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After Christie Vetoes, Pension Battle Heads Back To Court

Democratic-controlled Legislature’s passage of budget with tax hikes on millionaires and corporations is preordained exercise in futility

Credit: Governor's Office/Tim Larsen
Gov. Chris Christie

The battle over the adequacy of pension funding in the Fiscal Year 2015 state budget won’t end with Gov. Chris Christie’s expected vetoes of the $1.1 billion in tax increases passed yesterday by the Democratic-controlled Legislature and his elimination of the pension payments those taxes were designed to fund.

That fight shifts next week to the state courts, where a pair of Superior Court judges will decide whether the state must redo its FY15 budget to find the $1.5 billion needed to make the pension payment required by a 2010 law and whether that payment will have to increase to cover the elimination of billions of dollars in cost-of-living increases that an appeals court yesterday declared to be a contractual right of retirees.

Since talks between Christie and Democratic leaders on a negotiated budget broke down last week, the governor and the Legislature have been following a preordained partisan script that allows both sides to make political points to their respective constituencies on taxes, pension funding, and spending priorities.

Both sides know, however, that the end result will be the enactment by June 30 of the budget that Christie wants -- without tax increases on millionaires or corporations, without funding for women’s health clinics and an expanded Earned Income Tax Credit for the working poor. It will, however, cut pension funding cut to $681 million, thus driving up the state’s unfunded pension liability.

Democrats, who passed the budget by a 24-16 party-line vote in the Senate and a 48-31 tally in the Assembly yesterday, know they lack the two-thirds majority needed to override Christie’s vetoes -- although they may call for override votes as a political exercise in order to drive home their belief that millionaires and corporations should pay more, and that the state should keep its pension payment obligations.

The question of whether the state will indeed make the $2.25 billion in payments required over the next year under a 2010 law mandating the state ramp up to full actuarially required funding of its pension obligation will head back to the courtroom of Superior Court Judge Mary C. Jacobson.

On Wednesday, Jacobson declined to order the state to make the required FY14 payment of $1.6 billion because of the immediate fiscal emergency created when state revenues plummeted in April. But she stated that the 2011 pension law did create a contractual obligation for the state to make the required pension payments. She said she would not rule on whether the state must make the $2.25 billion payment required in FY15 until that case is “ripe.”

That issue becomes “ripe” on Tuesday, when the FY15 budget goes into effect with just $681 million set aside for pensions. New Jersey Education Association President Wendell Steinhauer said “enforcing that contractual right” established by Jacobson “will be the cornerstone of our litigation going forward” to compel Christie and the Legislature to find the revenue or spending cuts needed to restore the full pension payment during the upcoming fiscal year.

In addition, Steinhauer noted that the public employee unions “won a major victory” yesterday when an Appellate Division panel ruled in a second case that the cost-of-living increases for retirees eliminated in the 2011 pension law are also a contractual obligation of the state.

The appeals panel ordered that case sent back to the Superior Court level for a full trial that union leaders hope will lead to a restoration of three years of cost-of-living cuts and the full restoration of future cost-of-living increases – a decision that would cost the state $74 billion of the total $122 billion in savings anticipated over the next 30 years as a result of the 2011 pension law.

The impact of the state court rulings on consecutive days upholding the contractual rights of pensioners to receive cost-of-living increases and to have their pensions funded on an actuarially required basis by the state government is significant: It will dramatically limit the ability of Christie to propose wide-ranging pension reductions when he issues his promised comprehensive plan to cut pension and retiree healthcare costs.

The rulings also could set a precedent for courts in other states to protect the pension rights and cost-of-living benefits of their retirees, said Charles Ouslander, a retired deputy attorney-general who served as a pro se plaintiff in the case. Ouslander noted that Colorado’s public employee unions cited a New Jersey case in their arguments in a similar cost-of-living increase case before the Colorado Supreme Court earlier this month.

“A lot of other states have said COLAs (cost-of-living adjustments) are not part of a contractual benefit,” Ouslander noted. “This is a very important ruling.”

Senate President Stephen Sweeney (D-Gloucester), who put his political career on the line by teaming with Christie to pass the 2011 pension law over public employee union opposition, hopes that Jacobson will order the governor and the Legislature to come up with the additional $1.5 billion needed to fund the actuarially required payment of $2.25 billion this year.

But Sweeney also is expected to follow up Christie’s vetoes by calling for passage of legislation this year and next year to put a constitutional amendment for a millionaire’s tax on the November 2015 ballot to free up the revenue needed to resume the ramp-up to actuarially required funding of the state government’s pension system, which currently has a $38 billion unfunded liability for retired teachers and state employees.

The $34.1 billion budget and tax bills passed by the Legislature yesterday built on the tax package Sweeney proposed last Wednesday, but with important modifications pushed by Assembly Speaker Vincent Prieto (D-Hudson) the following day.

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