New Jersey vs. the SEC

The state of New Jersey has settled a case with the SEC, which had charged the state with misleading investors over the nature of how it intended to repay its bonds. At issue was the state's claim that its pension funds for public employees and New Jersey teachers were both adequately funded between 2001 and 2007, which shouldn't have hindered its ability to pay off its bonds.

But the SEC claims that the two pension funds were only well-funded if one presumed that there would eventually be either tax increases or some kind of service cuts to the programs. In other words, it was a problem that the politicians kicked down the road to their successors, who would then be responsible enough to make the pension funds whole in order to meet the state's obligations to its bondholders.

The good news for New Jersey is that there's no penalty or fine to be paid. We just have to comply with the SEC's cease and desist order. But in the future, states are on notice that if they want to sell bonds, they can't just assume that future generations of politicians will come along and clean up whatever mess they left.