than debt service of the EDA facilities noted above. The proposed FY 2020 increase in this category is the result of changes in various fees and taxes totaling $132,000, as shown in Table 3 below. Table 3

Other Debt Service Leases and Tax Payments ($000)

Other Debt Service Leases and Tax Payments

FY 2019 Adjusted

Appropriation

FY 2020

Recommendation

Change Asbury Park Administration Fee $ 65 $ 65 $ 0 Asbury Park PILOT $ 83 $ 85 $ 2 Bridgeton Debt Service $ 807 $ 0 $ (807) Bridgeton Operating Expenses

$ 711 $ 0 $ (711)

Capitol One Taxes $ 2,585 $ 2,715 $ 130 Capital One-EDA Administration Fees $ 26 $ 26 $ 0 DOT Cherry Hill PILOT $ 120 $ 125 $ 5 DOT Cherry Hill EDA Administration Fee $ 20 $ 20 $ 0

Greystone $ 17,605 $ 17,609 $ 4 Marlboro $ 3,874 $ 3,872 $ (2)





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Justice Complex Taxes $ 9,554 $ 10,670 $ 1,116 Taxation Building Debt Service $ 631 $ 691 $ 60 Taxation Building Insurance

$ 20 $ 20 $ 0

Taxation Building Property Taxes & TDA Taxes

$ 1,149 $ 1,484 $ 335

State Police Locations Administrative Fees EDA

$ 20 $ 20 $ 0

Total $ 37,270 $ 37,402 $ 132 Source: Office of Management and Budget

Less: Total Deductions $84,144 $84,144 $0 — D-433

This line item represents “direct rent” reimbursements to State agencies from federal and other dedicated funds to defray facilities occupancy costs, based upon the use of those facilities in delivering programs and services supported by those resources. To the extent that these reimbursements decrease, State appropriations needed to fully fund rental and other costs increase.

Net Property Rentals $179,920 $184,102 $ 4,182 2.3% D-433 The “central rent” requirement for FY 2020 is the net result of the increases and decreases in the Property Rental items noted above. Insurance and Other Services The Insurance and Other Services appropriations fund insurance premiums for property, casualty, and special insurance policies for coverage against losses to State-owned real property, machinery and fine art objects. The State self-administers its insurance programs and is self-insured for Tort Claims, Workers’ Compensation, automobile (vehicle claims) liability, risks and claims arising from the Foster Parents Program, and the Medical Malpractice Self-Insurance Fund for Rutgers, Rowan, and University Hospital. Tort Claims Liability Fund $22,400 $16,000 ($6,400) ( 28.6%) D-433

The Tort Claims Liability Fund provides funding for the payment of claims arising from wrongful actions or omissions (not based on contractual obligations), indemnification of pool attorneys engaged by the Public Defender for the defense of indigents, indemnification of a designated pathologist engaged by the State Medical Examiner, and direct costs of legal, administrative, and medical services related to the investigation, mitigation, and litigation of tort claims against public entities under N.J.S.A. 59:1-1 et seq., the “New Jersey Tort Claims Act.” Budget language provides that additional funds may be appropriated for the purpose of





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paying tort claims under N.J.S.A. 59:12-1 as recommended by the Attorney General and as determined by the Director of the Division of Budget and Accounting. According to the Department of the Treasury, the FY 2020 reduction of $6.4 million is based on projected spending. The department assumes it will spend only $14.8 million of the FY 2019 appropriation. Workers’ Compensation Self-Insurance Fund $93,500 $92,500 ($1,000) ( 1.1%) D-433

The State is self-insured for workers’ compensation payments made to State employees for work-related injuries. Expenditures have averaged about $91 million for FY 2016 through FY 2018. Under current law, the Workers’ Compensation Self-Insurance Fund provides funding for the payment of direct costs of legal, investigative, administrative, and medical services related to claims against the fund. Cost components are medical expenses, expenses to adjudicate claims including petitioner attorney fees, the cost of temporary wage replacement benefits, and the cost of court awards for permanency of the injury. Factors that contribute to changes in workers’ compensation costs include changes in the number of claims, medical costs, and disability rates. Trends used to inform a recommendation for the budget include the accident frequency rate, medical inflationary rates, indemnity costs and historical costs. According to the department the recommended reduction reflects the expected trend in claims and administrative savings from processing more claims in-house. Property Insurance Premium Payments $3,218 $3,178 ($ 40) ( 1.2%) D-433

The Property Insurance Premium Payments appropriation is used to purchase insurance coverage for damage to State-owned real and personal property. Coverage includes standard protection for buildings and contents, marine vessels, catastrophic loss to vehicles parked in State locations, and mainframe computer equipment coverage. Additional policies include fine arts coverage and high-value van coverage. Changes in the account are shown below in Table 4. Table 4

Property Insurance Premium Payments ($000)

Policy

Type of Coverage

FY 2019

FY 2020 Percent Change

Affiliated FM Property Insurance $ 2,945 $ 2,906 (1.3%) Travelers Fine Arts Floater – Museum $ 96 $ 95 (1.0%) Travelers Fine Arts Floater – DEP $ 2 $ 2 0.0% Marsh USA Brokers Services Fees $ 175 $ 175 0.0% Total $ 3,218 $ 3,178 (1.2%) Source: Office of Management and Budget





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Casualty Insurance Premium Payments $391 $415 $ 24 6.1% D-433

The Casualty Insurance Premium Payments appropriation is used to purchase automobile excess liability insurance; aircraft liability and physical hull damage insurance; workers’ compensation for special classes of State employees supported by federal or non-State funds; and accidental health insurance to provide medical reimbursement, disability, and death benefits to volunteers in State programs who do not qualify as State employees and would not be eligible for workers’ compensation benefits. Casualty premiums include the New Jersey State Police marine fleet as well as Aircraft Hull and Liability Insurance. Changes in the account are shown below in Table 5. Table 5

Casualty Insurance Premium Payments ($000)

Policy Type of Coverage FY 2019 FY 2020 Percent Change

AIG Aerospace Aviation Liability & Hull $ 281 $ 301 7.1%

Travelers Marine (watercraft) Hull-NJSP Marine Fleet

$ 63 $ 67 6.3%

Travelers Marine (watercraft) Hull-DEP Marine Fleet

$ 32 $ 33 3.1%

Hartford Special Vehicle Policy $ 15 $ 14 (6.7%) Total $ 391 $ 415 6.1% Source: Office of Management and Budget

Special Insurance Policy Premium Payment $510 $510 $0 — D-433

The Special Insurance Policy Premium Payment appropriation is used to purchase special insurance policies such as: the New Jersey Network Public Broadcasters Liability (required by the Public Broadcasting Service); the Treasurer’s Bond (the State Treasurer is bonded for the handling of various funds); and Blanket Position Bond insurance, which guarantees payment to the State for losses caused through employees’ fraudulent or dishonest acts. In addition, special accident and health insurance is purchased to provide for medical expense reimbursement and disability and death benefits to students and volunteers who otherwise do not qualify as State employees and are precluded from collecting workers’ compensation benefits. While the total appropriation is unchanged, certain premium payments differ as shown in Table 6.





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Table 6

Special Insurance Policy Premium Payment ($000) Policy

Type of Coverage

FY 2019

FY 2020

Percent Change

ACE Special Risk Coverage $ 0 $ 11 100% AIG Primary Crime Insurance $ 98 $ 97 (1.0%) Chubb Blanket Accident Policy-Superior

Court $ 45 $ 45 0.0%

ACE & Hartford Capital City (GL, AL, Umbrella) $ 6 $ 5 (16.7%) Axis Insurance Company

Broadcasters Liability $ 11 $ 11 0.0%

AIG Cyber Liability $ 350 $ 341 (2.6%) Total $ 510 $ 510 0.0% Source: Office of Management and Budget

Vehicle Claims Liability Fund $3,500 $2,500 ($1,000) ( 28.6%) D-433

The Vehicle Claims Liability Fund supports an experience-based program of self-insurance against automobile liability risk. Funding is for the payment of direct costs of legal, investigative, and medical services related to the investigation, mitigation, and litigation of claims against the fund. According to the department, the reduction in this account of $1 million is based on the expected payout of claims considering current trends and other factors. Actual expenditures averaged $1.5 million per year for the three most recently concluded fiscal years, with the highest expenditure in that time period totaling $2.4 million. Utilities and Other Services $0 $47,500 $47,500 — D-433

The Utilities and Other Services Account provides for payment of fuel, utilities, janitorial services, and trash removal for State-owned and lease-purchase facilities primarily in the Capitol district, as well as some fuel and utility costs for State departments. This FY 2020 General Fund appropriation reverses the practice of appropriating money from the Clean Energy Fund to pay for State facilities fuel and utility costs. In FY 2010 General Fund appropriations were reduced by $30 million and an equal amount for fuel and utility costs were appropriated from the Clean Energy Fund. The Clean Energy Fund appropriation for these costs increased in FY 2011, to $42.5 million, then to $52.5 million in FY 2016, and then decreased in FY 2019 to $47.5 million





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Grants-In-Aid

Aid to Independent Authorities New Jersey Sports and Exposition Authority-Debt Service $63,665 $53,377 ($10,288) ( 16.2%) D-434

The FY 2020 New Jersey Sports and Exposition Authority debt service appropriation is the amount resulting from the issuance of $99.4 million in refunding bonds in November 2018. The transaction refunded about $103.7 million in outstanding NJSEA bonds and reduced the total amount of State contract bonds outstanding to about $220 million. P.L.1971, c.137 created the New Jersey Sports and Exposition Authority (NJSEA). The law provided for the acquisition, ownership, and operation of football stadiums, arenas, entertainment facilities, convention centers, and racetracks, including the Meadowlands Sports Complex, the Monmouth Park Racetrack, the Atlantic City Boardwalk Hall, the Atlantic City Convention Center, Rutgers University stadium, and the Wildwood Convention Center. The NJSEA bonds originally issued were secured by the revenues the NJSEA received from operating the facilities; however, as the original issue bonds were refinanced, the bonds became secured, in part, by State appropriations. Debt service on the bonds is payable pursuant to a contract between the State Treasurer and the NJSEA, subject to appropriation by the Legislature. Liberty Science Center

$ 10,799 $ 1,500 S $12,345 $ 46 .4% D-434

The FY 2020 recommendation provides $9.845 million to support debt service on outstanding bonds, which is consistent with the maturity schedule on outstanding bonds in the FY 2018 debt report, and $2.5 million for continued operating support for the Liberty Science Center. The FY 2019 supplemental appropriation provides an additional $1.5 million in operating support for the center. The original FY 2019 appropriation provided $9.799 million to support debt service on outstanding bonds issued to finance the facility and $1 million for operating support, the latter amount having been added at the Legislature’s initiative. Under P.L.1974, c.80, the Economic Development Authority is authorized to issue bonds for the design, construction, renovation, expansion, and acquisition of science exhibits for the Liberty Science Center (LSC) begun in 2003. The Liberty Science Center is located in Liberty State Park. Liberty State Park is a 1,200-acre park covering land and marshes in the Meadowlands. It has two restaurants, a marina, the historic Central Railroad Terminal of New Jersey, and the Liberty Science Center (LSC). In FY 2002 and FY 2005, the Economic Development Authority (EDA) issued a total of $95 million in bonds in three separate issuances for the design, construction, renovation, expansion, and acquisition of exhibits for the Liberty





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Science Center. The projects included the renovation of the building, the construction of a new addition to the center, the renovation and improvement of the Science Center’s parking lot, and the improvement of the Central Railroad of New Jersey Terminal. In November 2015 the EDA issued $79.6 million in refunding bonds which refunded all prior debt issued for Liberty Science Center projects and Liberty State Park projects (EDA). According to the Department of Treasury, growth of $46,000 is required to fund increased debt service costs $9.845 million in FY 2020. Since FY 2012, budget language has provided the authority for the LSC appropriation to be used not only for debt service, but also for operational costs of the LSC. The amount of the operational support for the LSC is to be determined by the State Treasurer pursuant to an agreement between the State Treasurer and the LSC. The difference between the total appropriation in a fiscal year and debt service has determined the funding for operational support. From FY 2012 through FY 2019, funding for operational support averaged approximately $3.477 million. Other funding for the Liberty Science Center totaling $1.350 million for Educational Services is budgeted in the Department of Education. Table 7 illustrates the total funding (excluding funding from the Department of Education) for the Liberty Science Center from FY 2012 through FY 2020 and the debt service and operational support components. Table 7

Liberty Science Center History of Appropriations

FY 2012 to FY 2020

EDA Debt Service Operational

Support Total

FY 2012 $ 7,426,000 $ 3,600,000 $ 11,026,000 FY 2013 $ 7,390,000 $ 3,600,000 $ 10,990,000 FY 2014 $ 7,350,000 $ 3,600,000 $ 10,950,000 FY 2015 $ 7,300,000 $ 3,645,000 $ 10,945,000 FY 2016 $ 2,400,000 $ 3,700,000 $ 6,100,000 FY 2017 $ 9,684,000 $ 3,616,000 $ 13,300,000 FY 2018 $ 9,739,000 $ 3,561,000 $ 13,300,000 FY 2019 (adjusted) $ 9,799,000 $ 2,500,000 $ 12,299,000 FY 2020 (recommended) $ 9,845,000 $ 2,500,000 $ 12,345,000 Source: Responses to Discussion Points: Liberty Science Center; Office of Legislative Services, Analyses of the New Jersey Budget, Interdepartmental Accounts; Budget documents.





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New Jersey Performing Arts Center – Capital Improvements $1,700 $0 ($1,700) ( 100.0%) D-434

New Jersey Performing Arts Center – Operating Aid $0 $2,000 $ 2,000 --- D-434

The New Jersey Performing Arts Center (NJPAC), located in Newark and operated by a private non-profit corporation, was financed by the New Jersey Economic Development Authority in 1996 with $62.91 million in bonds. The project included a state-of-the-art center with multi-purpose theaters, support facilities, surface parking, and open plazas. At the initiative of the Legislature, $1.7 million was appropriated in FY 2018 and FY 2019 to fund $3.4 million in urgent capital improvements to the roof and to the heating, ventilation, and air conditioning system of the performing arts center to ensure its safety and sustainability. The capital improvements are complete and the funds are fully expended, thus no additional funding is recommended for FY 2020. The corporation operates the center, parking facilities and Theater Square, produces and provides a number of artistic programs and performances, and offers arts educational programming and services. It also engages in real estate development activities. It receives grants from various sources, including the State, to fund its educational and cultural programs and activities. According to its audited financial statement for the year ending June 30, 2018, the corporation’s unrestricted operating revenue, other support and net contributed revenue totaled about $49.1 million, and it incurred operating expenses of about $50.8 million. According to the department, this new line-item is to support ongoing general operating costs of the NJPAC. No other information is available to explain the Executive’s decision to provide an operating subsidy.

Capital Construction Statewide Capital Projects Statewide Capital Projects include capital additions, improvements, and equipment projects for the construction, maintenance, and repair of State-owned and State-financed buildings including preservation, life safety, construction, compliance, acquisition, and environmental projects.





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New Jersey Building Authority $74,654 $28,819 ($45,835) ( 61.4%) D-434

P.L.1981, c.120 created the New Jersey Building Authority (NJBA) for the purpose of financing, acquiring, constructing, reconstructing, rehabilitating, and improving office buildings and related facilities to meet the needs of State agencies. The authority is also responsible for the design and construction of correctional facilities, as well as the restoration and renovation of historic public buildings. The authority is authorized to issue bonds and notes to construct facilities for leasing to the State. The outstanding Building Authority Revenue Bonds are secured by annual rental payments from the State which are subject to annual appropriations by the Legislature. The principal amount outstanding on the NJBA bonds as of June 30, 2018 was $196,345,000. The amount recommended for FY 2020 debt service is consistent with the amount due per the Fiscal Year 2017 Debt Report (no events subsequent to that report have affected the NJBA’s debt position). All Other Funds Utilities and Other Services $48,313 $813 ($47,500) ( 98.3%) D-435

The FY 2020 Budget reverses the practice of appropriating money from the Clean Energy Fund to pay for State facilities fuel and utility costs. This FY 2020 reduction reflects that reversal and corresponds to an appropriation of $47.5 million from the General Fund, noted previously.

EMPLOYEE BENEFITS There are five main categories of appropriations within the Employee Benefits accounts: Pensions, Health Benefits, Post-Retirement Medical Benefits, employer taxes, and pension bond debt service. Most State employees including those of State higher education institutions, and most employees of counties, municipalities, and school districts, are members of one of the seven State-administered retirement systems: the Alternate Benefits Program (ABP), the Defined Contribution Retirement Program (DCRP), the Public Employees’ Retirement System (PERS), the Teachers’ Pension and Annuity Fund (TPAF), the Police and Firemen’s Retirement System (PFRS), the State Police Retirement System (SPRS), and the Judicial Retirement System (JRS). The first two plans are defined contribution plans and the other five are defined benefit plans. In addition, there are two closed systems, the Consolidated Police and Firemen’s Pension Fund (CPFPF) and the Prison Officer’s Pension Fund (POPF) that enroll no new members. Under current law, all defined benefit pension plans are subject to actuarial valuation every year and actuarial experience studies every three years. Appropriations for employee benefits are included in the budgets for Interdepartmental Accounts, the Department of Education and the Department of the Treasury. Employer defined contribution system payments and health benefits funding are shown in Table 8 below.





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Table 8

FY 2020 Selected Employee Benefits by Department ($000) Defined Benefit

Pensions Health Benefits Active

Post-Retirement Medical

Interdepartmental DSS and GIA

$ 1,132,142 $ 1,209,782 $ 484,792

Education $ 1,435,009 $ 0 $ 961,405 Treasury $ 154,411 $ 0 $ 67,603 Total $ 2,721,562 $ 1,209,782 $ 1,513,800 The FY 2020 State employer contribution for the defined benefit pensions is 7/10ths of the actuarially determined contributions in all pension funds, except the Consolidated Police and Firemen’s Pension Fund (CPFPF), less the Lottery Enterprise contribution offset for PERS, TPAF, and PFRS. The total Lottery Enterprise contribution offset for FY 2020 is $1,070,451,102. The table does not include non-contributory insurance.

Employee Benefits $3,901,118 $3,867,502 ($33,616) ( .9%) D-441 Table 9 summarizes the recommended changes in the appropriations that are included in Direct State Services (DSS) and Grants-In-Aid (GIA) Interdepartmental Accounts sections of the FY 2020 Budget and includes pensions, non-contributory insurance, volunteer emergency survivor benefits, health care benefits for active employees, post-retirement medical, employer taxes, pension bonds, and Affordable Care Act fees. Table 9

INTERDEPARTMENTAL ACCOUNTS EMPLOYEE BENEFITS State and Higher Education Employees

Changes in Appropriations by Program; Adjusted FY 2019 to Recommended FY 2020 ($000) Change in

Direct State Services (State Employees)

Change in Grants-In-Aid

(Higher Education)

Total Change in

DSS and GIA Total Pensions* $ 173,906 $ 27,796 $ 201,702 Pensions–Non-Contributory Insurance

$ 2,074 $ 1,383 $ 3,457

Total Health Benefits Active

$ (53,895) $ (63,869) $ (117,764)

Post-Retirement Medical Benefits

$ (117,072) $ (26,004) $ (143,076)

Affordable Care Act Fees

$ 0 $ 0 $ 0

Employer Taxes $ (409) $ 8,477 $ 8,068 Pension Bonds $ 13,233 $ 764 $ 13,997 Total $ 17,837 $ (51,453) $ (33,616) *Total Pensions also includes the Alternate Benefit Program, the Defined Contribution Program, the Pension Adjustment Act, the Veterans Act, and the Volunteer Survivor’s Benefit. Employer Taxes includes Social Security, Temporary Disability Insurance, and Unemployment Insurance.





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The FY 2020 Budget recommends an appropriation of about $3.867 billion to provide funding for benefits for State employees and retirees (DSS) and employees and retirees of State higher educational institutions (GIA). This is $33.616 million, or 0.9 percent, less than the FY 2019 adjusted appropriation of $3.901 billion. This proposed change is due to increases of: (1) $201.702 million in pension appropriations; (2) $3.457 million in non-contributory insurance; (3) $8.068 million in employer taxes; and (4) $13.997 million in debt service on pension obligation bonds These increases are offset by reductions of (1) $117.764 million in health benefits for active employees; and (2) $143.076 million in post-retirement medical benefits. Affordable Care Act fees remained the same. Details of the Direct State Services and Grants-In-Aid sections of the Employee Benefits budget are discussed in order below. Direct State Services

Employee Benefits $2,880,017 $2,897,854 $17,837 .6% D-439 The proposed increase in funding for employee benefits for active and retired State employees is the net result of an $173.906 million increase in total employers’ pension contributions, a $2.074 million increase in non-contributory insurance and a $13.233 million increase in debt service payments for pension bonds, offset by a $53.895 million reduction in health care benefit costs for active employees; a $117.072 million reduction in post-retirement medical benefits; and a $409,000 reduction in employer taxes. Pensions Public Employees’ Retirement System $617,864 $731,164 $113,300 18.3% D-439

Police and Firemen’s Retirement System $169,863 $201,900 $32,037 18.9% D-439

Police and Firemen’s Retirement System (P.L.1979, c.109) $3,289 $3,898 $ 609 18.5% D-439

State Police Retirement System $96,000 $115,920 $19,920 20.8% D-439

Judicial Retirement System $29,000 $36,610 $ 7,610 26.2% D-439

Teachers’ Pension and Annuity Fund $2,570 $3,153 $ 583 22.7% D-439

Total Defined Benefit Retirement System $918,586 $1,092,645 $174,059 18.9% __





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The FY 2020 Budget increases the annual employer contribution to defined benefit retirement systems from 6/10ths to 7/10ths of the actuarially determined contribution. The contribution is from two funding sources, the General Fund and the Lottery Enterprise, and totals $3.792 billion, compared to a full contribution of $5.417 billion. The budget line items listed above show the differences for each State-administered defined benefit retirement system in the Direct State Services section of the Interdepartmental Accounts budget. Table 10 below shows the State budget and Lottery Enterprise proposed appropriations for each of the State-administered defined benefit retirement systems and the percentage of the actuarially determined contribution that those appropriations represent. Table 11 shows the allocation of the pension appropriations by department. Table 10

Table 11

Total Defined Benefit Appropriations by Department ($000) FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 $ Change Interdepartmental Accounts $ 484,227 $ 691,725 $ 679,478 $ 933,948 $ 1,132,143 $ 198,195 Education $ 761,169 $ 1,083,157 $ 719,396 $ 1,111,690 $ 1,435,009 $ 323,319 Treasury $ 61,708 $ 87,176 $ 109,249 $ 130,281 $ 154,411 $ 24,130 Total State Contribution $ 1,307,104 $ 1,861,608 $ 1,508,123 $ 2,175,919 $ 2,721,563 $ 545,644 Total Lottery Contribution $ 1,000,977 $ 1,037,148 $ 1,070,451 $ 33,303 Total Pension Contribution $ 1,307,104 $ 1,861,608 $ 2,509,100 $ 3,213,067 $ 3,792,014 $ 578,947

FY 2016 @ 3/10 FY 2017 @4/10 FY 2018 @5/10 FY 2019@6/10 FY 2020@7/10 FY 2020 ADCPERS Budget Appropriations 354,612$ 507,178$ 451,752$ 628,000$ 763,017$ Lottery Enterprise -$ -$ 210,405$ 218,008$ 225,009$ PERS Sub-total 354,612$ 507,178$ 662,157$ 846,008$ 988,026$ 1,411,466$ PFRS Budget Appropriations 138,324$ 195,221$ 239,447$ 307,999$ 367,061$ Lottery Enterprise -$ -$ 12,012$ 12,446$ 12,845$ PFRS Sub-total 138,324$ 195,221$ 251,459$ 320,445$ 379,906$ 542,724$ SPRS Budget Appropriations 35,580$ 51,038$ 72,104$ 96,000$ 115,920$ 165,600$ JRS Budget Appropriations 13,951$ 19,677$ 23,266$ 29,000$ 36,610$ 52,300$ TPAF Budget Appropriations 764,489$ 1,087,919$ 721,230$ 1,114,920$ 1,438,954$ Lottery Enterprise -$ -$ 778,560$ 806,694$ 832,597$ TPAF Sub-total 764,489$ 1,087,919$ 1,499,790$ 1,921,614$ 2,271,551$ 3,245,073$ CPFPF Budget Appropriations 148$ 575$ 325$ -$ -$ -$

Total State Contribution 1,307,104$ 1,861,608$ 1,508,124$ 2,175,919$ 2,721,562$ Total State Lottery Enterprise Contribution 1,000,977$ 1,037,148$ 1,070,451$ Total ADC 4,357,013$ 4,653,148$ 5,018,202$ 5,355,112$ 5,417,163$ 5,417,163$ Total State & Lottery Enterprise Contribution/ADC 30% 40% 50% 60% 70% 100%

Total Defined Benefits Contributions: Budget Appropriations and Lottery Enterprise





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Alternate Benefit Program – Employer Contributions $1,246 $1,217 ($ 29) ( 2.3%) D-439

The Alternate Benefit Program (ABP) (N.J.S.A. 18A:66-167 et seq.) is principally for full-time faculty of public institutions of higher education, but also includes certain State professional administrative staff. Participants have the option to provide for their retirement through the purchase of fixed or variable annuities underwritten by private vendors, the Teachers Insurance and Annuity Association (TIAA), or the College Retirement Equities Fund (CREF). The minimum contribution by employees is 5 percent of base salary. The employers (State and institutions of higher education) contribute a flat rate of 8 percent of base salary. The FY 2020 Budget recommends an appropriation of $1.217 million for active State professional administrative staff. This amount is based on membership and wage trends and is consistent with the Division of Pensions and Benefits assumption of a 2 percent reduction in salary costs below a revised wage base. Pension Adjustment Program $527 $395 ($ 132) ( 25.0%) D-440

The Pension Adjustment Program appropriation provides funding for residual cost-of-living adjustments (COLAs) in the benefits paid to retirees of the three closed State-administered defined benefit pension retirement systems: the Consolidated Police and Firemen Pension Fund (CPFPF), the Prison Officers Pension Fund (POPF), and the Central Pension Fund. There is a fixed adjustment for individuals who retired prior to January 1, 1955, and, for retirees after that date, the adjustment is 60 percent of the change in the consumer price index. This program is funded on a pay-as-you-go basis through annual employer contributions. COLA increases were suspended in FY 2011 pursuant to P.L.2011, c.78. Because the calculation for the actuarial required contribution contained an assumption for a COLA beginning in1992 towards which public employees contributed through biweekly payroll deductions and public employers contributed through annual appropriations, a residual COLA exists, which phases out (because of the suspension of the COLA) over a 30-year period, ending in FY 2041. According to the agency response to an OLS FY 2019 discussion point, the reduction in the CPFPF and POPF residual COLA between FY 2017 and FY 2018 was approximately $161,636. The FY 2020 reduction reflects a lower projected residual COLA and declining costs from fewer living retirees. Volunteer Emergency Survivor Benefits

$ 202 $ 23 S $233 $ 8 3.6% D-440

The Volunteer Emergency Worker Survivors’ Pension (VESP) was established by P.L.2002, c. 134 and provides State-funded survivors’ pensions for certain volunteer emergency workers who are killed in the performance of their volunteer duties. Survivors (dependents) of a volunteer firefighter, first aid worker, rescue squad worker, or emergency medical technician killed while performing volunteer duties during an emergency (including during travel to and





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from the emergency site) on or after January 1, 2000 may be eligible for a VESP. The annual benefit, which is exempt from federal income tax, is paid monthly by the Division of Pensions and Benefits, and is as follows: widow or widower with or without dependent children, $15,000; dependent children with no surviving widow or widower or after the death of a surviving widow or widower, $15,000 split equally between the eligible children; dependent children (after surviving widow or widower remarries, $10,000 split equally between the eligible children. The FY 2019 supplemental appropriation provides funding for three new VESB recipients who established eligibility commencing January 1, 2019 bringing the total number of VESB to 15. The Division of Pensions and Benefits anticipates that one additional recipient will establish eligibility in calendar year 2020. This supplemental funding and the increase in the recommended FY 2020 appropriation of $8,000 will fully fund the three new recipients who established eligibility in calendar year 2019 and partially fund (six months) one additional recipient in FY 2020.

Total Pensions (DSS) $922,123 $1,095,029 $173,906 18.9% --- This total includes the appropriations for the PERS, PFRS, SPRS, JRS, TPAF, the ABP, the Defined Contribution Retirement Program, the Pension Adjustment Act, the Volunteer Emergency-Worker Survivor’s Pension and Veterans’ Act Pensions. Non-Contributory Insurance Non-Contributory Insurance (NCI) appropriations fund the group life insurance plan for enrolled members, also known as the death benefit. NCI comprises part of the State’s annual required contributions, but is paid in full each year. NCI is a group insurance plan in which the insured members pay no portion of the premium for their insurance. The State as group policyholder pays the entire premium. The enrollment of group members is automatic and all eligible members are covered. According to the Division of Pensions and Benefits, non-contributory insurance appropriations also include long-term disability (LTD) insurance premiums on behalf of PERS-State and TPAF members. The State funds NCI for State employees (budgeted in Direct State Services) and for employees of public State institutions of higher of education (budgeted in Grants-In-Aid). NCI appropriations are displayed in Table 12. Table 12

Total Non-Contributory Insurance – Interdepartmental Accounts ($000) FY 2019 FY 2020 $ Change % Change Total NCI in IDA-DSS $42,312 $44,386 $2,074 4.9% Total NCI in IDA-GIA $28,770 $30,153 $1,383 4.8% Total NCI $71,082 $74,539 $3,457 4.9%





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The recommended Non-Contributory Insurance appropriations for each account in the Direct State Services budget are as follows: Public Employees’ Retirement System $29,672 $30,747 $ 1,075 3.6% D-439

Police and Firemen’s Retirement System $9,031 $9,589 $ 558 6.2% D-439

Alternate Benefit Program $204 $201 ($ 3) ( 1.5%) D-439

Defined Contribution Retirement Program $662 $669 $ 7 1.1% D-439

State Police Retirement System $2,000 $2,359 $ 359 18.0% D-439

Judicial Retirement System $696 $775 $ 79 11.4% D-439

Teachers’ Pension and Annuity Fund $47 $46 ($ 1) ( 2.1%) D-439

Total Non-Contributory Insurance $42,312 $44,386 $ 2,074 4.9% ---

The proposed FY 2020 funding in each account reflects the estimated pay-as-you go cost to fund NCI claims and, in some cases, net long-term disability (LTD) insurance premiums. The LTD program was created by P.L.2010, c.3 for PERS and TPAF members hired after the effective date of the legislation. The State pays LTD insurance premiums for all eligible PERS and TPAF members, and receives reimbursements of premium payments based on claims experience. According to the Division of Pensions and Benefits FY 2020 net premiums total $4.6 million, and are allocated among PERS and TPAF accounts in unspecified amounts Pension Obligation Bonds Debt Service on Pension Obligation Bonds $181,303 $194,536 $13,233 7.3% D-440





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P.L.1997, c.114 authorized the Economic Development Authority to issue bonds to finance a portion of the unfunded accrued liability of the State pension system. Total bonds outstanding as of June 30, 2018 are $2.078 billion with a final maturity date of February 15, 2029. This appropriation represents continued State debt service payments on these bonds. Total pension obligation bond debt service is recommended at $493.422 million in FY 2020, is consistent with the amount due per the Fiscal Year 2017 Debt Report (no events subsequent to that report have affected these bonds). The debt service is appropriated in three sections of the budget: Interdepartmental Accounts, the Department of Education, and the Department of the Treasury. The Interdepartmental Accounts budget includes appropriations totaling $205.76 million: $194.536 million in DSS (State employees) and $11.224 million in GIA (higher education employees). The budget for the Department of Education includes an appropriation for debt service on pension obligation bonds of $261.604 million and the remaining $25.802 million is budgeted in the Department of the Treasury. Table 13 displays the recommended appropriations for debt service on pension obligations bonds budgeted in Interdepartmental Accounts, the Department of Education, and the Department of the Treasury Table 13

Debt Service on Pension Obligation Bonds ($ Millions) Department

FY 2019Adjusted Appropriation

FY 2020 Recommended Appropriation

FY 19 to FY 20 $ Change

Interdepartmental Accounts-DSS $ 181.303 $ 194.536 $ 13.233 Interdepartmental Accounts-GIA $ 10.460 $ 11.224 $ 764 Subtotal Interdepartmental Accounts $ 191.763 $ 205.760 $ 13.997 Dept. of Education-State Aid $ 243.809 $ 261.604 $ 17.795 Treasury-State Aid - PFRS $ 24.047 $ 25.802 $ 1.755 Treasury-State Aid – Higher Education $ 0.238 $ 0.256 $ 0.018 Total Debt Service on Pension Obligation Bonds

$ 459.857 $ 493.422 $ 33.565

Health Benefits The FY 2020 Governor’s budget assumes about $800 million in savings from health benefit reforms and plan design changes. These savings affect active health benefit and post-retirement medical and prescription drug accounts in the Interdepartmental Accounts, the Department of Education, and the Department of Treasury budgets. The cost reduction measures are outlined in Table 14.





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Table 14

FY 2020 Health Benefit Savings Summary Cost Reduction Measures Savings (Millions) Description of Savings Budget Line Items

Medicare Advantage $196 Aggressive bid by Aetna for Medicare Advantage. SEHBP) adopt Medicare Advantage

All Post-Retirement Medical Accounts

Health Benefit Trend Savings $115

Reforms include limits on compounding drugs, mandatory generics, formulary management

All Health Benefit Accounts

Shift Quest Diagnostics to In-network

$12.5 Along with Lab Corp, 57 percent of the lab work will be in-network

All Health Benefit Accounts except Prescription Drug Accounts

Third Party Administrator Contract Negotiations

$11.9 Reduced payments for care coordination, eliminated 24-hour nurse line, etc.

All Health Benefit Accounts except Prescription Drugs

Out-of-Network Law Reform $9.6 State caps on payments; prohibits balance billing to the patient on surprise bills


Optimizing Health Plans for Cost Efficiency

$217 Through collective bargaining and approval by all plan design committees


Improving Procurement Methodology

$160 Contracts to be bid in mid-2019

All Health Benefits Accounts

Dependent and Social Security Disability Insurance Audits

$70

Expecting a 4 percent reduction in enrollment from audits. May 2019 completion for independent audit.


Audit of Prior Pharmacy Benefit Manager

$7.9

PBM was filing claims for non-eligible drugs. Actual savings will be known upon completion of audit.


Total $799.9 Source: Office of Management and Budget The health benefit savings displayed above are net of decreases in fringe benefit cost recovery revenue, and also reflect estimated cost avoidance, i.e., increases that would otherwise be required in FY 2020 above current year spending levels. The impact of these savings on FY 2020 appropriations is a $524.4 million decrease below FY 2019 adjusted appropriations. The specific impact of each cost reduction measure on each FY 2020 health benefit appropriation is unavailable from the Executive. OLS has insufficient information to estimate the impact by appropriation. Health Benefit Trend Savings from Prior Plan Design Changes The State Health Benefits Program plan design committee reaffirmed plan design changes that were approved for plan years 2017 and 2018. According to the Rate Renewal Reports, the Plan Year 2019 medical trend assumes continuation of those changes, as follows:





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increase emergency room copays and restricting physical therapy for out-of-network coverage;

expand health program requirements to transgender individuals pursuant to ACA

Section 1557; and

provide coverage for treatments for substance abuse use disorder and restrictions on opioids.

Likewise, the prescription drug trend assumes continuing previous plan design changes that:

restrict compound drugs;

require step-therapy before prescribing brand name or specialty drugs;

require mandatory generic dispensation;

continue the alternative prescription drug formulary (preferred formulary); and

set members’ prescription drug copay at a differential between the cost of a generic drug and a specialty drug when they choose to purchase a specialty drug over a generic.

Many of these plan design features have also been approved by the School Employees’ Health Benefits Program plan design committee for plan year 2019. These assumptions are labeled health benefit trend savings in Table 14, and are estimated at $115 million in FY 2020. The New CWA PPO Plan Effective July 1, 2019, as part of a newly negotiated contract agreement between the State and the Communications Workers of America, AFL-CIO (CWA), the SHBP will offer a new PPO health care plan, which replaces all NJDIRECT and Aetna Freedom plans, and is anticipated to provide health benefit cost savings, primarily by reducing the out-of-network reimbursement rate by 50 percent. The budget assumes that negotiations with the remaining unions and associated employee relations groups will result in the plan being available to all SHBP enrollees. The estimated saving of $70 million are a portion of the $217 million savings labeled “optimizes health plans for cost efficiencies” in Table 14. Employees in the new PPO plan will pay a premium share on a percentage of salary basis instead of a percentage of premium basis. The new CWA PPO plan has lower premiums than the current NJDIRECT 15 and Aetna 15 plan.





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Interdepartmental Accounts Health Benefit Appropriations The appropriations for State employees’ health benefits in the Interdepartmental Accounts budget include State Health Benefit Program (SHBP) medical, prescription drug, dental, and vision coverage and pertain to active State employees and retirees. The recommended appropriations generally reflect the conclusions of rate renewal reports, including premium rates and plan design change options, proposed by the State’s actuary and approved by the State Health Benefits Commission. Because the rates are based on a calendar year, the appropriation blends rates from two plan years. For plan year 2019 (January 1, 2019 – December 31, 2019) overall premium rates recommended by the actuary for active employees are anticipated to: decrease by 0.6 percent for medical and prescription drug coverage (PPO and HMO combined); increase by 4.1 percent for early retirees; and decrease by 32.8 percent for Medicare retirees. For all groups combined, the recommendation is a reduction in overall premium rates of 3.5 percent. Specific initiatives that affect State health care costs, whether they relate to plan coverage, procurement or other aspects of program administration, also affect the year-to-year change in health benefit appropriations. Active Employees Table 15 shows the components of the State Health Benefits Program, recent expenditures and the dollar and percentage change in the accounts from FY 2019 to FY 2020 for active State employees in the DSS accounts (State operations), for active employees of public institutions of higher education in the GIA accounts, and in total. Table 15

FY 2018 FY 2019 FY 2020 $ Change % ChangeDirect State ServicesHealth Benefits Active Members 654,442$ 689,851$ 592,986$ (96,865)$ -14.0%Prescription Drugs Active Members 180,659$ 120,793$ 164,210$ 43,417$ 35.9%Dental Benefits Active Members 22,140$ 22,925$ 22,478$ (447)$ -1.9%Vision Benefits Active Members 170$ 500$ 500$ 0.0%Management Efficiencies (32,500)$ Total Direct State Services 824,911$ 834,069$ 780,174$ (53,895)$ -6.5%Grants-In-AidHealth Benefits Active Members 357,219$ 376,624$ 323,028$ (53,596)$ -14.2%Prescription Drugs Active Members 87,124$ 105,269$ 95,148$ (10,121)$ -9.6%Dental Benefits Active Members 11,232$ 11,584$ 11,432$ (152)$ -1.3%Total Grants-In-Aid 455,575$ 493,477$ 429,608$ (63,869)$ -12.9%Total

Health Benefits Active Members 1,011,661$ 1,066,475$ 916,014$ (150,461)$ -14.1%Prescription Drugs Active Members 267,783$ 226,062$ 259,358$ 33,296$ 14.7%Dental Benefits Active Members 33,372$ 34,509$ 33,910$ (599)$ -1.7%Vision Benefits Active Members 170$ 500$ 500$ -$ 0.0%Total Direct State Services and Grants-In-Aid 1,280,486$ 1,327,546$ 1,209,782$ (117,764)$ -8.9%

FY 2020 GOVERNOR'S BUDGET ACTIVE EMPLOYEES' STATE HEALTH BENEFITS DETAIL





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Direct State Services The FY 2020 Budget recommends a total of $780.2 million for Direct State Services appropriations for active State employees’ medical, prescription drug, dental, and vision health care benefits, a reduction of 6.5 percent, or $53.9 million, below FY 2019 adjusted appropriations. The funding for active State employees’ health benefits is itemized in the following appropriations: State Employees’ Health Benefits $689,851 $592,986 ($96,865) ( 14.0%) D-440

State Employees’ Prescription Drugs-

$ 44,363 $ 76,430 S $164,210 $43,417 35.9% D-440

State Employees’ Dental Program-Shared Cost $22,925 $22,478 ($ 447) ( 1.9%) D-440

State Employees’ Vision Care Program $500 $500 $0 — D-440 Total State Health Benefits - Active State Employees $834,069 $780,174 ($53,895) ( 6.5%) ---

The FY 2020 level of funding for each appropriation results from gross increases in health care costs, offset by employee contributions, and savings from plan design and other changes listed in Table 14 previously. The specific impact of any of these factors on each appropriation is unknown. The projected FY 2019 supplemental appropriation restores a $150 million cut to the State Employees’ prescription drug account initiated by the Legislature in anticipation of procurement reforms and drug pricing updates, and adjusts for updated claims trends. Post-Retirement Medical Benefits The Post-Retirement Medical accounts fund benefits for State employees who retire after 25 years of service as members of various retirement systems. Employees who accrue 25 years of service receive health benefits coverage on a cost sharing basis in accordance with the law and reimbursement of the prevailing cost of Medicare Part B, according to the terms specified in the union contract applicable to them at the time they attain 25 years of service credit or retire on disability. Post-Retirement Medical Benefits (PRM) had been funded on a pay-as-you-go basis; because the cost assumptions and rates are based on a calendar year, the appropriation blends rates from two plan years. As of FY 2020, appropriations primarily reflect the cost of Medicare Advantage insurance policy premiums, since most retirees have been or are expected to be enrolled in Medicare Advantage plans offered by a health insurance provider.





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Post-retirement medical benefits are budgeted in both Direct State Services and Grants-in-Aid appropriations in Interdepartmental Accounts, State Aid appropriations in the Department of the Treasury, and State Aid appropriations in the Department of Education, as shown in Table 16.

Table 16 State-Funded Post-Retirement Medical Benefits ($000)

Department FY 2018 FY 2019 FY 2020 $ Change

FY19 to FY20 Interdepartmental DSS

$ 546,092 $ 515,023 $ 397,951 $ ($117,072)

Interdepartmental GIA

$ 106,867 $ 112,845 $ 86,841 $ ($26,004)

Interdepartmental Total DSS/GIA

$ 652,959 $ 627,868 $ 484,792 $ (143,076)

Education State Aid

$ 1,171,177 $ 1,204,870 $ 961,405 $ (243,465)

Treasury State Aid

$ 83,835 $ 87,741 $ 67,603 $ (20,138)

Total PRM $ 1,907,971 $ 1,920,479 $ 1,513,800 $ (406,679) The FY 2020 Budget recommends a total of $397.9 million in Interdepartmental Accounts Direct State Services appropriations for State retirees’ medical and prescription drug coverage, $117.1 million less than FY 2019 adjusted appropriations. The reduction is primarily due to the shift of Medicare-eligible retirees to Aetna Medicare Advantage Plans, and also may reflect, in unknown amounts, the impact of other savings initiatives listed in Table 14 previously. Medicare Advantage Effective January 1, 2019, Aetna became the sole provider of SHBP Medicare Advantage plans. The Medicare Advantage plans are insured, i.e., purchased from a health insurance provider, as opposed to the former traditional Medicare supplement plans which the State self-insured. Table 17 shows the fully-insured Medicare Advantage per member per year annual rates for Plan Year (PY) 2018 and 2019. According to the Rate Renewal Reports, “the significant reduction in Medicare Advantage rates is due to the 2018 procurement of all Medicare Advantage plans.” Table 17

Fully Insured Medicare Advantage Per Member Per Year Rates for Plan Years 2018 and 2019 Aetna Horizon State PY 2018 PY 2019 %Change PY 2018 PY 2019 % Change PPO 10 $ 2,295 $ 1,094 (62.6%) $ 2,580 NA NA PPO 15 $ 2,903 $ 874 (69.9%) $ 2,412 NA NA HMO 10 $ 2,445 $ 1,716 (29.8%) NA NA NA HMO 1525

$ 2,110 $ 1,296 (38.6%) NA NA NA

Source: PY 2019 SHBP Rate Renewal Report





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A portion of the program savings from shifting to Medicare Advantage is offset by medical inflation, or growth, and the impact of the Affordable Care Act Health Insurer’s Fee (HIF). According to the Rate Renewal Reports, the PY 2019 rates above reflect the moratorium of the Health Insurer Fee in Plan Year 2019. Under the ACA, the HIF applies to all insurers offering fully insured coverage and any insured public programs, including Medicare Advantage, Medicare Part D, and Medicaid Managed Care. The fee commenced in FY 2014 for FY 2015 and FY 2016. In December 2015, Congress suspended the fee for 2017 and FY 2018. A moratorium was placed on the fee in FY 2019. According to the Office of Management and Budget, the cost of the PY 2020 HIF, i.e., the half-year impact is reflected in post-retirement medical accounts, not in the budget line items for the ACA fees. The current HIF estimate is approximately $25.7 million, of which $17.7 million is allocated to the Education, $7.5 million to Interdepartmental Accounts, and $0.5 million to Treasury accounts. The funding for each account for retirees’ post-retirement medical benefits is itemized in the following appropriations: Public Employees’ Retirement System-Post Retirement Medical $341,583 $268,130 ($73,453) ( 21.5%) D-439

Teachers’ Pension and Annuity Fund-Post Retirement Medical-State $3,083 $1,930 ($1,153) ( 37.4%) D-439

The appropriation above funds a small subset of the Teachers’ Pension and Annuity Fund (TPAF) retiree health benefit costs attributable to members that retired from State service. Other Pension Systems-Post Retirement-Medical $170,357 $127,891 ($42,466) ( 24.9%) D-440

The appropriation presented above funds medical and prescription drug coverage for retired State employees in PFRS, SPRS, JRS, and the ABP. Total Post-Retirement Medical-DSS $515,023 $397,951 ($117,072) ( 22.7%) ---





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Employer Taxes

Total Employer Taxes $384,734 $384,325 ($ 409) ( .1%) The total above is the sum of employer taxes attributable to State employees. Employer taxes consist of Social Security contributions to the federal government, Temporary Disability contributions to the State Disability Benefits Fund, and Unemployment Insurance, for which the State is self-insured and therefore budgets its share on a pay as you go basis. The components of change are set forth below. Social Security Tax-State

$359,039 $ 10,203 S $367,725 ($1,517) ( .4%) D-440

The Social Security Tax-State appropriation in Direct State Services provides funding for the employer’s share of Social Security contributions for State employees, not including employees of institutions of higher education. The recommended appropriation is an estimate of the funding required to meet the State’s liability as an employer to pay Federal Insurance Contributions Act (FICA), Old Age, Survivors, and Disability Insurance (OASDI), and Medicare taxes. The current employer rate for Social Security is 6.2 percent of taxable wages and the rate for Medicare is 1.45 percent. There is no Medicare wage base, so Medicare taxes are paid on total compensation. The taxable wage base for Social Security for calendar year 2019 is $132,900, $4,500 or 3.5 percent more than the taxable wage base for Social Security in calendar year 2018. The FY 2020 Budget projects a supplemental appropriation of $10.203 million in FY 2019. According to the Office of Management and Budget (OMB) the need for this funding reflects an upward trend in salaries and the impact of retroactive increments that resulted from contract settlements reached in 2018. The FY 2020 appropriation shows a reduction of $1.517 million in the account because these non-recurring costs exceed the impact of employee compensation increases (the budget assumes that all union contracts will settle by July 1, 2019 with cost of living adjustments and increments due in FY 2020) and the higher taxable wage base. Temporary Disability Insurance Liability

$ 10,710 $ 665 S $11,911 $ 536 4.7% D-440

All eligible State employees are included in the State Temporary Disability Insurance (TDI) plan. The plan is a shared-cost plan which provides payments to employees who are unable to work as the result of non-work connected illness or injury and who have exhausted their sick leave and are ineligible for any unemployment compensation or workers’ compensation. Employees and employers contribute 0.5 percent of compensation up to the State taxable wage base. The State taxable wage base in fiscal year 2020 is $35,700, up $1,000 from FY 2019. The Division of Pension and Benefits assumes that the TDI employer rate is expected to remain at 0.5 percent of taxable wages through FY 2020.





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Midyear review of the TDI account indicates that taxable wages will increase by 2.8 percent in FY 2019, thereby necessitating a supplemental appropriation of $665,000. The division anticipates that taxable wages in FY 2020 will increase by an additional 4.8 percent requiring an increase in the appropriation of $536,000 above the FY 2019 adjusted appropriation. Unemployment Insurance Liability

$ 2,660 $ 1,457 S $4,689 $ 572 13.9% D-440

The recommended appropriation for Unemployment Insurance Liability is the estimated amount the State is required to pay in unemployment claims for former State employees if the revenue from employee contributions proves to be insufficient. Unlike private industry, the State does not contribute a matching percentage of compensation to the Unemployment Compensation Trust fund. Instead, the State operates on a pay-as-you-go basis. Employees contribute 0.425 percent of salary, up to the unemployment wage base of $34,400, in calendar year 2019. After the employees’ contribution is disbursed, the State, as an employer, contributes sufficient funds to ensure the program meets its obligations. State workforce taxable wages for Unemployment Insurance are assumed to decrease by 1 percent in FY 2020. Mid-year review of the Unemployment Insurance Liability (UI) account projects that total UI Liability charges will increase by 16 percent in FY 2019 and taxable wages will decrease by 0.5percent. Because the employee share is based on a fixed percentage of taxable wages, when the State’s share of total UI charges increases by more than the employee share, the State’s obligation to meet program costs increases accordingly. The 16 percent increase in total charges in FY 2019 is expected to necessitate a FY 2019 supplemental appropriation of $1.457 million for the State to meet its obligations after the employee share is disbursed. UI charges are projected to increase by 4.7 percent in FY 2020 while taxable wages are projected to decline by one percent. The reduction in the employee share due to the projected reduction in taxable wages coupled with the projected increase in UI charges will increase the State’s obligation to the fund. The FY 2020 recommended funding increase is consistent with these projections.

Grants-In-Aid Employee Benefits Employee Benefits Total Grants-In-Aid $1,021,101 $969,648 ($51,453) ( 5.0%) D-440

The same five main categories Employee Benefit appropriations reoccur as Grants-in-Aid: Pensions, Health Benefits, Post-Retirement Medical Benefits, employer taxes and pension bond debt service. Grants-In-Aid (GIA) appropriations fund benefits and other costs for employees of State higher educational institutions.





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Pensions Public Employees’ Retirement System $10,136 $31,853 $21,717 214.3% D-440

Police and Firemen’s Retirement System $4,645 $6,954 $ 2,309 49.7% D-440

Teachers’ Pension and Annuity Fund $581 $690 $ 109 18.8% D-440 Total State-Administered Defined Benefit Retirement System-GIA $15,362 $39,497 $ 24,135 157.1% -----

The FY 2020 Budget recommends making an employer contribution of $39.497 million or 7/10ths of the actuarially determined contribution for each of the State-administered retirement system accounts in the GIA budget for employees of State higher educational institutions. These recommendations are based on projection models reflecting the June 30, 2018 valuation results and projections under P.L.2017, c.98, the Lottery Enterprise Contribution. Alternate Benefit Program Employer Contributions

$165,950 $ 2,722 S $172,333 $ 3,661 2.2% D-440

The Alternate Benefit Program (ABP) (N.J.S.A. 18A:66-167 et seq.) is principally for full-time faculty of public institutions of higher education, but also includes certain State professional administrative staff. The FY 2020 Budget recommends an appropriation of $172.333 million in FY 2020 for active employees of institutions of higher education. This amount is based on membership and wage trends. Mid-year review of the account indicated that the current year wage base increased by about 5.7 percentage points in FY 2019 more than originally anticipated resulting in the need for a supplemental appropriation of $2.722 million in FY 2019. According to the Division of Pensions and Benefits, salaries are assumed to increase by 2 percent for State Higher Education employees between FY 2019 and FY 2020. The FY 2020 recommendation is consistent with the Division of Pensions and Benefits assumption of a 2 percent growth in costs over a revised FY 2019 base that is higher than originally assumed.

Total Pensions-GIA $184,034 $211,830 $27,796 15.1% ---





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Non-Contributory Insurance Non-Contributory Insurance (NCI) appropriations fund the group life insurance plan for enrolled members, also known as the death benefit. According to the Division of Pensions and Benefits, non-contributory insurance appropriations also include long-term disability (LTD) insurance premiums on behalf of higher education employees. Changes in the accounts are shown in Table 18. Please refer to pages 22-23 for a detailed discussion of Non-contributory Insurance. Table 18

Total Non-Contributory Insurance – Interdepartmental Accounts ($000) FY 2019 FY 2020 $ Change % Change Total NCI in IDA-DSS $42,312 $44,386 $2,074 4.9% Total NCI in IDA-GIA $28,770 $30,153 $1,383 4.8% Total NCI $71,082 $74,539 $3,457 4.9%

The recommended Non-Contributory Insurance appropriations for each account in the Grants-In-Aid budget are listed below. Public Employees’ Retirement System-Non-Contributory Insurance $5,109 $5,342 $ 233 4.6% D-440

Police and Firemen’s Retirement System-Non-Contributory Insurance $386 $416 $ 30 7.8% D-440

Alternate Benefit Program-Non-Contributory Insurance $23,271 $24,391 $ 1,120 4.8% D-440

Teachers’ Pension and Annuity Fund-Non-Contributory Insurance $4 $4 $0 — D-440 Total Non-Contributory Insurance-GIA $28,770 $30,153 $1,383 4.8% ---

The proposed FY 2020 change in each account reflects the pay-as-you go cost to fund NCI claims and, in some cases, net long-term disability (LTD) insurance premiums. The LTD





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program was created by P.L.2010, c.3 for PERS and TPAF members hired after the effective date of the legislation. The State pays LTD insurance premiums for all eligible PERS and TPAF members, and receives reimbursements of premium payments based on claims experience. According to the Division of Pensions and Benefits FY 2020 net premiums total $4.6 million, and are allocated among PERS and TPAF accounts in unspecified amounts. Pension Obligation Bonds Debt Service on Pension Obligation Bonds $10,460 $11,224 $ 764 7.3% D-441

P.L.1997, c.114 authorized the Economic Development Authority to issue bonds to finance a portion of the unfunded accrued liability of the State pension system. Total bonds outstanding as of June 30, 2018 are $2.078 billion with a final maturity date of February 15, 2029. This appropriation represents continued State debt service payments on these bonds. Please refer to pages 23-24 for a detailed discussion of the Pension Obligation Bonds. Health Benefits The FY 2020 Budget recommends a total of $429.608 million in FY 2020 for State employees of State institutions of higher education medical, prescription drug, and dental coverage to fund health care benefits. This represents a reduction of 12.9 percent, or $63.869 million in FY 2020. As in the case of State employee health benefit appropriations, the FY 2020 level of funding for each appropriation results from gross increases in health care costs, offset by employee contributions, and savings from plan design and other changes listed in Table 14 previously. The specific impact of each cost reduction measure on each FY 2020 health benefit appropriation is unavailable from the Executive. OLS has insufficient information to estimate the impact by appropriation. The projected FY 2019 supplemental appropriation restores a portion of a $25 million cut to the State Employees’ prescription drug account initiated by the Legislature in anticipation of drug pricing revisions and audit recoveries.





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The funding for employees of State institutions of higher education health benefits is itemized in the following Grants-In-Aid appropriations: State Employees’ Health Benefits $376,624 $323,028 ($53,596) ( 14.2%) D-441

State Employees’ Prescription Drugs

$ 86,897 $ 18,372 S $95,148 ($10,121) ( 9.6%) D-441

State Employees’ Dental Program-Shared Cost $11,584 $11,432 ($ 152) ( 1.3%) D-441

Total State Health Benefits-(Active Higher Education Employees) $493,477 $429,608 ($63,869) ( 12.9%) ---

Please refer to pages 24-28 for a detailed discussion of State Health Benefits for Active Employees. Post-Retirement Medical Benefits The FY 2020 Budget recommends a total of $86.841 million for State retirees of State institutions of higher education post-retirement medical and prescription drug coverage. This is a reduction of 23 percent, or $26 million, less than the amount appropriated in FY 2018. Public Employees’ Retirement System-Post Retirement Medical $57,144 $45,389 ($11,755) ( 20.6%) D-440

Teachers’ Pension and Annuity Fund-Post Retirement Medical-State $4,515 $3,793 ($ 722) ( 16.0%) D-440

The appropriation presented above funds a small subset of the Teachers’ Pension and Annuity Fund (TPAF) retiree health benefit costs, those attributable to members that retired from State service at public institutions of higher education.





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Other Pension Systems-Post Retirement Medical $51,186 $37,659 ($13,527) ( 26.4%) D-441

The appropriation presented above funds medical and prescription drug coverage for retired higher education employees in PFRS and the ABP. Total Post-Retirement Medical-GIA $112,845 $86,841 ($26,004) ( 23.0%) ---

Please refer to pages 28-30 for a detailed discussion of Post-Retirement Medical Benefits. Employer Taxes

Total Employer Taxes $191,329 $199,806 $ 8,477 4.4% The total above is the sum of employer taxes attributable to employees of State public higher educational institutions. Employer taxes consist of Social Security contributions to the federal government, Temporary Disability contributions to the State Disability Benefits Fund, and Unemployment Insurance, for which the State is self-insured and therefore budgets its share on a pay as you go basis. The components of change are set forth below. Social Security Tax- State

$177,051 $4,082 S $188,865 $ 7,732 4.3% D-441

According to the Office of Management and Budget, taxable wages are assumed to increase by 4 percent in FY 2020 for employees of State public institutions of higher education. Please refer to page 31 for more details on Social Security Taxes. Temporary Disability Insurance Liability $7,502 $7,877 $ 375 5.0% D-441

The FY 2020 appropriation reflects the Division of Pensions and Benefits’ assumption that the TDI employer rate remains at 0.5 percent of taxable wages through FY 2020, and that taxable wages for State higher educational employees will increase by 5 percent, in part due to the taxable wage base increasing by $1,000. Please refer to page 31-32 for more details on Temporary Disability Insurance Liability.





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Unemployment Insurance Liability

$1,723 $971 S $3,064 $ 370 13.7% D-441

Mid-year review of the Unemployment Insurance Liability (UI) account projects that total UI Liability charges will increase by 29 percent in FY 2019 and higher education worker taxable wages will grow by 1.6 percent. Because the employee share is based on a fixed percentage of taxable wages, when the State’s share of total UI charges increases by more than the employee share, the State’s obligation to meet program costs increases accordingly. Accordingly, the revised projections for FY 2019 necessitate a supplemental appropriation of $971,000 to fully fund UI obligations for higher education institutions. Total UI charges are projected to increase again in FY 2020, by about 6 percent, and taxable wages are projected to increase by two percent. FY 2020 funding is consistent with these projections. Please refer to page 32 for more details on Unemployment Insurance Liability.

OTHER INTERDEPARTMENTAL ACCOUNTS Direct State Services Interest on Short Term Notes

$6,000 $15,000 S $6,000 ($15,000) ( 71.4%) D-442

The State uses cash flow borrowing, in the form of lines of credit and tax and revenue anticipation notes (TRANS) to meet its cash flow needs in the early part of the fiscal year, when cash spending outpaces cash collection. This situation largely results from the need to expend significant sums on local aid in the first two quarters of the year, before major tax collections are received in the last two fiscal quarters of the year. It is exacerbated by low surpluses as a percentage of total appropriations.

The FY 2020 budget provides $6 million for Interest on Short Term Notes. Thus far in

FY 2019, the State has issued $1.5 billion in tax and revenue anticipation notes under a maximum $2 billion Note Purchase Contract with Wells Fargo Bank, National Association. The FY 2020 budget indicates that the borrowing costs of the 2019 TRANS are estimated to be about $21 million, $15 million above the original appropriation. The expenditures for interest on short term borrowing in FY 2018 of $15.8 million were approximately $9.8 million above the original appropriation of $6 million. The OLS notes that cash flow patterns have changed due to tax revisions and the requirement for quarterly pension payments under P.L.2016, c.83, and will change further in FY 2020 under the budget as proposed. Market conditions will also affect borrowing costs in FY 2020. The Executive’s assumptions for cash flow borrowing are not yet known.





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SALARY INCREASES AND OTHER BENEFITS

Salary Increases $11,000 $169,800 $158,800 1443.6% D-444 Salary increases for existing State positions are budgeted centrally in the Interdepartmental Accounts budget, and then allocated to individual departments/agencies during the fiscal year. In FY 2020, the Governor’s Budget (page H-13) projects a State-funded workforce of: Executive Branch, 35,545; Judicial Branch, 7,239; and Legislative Branch, 489. The FY 2020 Governor’s budget recommends FY 2020 funding of $142.5 million for Executive Branch compensation increases that accrue in FY 2020, and $16.3 million for FY 2020 Judicial Branch compensation increases. FY 2019 funding of $65.2 million for Executive Branch salary increases and $6.7 million in Judicial Branch salary increases were reallocated to agency salary appropriations. Factors influencing the recommended funding level include cost-of-living adjustments (COLAs) and bonuses paid according to contractual agreements, and step increments. Recommended funding levels may also assume the availability of unexpended prior year balances. According to the Office of Management and Budget, the amount provided for Executive Branch salary increases funds increments and a projected 2 percent COLA, consistent with recently settled contracts. The appropriation is expected to be augmented by prior year balances of $10 million to fully fund projected costs. FY 2020 Judicial Branch funding is based on a 3 percent progression increase and a 2 percent COLA under the current contracts. On March 20, 2019 the Communications Workers of American (CWA), AFL-CIO ratified a contract covering 35,000 workers employed by the Executive Branch in the Administrative/Clerical, Professional and Supervisory Bargaining Units. The term of the contract is from July 1, 2019 through June 30, 2023. The new contract includes across the board salary increases of two percent each year, all step increments, and bonuses paid to those not receiving increments. The FY 2020 COLA commences in October 2019.


Significant Language Changes

EXPLANATION: FY 2019 language not recommended for FY 2020 denoted by strikethrough. Recommended FY 2020 language that did not appear in FY 2019 denoted by underlining.

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State Utility Costs From Clean Energy Fund

Deletion 2019 Handbook: p. B-207 2020 Budget: N/A

Notwithstanding the provisions of any law or regulation to the contrary, in addition to the amount hereinabove appropriated for Fuel and Utilities, there is appropriated $47,500,000 from the Clean Energy Fund for utility costs in State facilities.

Explanation

The deletion of this language appropriation reduces by $47.5 million the reliance on appropriations from the Clean Energy Fund to pay for fuel and utility costs at State facilities. The reduced appropriation from the Clean Energy fund corresponds to an increase of equal amount in the General Fund appropriation for the Utilities and Other Services to provide funding for fuel and utility costs at State Facilities.

Disasters and Emergencies Account

Deletion 2019 Handbook: p. B-211 2020 Budget: N/A

The unexpended balance at the end of the preceding fiscal year in the Disasters and Emergencies account is appropriated for the same purpose.

Explanation

This budget language reappropriated unexpended balances in the Disasters and Emergencies account, to which a total of $40 million was appropriated, $20 million each in fiscal years 2013 and 2014, in the wake of Super Storm Sandy. About $32.1 million was expended over the course of four fiscal years for emergency response and disaster recovery-related costs, and the unspent balance of 47.9 million lapsed at the close of FY 2017. Since the account balance is zero, the need for this language is obviated.

The Office of Legislative Services provides nonpartisan assistance to the State Legislature in the areas of legal, fiscal, research, bill drafting, committee staffing and administrative

services. It operates under the jurisdiction of the Legislative Services Commission, a bipartisan body consisting of eight members of each House. The Executive Director

supervises and directs the Office of Legislative Services.

The Legislative Budget and Finance Officer is the chief fiscal officer for the Legislature. The Legislative Budget and Finance Officer collects and presents fiscal information for the Legislature; serves as Secretary to the Joint Budget Oversight Committee;

attends upon the Appropriations Committees during review of the Governor’s Budget recommendations; reports on such matters as the committees or Legislature may direct;

administers the fiscal note process and has statutory responsibilities for the review of appropriations transfers and other State fiscal transactions.

The Office of Legislative Services Central Staff provides a variety of legal, fiscal, research and administrative services to individual legislators, legislative officers, legislative

committees and commissions, and partisan staff. The central staff is organized under the Central Management Unit into ten subject area sections. Each section, under a section

chief, includes legal, fiscal, and research staff for the standing reference committees of the Legislature and, upon request, to special commissions created by the Legislature.

The central staff assists the Legislative Budget and Finance Officer in providing services to the Appropriations Committees during the budget review process.

Individuals wishing information and committee schedules on the FY 2020 budget are encouraged to contact:

Legislative Budget and Finance Office State House Annex

Room 140, PO Box 068 Trenton, NJ 08625

(609) 847-3105 · Fax (609) 777-2442

fy 2020 ida printfinalother services appropriations increase due to the shift of costs to the...

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