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Amid a budget crisis, Gov. Chris Christie wants to reduce funding for the state pension system. Assembly Speaker Vincent Prieto, left, says Christie should raise taxes on businesses and millionaires instead.

(Tony Kurdzuk/The Star-Ledger)

TRENTON — Gov. Chris Christie's plan to cut pension funding by $2.4 billion would have a snowballing effect on New Jersey's troubled budgets, costing taxpayers almost twice as much over five years — an estimated $4.2 billion according to the governor's own financial team.

That's because cutting the $2.4 billion also means losing the interest it would generate in the long run. Christie's pension maneuver — if it survives challenges in the courts and in the Legislature this week — would saddle the retirement system with an extra 10 percent in unfunded liabilities for fiscal year 2019, an increase from $41.8 billion to $46 billion, according to the administration's estimates in a May 23 bond disclosure.

The ensuing chain reaction would make New Jersey’s nationally prominent budget problems only grow deeper for the next governor. Yearly pension payments required by law, which Christie says are too high already, are set to climb even faster.

"Increased contributions in future fiscal years, depending on their magnitude, will likely create a significant burden on all aspects of the state’s finances," Christie administration officials told investors in the bond filing.

The pension payment scheduled for the budget in 2019, for example, would jump $350 million, to $4.8 billion, according to the administration.

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Faced with a staggering revenue shortfall that he discovered in April, Christie plans to reduce two yearly payments he had budgeted for public workers’ retirement funds, from a combined $3.8 billion to $1.38 billion. It was an abrupt change of course for Christie after signing historic laws in his first term meant to rescue the pension system from collapse.

Democratic lawmakers and public-worker unions say Christie's plan could wreck the retirement system. But in a court filing last week, lawyers for the Republican governor played down the impact, saying the pension fund is "not on the verge of an imminent collapse" and has enough money in it to last another 30 years.

A court hearing on Christie’s plan is set for Wednesday, and on the other end of Trenton, Senate President Stephen Sweeney and Assembly Speaker Vincent Prieto say they will pass a new budget this week that would lessen the blow on the pension system by raising taxes on businesses and high-income residents instead.

“We’ll just have to wait and see what happens, but it looks like it’s going to be a train wreck,” said state Sen. Raymond Lesniak (D-Union).

A spokesman for the governor, Kevin Roberts, said the $1.38 billion in pension contributions still being made would cover the cost “for those employees on our watch” but not the built-up liabilities Christie inherited from his predecessors, who stopped making full pension payments in 1997.

“The system is unaffordable, broken and needs to be reformed to address these costs into the future,” Roberts said, adding that Christie is “leading the push to bring additional reform, rather than kick the can down the road to the next governor.”

Asked when Christie would release details of his new plan to overhaul the pension system, Roberts said there is “no definitive timetable on the reform proposal.”

Sweeney (D-Gloucester), a union ironworker who insiders say is preparing to run for governor when Christie leaves, surprised even fellow Democrats last week when he rolled out a budget plan that raises $1.57 billion in new revenue by raising taxes on businesses and on personal income above $500,000, as well as suspending some business tax breaks for a year.

Prieto (D-Hudson) followed suit a day later with a similar plan that would only target income above $1 million. But Roberts said Christie intends to veto any tax increases, as he has done three times already in the case of the millionaires' tax.

“There’s repercussions to that, and he’s going to have to face that as the executive of the state,” said Assembly Majority Leader Lou Greenwald (D-Camden), noting that the bond-rating agency Standard & Poor’s has threatened to downgrade New Jersey’s credit rating if the pension funding cuts go through.

“That will cost the state more money and affect the taxpayers in a very negative way,” said Greenwald, a former chairman of the Budget Committee.

With a July 1 deadline to enact a new budget, Democratic leaders said they were working through the weekend to hash out a compromise between the Sweeney and Prieto plans.

“That's the curse of modern technology, between the internet and cell phones,” said Assemblyman John Burzichelli (D-Gloucester), vice chairman of the Assembly Budget Committee. “There will be phone calls, conversations, and negotiations ongoing.”

A budget draft could get committee hearings as early as Tuesday, Democrats said. Prieto said he would like to have it pass in the Assembly by Thursday.

“There’s obviously things we’ll continue to work out,” said Assemblyman Gary Schaer (D-Passaic), the budget panel’s chairman. “But there’s clear direction from both the Senate president and Assembly speaker that we’re working hand-in-hand.”

Union support is considered crucial for Sweeney if he runs for governor, and raising the $1.57 billion for the pension system now would help the Senate president make amends with labor groups after joining with Christie in 2011 to impose higher retirement and health-care costs on public workers.

But raising revenue would make life easier on the budget front no matter who succeeds Christie as governor. Even before Christie announced his pension move, the cost of everything from schools to Medicaid, road upkeep and wastewater management, was set to balloon by billions of dollars over the next decade.

Business groups are opposed to the tax hike plans, worried that it could exacerbate New Jersey’s slow rate of job growth since Christie took office. Assemblyman Declan O’Scanlon (R-Monmouth), the Republican budget officer in the Assembly, said the way out of the budget hole is to reduce spending on some urban school districts. He called the Sweeney and Prieto plans “unadulterated posturing and pandering.”

“Your solution is massive tax increases? That's innovative. That's never been tried before,” O’Scanlon said. “I think it is incredibly irresponsible both for the health of the people of New Jersey and for Steve Sweeney's political career to be talking about massive tax increases.”

In some urban school districts, he said, the state spends $30,000 a year on each student “and the kids are getting a crappy education.”

“If you were to cap state school aid at around $12,000 per student, you could save between $700 million and $800 million a year,” he said.

"The way I look at it, the state of New Jersey has a revenue problem. I don’t think it has a spending problem," Prieto said Thursday. "Our obligations keep growing every year. Our revenues are not growing at the rate they should be."

Star-Ledger staff writers Matt Friedman and Brent Johnson contributed to this report.

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