December 12, 2016 9:00 AM, EST

New Jersey Wants to Fund Roads by Selling Debt to Its Pensions


New Jersey lawmakers are proposing a creative approach to raising money for needed work on Garden State roads: Sell bonds directly to its struggling pension funds.

A bipartisan bill backed by state Senate President Steve Sweeney would let the Transportation Trust Fund Authority sell securities directly to the retirement system, a step that would reduce the cost of issuing debt and provide a steady investment return. With respect to transportation debt, the bill proposes lifting regulations that block New Jersey’s pensions from buying no more than 10% of a bond offering.

"This would offer an investment strategy that is mutually beneficial for New Jersey’s underfunded pension system and the Transportation Trust Fund," said Sweeney in a statement.

Sweeney anticipates the transportation fund would pay up to 5% in interest annually, which would be a "reliable and positive return" for the pension system, which lost 1% on its overall investments last year, according to the release.

S&P Global Ratings downgraded New Jersey’s debt one step to A-, the fourth-lowest investment grade, on Nov. 14 because of the government’s growing debt to the pension fund after years of failing to save enough each year. New Jersey’s $135.7 billion shortfall ranked it as the worst-funded pension system in the U.S. in 2015, according to data compiled by Bloomberg.

The Transportation Trust Fund Authority issued $2.8 billion of bonds in October, with 5% coupon securities due in 2031 priced to yield 3.02%. Governor Chris Christie temporarily shut down all road and rail projects this summer after the fund ran out of money.