The State of New Jersey’s Financial Health

New law drafted by the NJCPA makes the state’s full financial condition understandable to all 

Every fiscal year, the State of New Jersey’s financial condition undergoes a comprehensive analysis, which is compiled in the Annual Comprehensive Financial Report (ACFR). For the first time, the ACFR has also been summarized into a plain-language report intelligible to lawmakers, the media and the general public, thanks to a law drafted by the New Jersey Society of CPAs.

The law is critically important because it promotes a better understanding of the state’s complete financial picture, including “off-budget” items such as long-term liabilities and independent authorities. Lawmakers, the media and the public typically focus almost exclusively on the annual budget and overlook New Jersey’s overall financial health, which is covered in great detail in the ACFR. The ACFR contains important items not covered by the annual budget, such as billions of dollars in unfunded liabilities, billions in spending and debt, and financial information on the state’s independent authorities. 

The ACFR is very long — more than 400 pages — and filled with technical accounting jargon, making it difficult for a layperson to follow. Many people, including lawmakers and the media, do not even know that it exists.  

The new law requires the state auditor to annually release a brief, user-friendly report on the ACFR. The summary includes per capita comparative statistics from mid-Atlantic and northeast states. Furthermore, the new law requires the state auditor, at the beginning of the annual budget process, to appear before the Senate and Assembly budget committees to testify on the ACFR.  

So, now that the first summary is out, I want to go over some of the highlights of the report and provide some common-sense suggestions for improving the state’s financial state.

ACFR Highlights

The analysis, conducted by the state auditor, relies on data from the ACFRs for fiscal years 2020 through 2024. A key point is that the 2024 fiscal year concluded with a negative net position of $158.7 billion for the primary government. While this figure represents an improvement of $9 billion compared to the previous fiscal year, it still indicates that the state’s liabilities and deferred inflows of resources exceed its assets and deferred outflows of resources.

• Comparison to other states: When compared to other states in the mid-Atlantic and northeast regions, New Jersey is one of only three states with a negative net position. This signifies a substantial financial challenge relative to its neighbors.  
• Revenues and expenses: The report also sheds light on the state’s revenues and expenses. For fiscal year 2024, total revenues for the primary government were $95.6 billion, while total expenses were $86.6 billion. This indicates that revenues exceeded expenses, contributing to the previously mentioned improvement in net position. However, it’s important to note the significant role of federal funds, such as those received in fiscal year 2021 due to COVID-19, in influencing revenue figures.  
• Debt and liabilities: New Jersey’s long-term financial obligations are categorized into bonded and non-bonded debt. As of June 30, 2024, the total outstanding long-term obligations for governmental activities stood at $201 billion. The state’s negative net position is largely attributed to its net pension liability and other postemployment benefits (OPEB) liability. New Jersey has the highest net pension liability and OPEB liability compared to other states in the region, a consequence of past underfunding of pension obligations and not pre-funding OPEB liabilities.  
• Fund balances: An analysis of governmental funds reveals that the total fund balance for all governmental funds was $33.1 billion at the end of fiscal year 2024. However, a considerable portion of this balance is restricted for specific purposes. The unassigned fund balance, which is available for any purpose, was $9.1 billion. Of particular note is the Surplus Revenue Fund or “rainy day fund” as it’s described in the statistical section. While the balance as of June 30, 2024, increased slightly to $322.3 million, it still ranks New Jersey as the 10^th lowest out of 14 neighboring states.
• Budget analysis: The state’s budget, formulated through appropriations from various funds, totaled $67.8 billion in fiscal year 2024, an increase from prior years. Comparisons of anticipated revenue to original appropriations and appropriations to anticipated revenue provide insights into the state’s fiscal planning and execution.  
• Economic and demographic trends: The report also includes a statistical section that gives surplus revenue and economic and demographic data. New Jersey’s population has seen an increase, reaching 9.5 million in 2024. However, the state’s unemployment rate has, at times, been higher than the national average. The state’s Gross State Product (GSP) has also increased, indicating economic growth.  

Conclusions and Recommendations

The “inaugural” summary report and analysis as prepared by our State Auditor is an excellent document which should serve as an educational tool for the public, the rating agencies and legislatures. The report presents a mixed picture of New Jersey’s financial position. While there are some positive indicators, such as revenue exceeding expenses and growth in GSP, the state faces significant financial challenges, particularly concerning its long-term liabilities. The report serves as a crucial tool for understanding the state’s financial health and informing future policy decisions.

Many neighboring states have addressed their long-term liability challenges while New Jersey remains in deep financial distress. New Jersey needs to model what surrounding states have accomplished when it comes to management of its non-bonded liabilities such as pension and other post-employment health benefits. Clearly, these liabilities will continue to consume a significant portion of the state’s annual budget and impact expenditures on all essential programs. Since pension obligations are estimated based on actuarial assumptions, my recommendation is that these assumptions need to be reevaluated on a regular basis and “stress tested” against more current standards so we fully understand the ultimate obligations New Jersey has committed to. Simply making what’s referred to as a full pension payment is only one side of the problem. Perhaps new retirement programs are in order that can help the state manage these obligations as well as the cost. This is something New Jersey can no longer ignore and kick the can down the road to future generations and taxpayers.  

The statements and opinions above are the author’s and do not necessarily reflect the views of the NJCPA.

---

Walter J. Brasch Walter J. Brasch, CPA, CGMA, is the chief success officer at Prager Metis. He is a past president of the NJCPA and is the treasurer of the New Jersey CPA Political Action Committee.