(Bloomberg) -- 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 percent 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 five percent in interest annually, which would be a "reliable and positive return" for the pension system, which lost one percent 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 percent coupon securities due in 2031 priced to yield 3.02 percent. Governor Chris Christie temporarily shut down all road and rail projects this summer after the fund ran out of money.