, Gov. Chris Christie yesterday said he would slash pension payments by $2.4 billion, abandoning the pension-funding plan that was the signature achievement of his governorship and triggering a major confrontation with the Democratic Legislature and the public employee unions over the future of the state’s pension system.
The New Jersey Education Associationto block the $900 million cut in this year’s pension contribution that Christie is implementing by executive order and the $1.5 billion reduction that Christie plans to make in next year’s budget.
Analysts for Moody’s Investors Service and Fitch Ratings, Inc., which this month joined Standard and Poor’s in, condemned the move as adding to the state’s future fiscal problems.
While Senate President Stephen Sweeney (D-Gloucester) previouslyif Christie failed to make the required pension payments, Democratic legislative leaders yesterday signaled their intention to push for a millionaire’s tax to help balance the budget -- a vain effort that Christie has already pledged to veto.
Christie’s actions directly violate the provisions of the 2011 pension law he and Sweeney championed that obligated the state to bail out the deficit-ridden pension system by a seven-year ramp-up to full actuarially required funding by Fiscal Year 2018, which would have required a final-year payment estimated at.
Instead, Christie slashed pension funding from the expected third-year and fourth-year levels of $1.558 billion and $2.24 billion to just $696 million in FY14 and $681 million in FY15 -- effectively abandoning after just two years the seven-year pension phase-in that he has touted to national audiences as a prime example of bipartisanship in an effort to bolster his potential bid for the 2016 Republican presidential nomination.
Christie’s decision to slash pension funding -- which he defended as preferable to cutting school aid, hospital funding, higher education or other priorities -- puts the Democratic Legislature in the unenviable position of having to find revenue increases or alternative spending cuts. The big problem is the sheer size of the combined FY14-FY15 deficit: Even enactment of both a millionaire’s tax and awould not be enough make up for next year’s $1.9 billion deficit.
As Treasurer Andrew Sidamon-Eristoff will detail to the Assembly Budget Committee today, April’s unexpected $650 million drop in income tax revenues forced Christie administration officials to cut this year’s revenue projection by 3.2 percent to $31.7 billion and next year’s budget by 5 percent to $32.7 billion -- down from a rosy $34.4 billion forecast in the governor’s February budget speech.
Christie’s pension-funding cuts are so deep that the Republican governor’s total pension contributions for his first four years in office will drop to $2.209 billion -- barely higher than the $2.176 billion that Democratic Gov. Jon Corzine contributed. In fact, while Christie has consistently attacked Corzine for shirking his pension responsibilities, Corzine underfunded state pensions by $6.442 billion during his four-year term, compared to Christie’s $11.535 billion.
Christie’s argument at a Statehouse press conference yesterday was that the minimal $694 million and $681 million pension payments would cover the pension costs of active employees, but “will not pay for the sins of the past” -- meaning the 15 years of skipped and reduced pension payments by Republican and Democratic governors and Legislatures that ballooned the state’s unfunded pension liability.
“Today I’m going to pledge to make the payments that we need to make to not dig the hole any deeper,” Christie said.
But that’s not really the case: If Christie’s pension cuts stand, the state’s unfunded pension liability would jump by $6.4 billion over the next 13 months, and if he continued the same policy through his last budget in FY18, the state’s unfunded pension liability could jump from a projected $54.1 billion that year under the 2011 pension funding formula to between $70 billion and $75 billion, according to a preliminary analysis by NJ Spotlight.
“The decision to reduce the pension contribution solved today’s problem, but it adds to next year’s gap, increases future costs, and increases the unfunded pension liability,” said Baye Larsen, the Moody’s vice president and senior analyst who. “The state is already in a very high debt position, both in bonded debt and pension debt, and this will increase it.” Moody’s kept the state’s credit outlook at “negative” when it downgraded New Jersey’s bond rating last week because the rating agency assumed that Christie’s solution for the latest budget gap “would push off the state’s fiscal challenges into the future,” Larsen said. Christie’s pension cut proved Moody’s was right: “By decreasing the pension payment this year, you are increasing future costs, and these costs will ultimately have to be paid,” she said. , said Fitch had been looking “for the state to continue its commitment to making its pension payments. The decision not to do so we would view as a negative rating factor.” Christie, however, made it clear yesterday that he is no longer worrying about the size of the unfunded pension liability because he is planning to find a way to cut that obligation substantially not only by requiring current employees to pay more -- which he has previously urged Democratic legislators to push -- but also by cutting future benefit payments to retirees upon which it is based.
“We have made promises to people we cannot keep,” Christie said flatly. “We have to adjust this going forward.”
Christie said yesterday that he has been working with staffers from the governor’s office and Treasury Department to come up with a specific plan to radically restructure the state’s retiree benefits, and that he would unveil his proposals within a month -- before the June 30 constitutional deadline for the Legislature to approve a balanced budget.