Both houses of the state Legislature voted yesterday to allow towns to defer half their pension-fund contributions for the year, a move prompted by what one senator called an "economic meltdown of catastrophic proportion."

Gov. Corzine pitched a pension-fund deferral bill last year as a way to help towns avoid increasing property taxes, but the legislation stalled in the Senate in December. New Jerseyans pay the highest property taxes in the nation.

The bill approved yesterday was watered down from the original after protests from Republicans, a handful of Democrats, and some towns.

The governor's initial proposal would have allowed towns three years of reduced pension-fund payments instead of one year. The original bill also would have allowed towns to take 30 years to make up the missed payments, compared to 15 approved yesterday. Another change ensured that towns that chose not to defer their payments would not be penalized financially.

Corzine said he was especially pleased with language in the new bill that would provide more oversight of municipal spending.

"It is a compromise that I'm very pleased with because we need to be able to provide support to our communities that are struggling with this period of recession," he said.

Corzine, who is running for reelection in November, has often criticized past governors for balancing the state budget using one-time revenue sources such as "pension holidays." He said such deferrals were "not something that I would choose to do in ordinary circumstances."

The governor added that, in his first three years in office, the state had put more money into the pension system than governors had done in the previous 15 years, although the state still isn't contributing what actuaries say it should in order to fully fund future benefits due government workers, teachers, police, and firefighters.

The bill will give towns the option of deferring millions of dollars in pension-fund contributions. Camden can defer nearly $6.4 million, while Newark, the biggest beneficiary, can defer up to $21 million according to the Department of Community Affairs.

Votes in the Legislature yesterday fell mostly along party lines, with most Democrats supporting the legislation. The bill passed 21-17 in the Senate after close to an hour of heated rhetoric, and 42-36 in the Assembly. Critics, mostly Republican, argued the measure was fiscally irresponsible and would cost taxpayers more down the road.

"For some reason, we're now going to go back to the same old gimmicks of the past," said State Sen. Kevin O'Toole (R., Passaic), referring to instances of Republican and Democratic governors' taking pension holidays and deferrals. "I don't think we've learned our lesson."

Sen. Barbara Buono, chairwoman of the Senate Budget and Appropriations Committee, who made reference to the "economic meltdown of catastrophic proportion," accused Republicans of playing politics during a gubernatorial election year.

"It is insulting to say [that] if we disagree it is political," O'Toole responded.

Sen. Stephen Sweeney (D., Gloucester), one of the most outspoken critics of the original bill, said the amendments made it "much different than the bill we started with," although he still finds the pension deferral distasteful. He supported the new bill.

William Dressel, executive director of the state League of Municipalities, said he was pleased the bill passed.

"It will certainly help many municipalities that desperately need additional property-tax relief and it will avert draconian layoffs and reductions in services," Dressel said. "It is not a perfect solution, but in these dire economic times, it was abundantly clear to us that this was all the relief we were going to receive in addition to the state-aid allocations, which were on average off by 2 percent over the last year."

Dressel anticipated that as many towns would take advantage of the option to defer payments as would not. He said towns would have to reevaluate next year whether they need another deferral.

Evesham Mayor Randy Brown said allowing a town to "have some options in today's economic environment is very important, and this bill gives municipalities who are in some distress the ability to elongate their pension payments."

In Evesham, he said, the township manager and finance department would look at the possibility, but "we are looking not to have to go this route in Evesham, because we're in pretty good shape right now."

As of June 2007, the state pension system had an unfunded liability of $28 billion, a figure that is sure to have risen with the fall of the stock market.