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Analysis: Millionaire’s Tax to Close Pension Gap Could Be Headed To Ballot in 2015

Stephen Sweeney
Credit: Amanda Brown
Senate President Stephen Sweeney (D-Gloucester)

With Gov. Chris Christie vowing to veto any tax increase, Democratic legislative leaders looking for pension-funding solutions may conclude that their best option is to bypass Christie by putting a millionaire’s tax on the ballot as a constitutional amendment next year.

It is a strategy that the Democratic-controlled Legislature used successfully last year to override Christie’s opposition to hiking the minimum wage from $7.25 an hour to $8.25, with annual increases in future years tied to the rate of inflation. The idea is now being discussed by Democratic legislative leaders as an option for the millionaire’s tax, sources confirmed.

Because Democrats do not have a two-thirds majority in the Senate and Assembly, the governor’s line-item veto power under the New Jersey Constitution gives him virtually dictatorial power over the budget -- as long as the Republican Senate and Assembly minority vote to uphold his veto, as they did when Christie vetoed the millionaire’s tax in past years. But Christie has no veto power over constitutional amendments, and while it would take 17 months for the Democratic Legislature to get the millionaire’s tax on the ballot, Democratic leaders realize that it is the only step they can take without Christie’s support.

With just 14 days to go before the June 30 constitutional deadline for passage of a balanced budget, Democratic leaders have been divided over how to respond to Christie’s decision to cut $900 million in pension funding by executive order from this year’s deficit-ridden budget and to slash the state’s pension contribution by another $1.5 billion in the budget for the coming fiscal year.

Leaders of the state’s public employee unions are putting the pressure on Democratic leaders, especially Senate President Stephen Sweeney (D-Gloucester), who sponsored the controversial pension law that eliminated cost-of-living increases for retirees and boosted pension and health benefit payments for current public employees, to stand up to Christie.

“We expect Senator Sweeney and the rest of the Democratic leadership to abide by the law they passed,” said Hetty Rosenstein, area director for the Communications Workers of America. “State workers have been making higher pension payments every week. We’re expecting the Legislature to make sure that the state government does the same.”

“This year, (Christie’s) willing to break the law all by himself, but next year he wants legislators to be his accomplices,” Wendell Steinhauer, president of the New Jersey Education Association, said at a Statehouse rally of CWA shop stewards last week. “I’m not giving a free pass to anyone who stabs us in the back by going along with his plan for next year. They need to hold the governor accountable in the Statehouse the way we are in the courthouse.”

It would make Democratic budget deliberations easier if the courts ruled on the public employee unions’ challenge to Christie’s pension cuts sooner rather than later.

But Superior Court Judge Mary C. Jacobson’s hearing on the union’s challenge to Christie’s executive order cutting $900 million in pension funding from the Fiscal Year 2014 budget that ends June 30 is not being held until June 25, and the unions’ lawsuit challenging the $1.5 billion pension cut for FY15 may not even be filed until July 1 or later, Steinhaeur confirmed. When Christie signaled in his January State of the State speech that he might not make the required pension payment, Sweeney threatened to shut down the state government if necessary to force Christie to keep the state’s commitment under a 2010 law he signed to ramp up to full actuarially required funding of the pension system, which has a $51 billion unfunded liability, by FY18.

Under the law, the state was required to make a $1.6 billion payment this year and $2.24 billion next year, but Christie slashed the state’s pension payment to $696 million for FY14 and $681 million in FY15 after state income tax revenues plummeted in April. The steep cuts added more than $2 billion to the state’s unfunded pension liability. It also made it clear that Christie no longer intended to ramp up to full funding by FY18, when he would now have to set aside more than $5 billion for pensions in his final budget as governor.

However, Sweeney has been silent on the government shutdown threat since the late April budget crisis. “Democrats realize that the executive branch comes out ahead in the eyes of the public when the legislative branch forces a government shutdown,” said one Democratic insider, noting that President Obama won public support when U.S. Sen. Ted Cruz (R-FL) forced a federal government shutdown last fall. Further, Gov. Jon Corzine gained the upper hand when Assembly Speaker Joseph Roberts (D-Camden) forced a short-lived government shutdown by refusing to pass a state budget in 2007.

And while a Fairleigh Dickinson University Public Mind poll reported two weeks ago that 63 percent of New Jerseyans believe the state should honor its pension payments rather than cutting benefits, Democrats believe much of the public would side with Christie if they shut down the state government over the state’s failure to make a scheduled pension payment in the middle of a major budget crisis.

Democrats still have the option of passing a millionaire’s tax, such as the $850 million plan proposed last week by Sen. Raymond Lesniak (D-Union). It would raise the current 8.97 percent top income tax rate to 10.75 percent on income over $1 million and 10.25 percent over $500,000; increase the current 6.37 percent rate to 8 percent on income between $350,000 and $500,000; and repeal the estate tax as a sweetener for Republicans.

But Democrats realize that Christie would simply veto any millionaire’s tax, whether they passed it separately or made it part of their own alternative budget bill, as they did in 2011 when budget talks between Christie and Democratic legislative leaders broke down shortly after Christie, Sweeney, and then-Assembly Speaker Sheila Oliver (D-Essex) teamed up to pass the controversial pension bill.

Including the millionaire’s tax in the budget bill proved to be a mistake, since Christie not only vetoed it but also used his line-item veto to punish Democrats by excising their top priorities from the budget -- a punitive exercise that famously led Sweeney to call Christie a “rotten prick.”

However, Christie would have no ability to block the Democratic-controlled Legislature from mustering the simple majority needed to pass legislation this year and again in 2015 placing a constitutional amendment authorizing a millionaire’s tax on the ballot for that November. (Democrats lack the three-fifths majority needed to put a constitutional amendment on the ballot in a single year.) Sweeney needs to mend his relationship with the state’s public employee unions heading into his expected 2017 candidacy for the Democratic nomination for governor, and passage of a constitutional amendment establishing a millionaire’s tax would free up needed funding for pension payments, whether the tax is specifically dedicated to that purpose or not.

Such a move would be even more popular with the public employee unions than mere passage of a millionaire’s tax as a political statement for Christie to veto.

Assembly Democratic leaders reportedly are less worried about coming up with a solution to the pension cuts than Sweeney, focusing their attention on more to ways to restore a $10 million reduction in cancer research funding and other smaller spending cuts in Christie’s proposed budget.

However, passage of legislation putting a constitutional amendment for a millionaire’s tax on the November 2015 ballot would be a popular move with Assembly Democrats because the entire Assembly is up for election that year.

A constitutional amendment authorizing a millionaire’s tax would not only be popular with Democratic rank-and-file voters, but would give public employee union leaders an additional reason to get current and retired teachers, police, firefighters, and state and local government employees out to vote in 2015.

And while unionized public employees and retirees were voting for the millionaire’s tax, they would be encouraged to vote for Assembly Democrats to send a message a Christie -- which would not only protect incumbent Democrats in tough swing districts like Bergen’s 38th, but also could help Democrats pick up a handful of seats in what is likely to be a low-turnout election.

It’s not a new idea: The 2013 constitutional amendment increasing the minimum wage was viewed as a politically advantageous maneuver to get lower-income voters to the polls in a year with the governor, Senate, and Assembly on the ballot. Such political calculations work in reverse as well: The reason New Jersey does not have sports betting is that the state’s GOP-controlled Legislature passed up a one-year window to approve sports betting in Atlantic City in 1993 for fear that the constitutional amendment would pull out a large urban vote that would hurt Republican Christine Todd Whitman’s chances of defeating incumbent Democratic Gov. Jim Florio.

Constitutional scholars have criticized the use of the constitutional amendment process simply to pass bills that would be otherwise be vetoed by the governor.

However, this is the first time in modern New Jersey history that one party will have controlled both houses of the Legislature for six years with the other party controlling the governorship -- and Christie has not only been more skilled in the use of the bully pulpit, but also more willing to exercise his veto power than any previous governor.

Consequently, frustrated Democratic legislative leaders are starting to look to the constitutional amendment process as a legislative form of “initiative and referendum.”

Ironically, it was Democratic legislators and the public employee unions who successfully blocked passage of Republican-sponsored legislation in the 1980s and 1990s to give citizens in New Jersey the same right to put laws on the ballot by petition and enact them by direct vote that voters in 27 other states have.

At the time, Democrats were worried about California’s passage of Proposition 13 in 1978 and Massachusetts’ passage of Proposition 2½ in 1980 limiting property tax increases, as well as the impact of unlimited special interest money in support of ballot initiatives in various states.

While labor and business interests spent several million dollars in 2013 for and against the constitutional amendment to raise the minimum wage, that spending was dwarfed by the tens of millions of dollars spent by independent expenditure committees in support of gubernatorial and legislative candidates that year.

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