For Gov. Chris Christie, the $34.1 billion budget and tax increases the Democratic-controlled Legislature approved last week represented an opportunity to drive home a political message aimed as much at future presidential primary voters in Iowa and New Hampshire as those in New Jersey who reelected him to a second term last November.
Christie vetoed Democratic legislation to raise the income tax rate on millionaires to 10.75 percent and impose a 15 percent surcharge on the corporate business tax, arguing that “punitively raising taxes on our already overtaxed residents and small businesses is not the answer to the state’s short- and long-term fiscal challenges.”
The Republican governor also defended his decision to cut $1.5 billion from the legally required pension payments in the upcoming budget by noting that the $2.89 billion he will contribute to the pension system in his first five years in office is more than any previous New Jersey governor.
He also argued that the $681 million payment he is making in Fiscal Year 2015 will cover the current cost of benefits earned by active teachers and state workers — even though it does nothing to pay down the $40 billion unfunded liability that has built up over the past 15 years, including on Christie’s watch.
It is a message Christie will drive home this morning on CNBC’s “Squawk Box” and later in the day at a town hall meeting in Caldwell, and it is a part of his record he will emphasize in speeches across the country this summer.
Democratic legislative leaders lack the two-thirds majority required in the state Senate and Assembly to override Christie’s vetoes of the millionaire’s tax and corporate income tax surcharge, and of the restoration of the $2.25 billion Fiscal Year 2015 pension payment the taxes were designed to fund.
Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vincent Prieto (D-Hudson) could call the Legislature in for a special session later this month for override votes if they want to make political points — as Sweeney did in 2011 after Christie vetoed an earlier Democratic bill to raise income taxes on the wealthy and redlined so many Democratic initiatives from the budget that the Senate president openly called him a “rotten prick.”
This year, however, Christie did leave in a series of Democratic spending increases for cancer research, financial aid for low-income college students, services for victims of domestic violence and sexual assault, and for abused and neglected children.
Furthermore, Sweeney and Prieto may want to move directly to seek legislative approval to place constitutional amendments on the November 2015 ballot to increase the millionaire’s tax and to require the state to make pension payments on a regular quarterly basis during the budget year, as Sen. Shirley Turner (D-Mercer) urged in legislation introduced yesterday. Democrats previously used the constitutional amendment process to win approval of a minimum wage increase because the governor does not have the power to block such voter initiatives.
The more immediate challenge for Christie is the public employee union lawsuit challenging the governor’s Fiscal Year 2015 pension cut that Superior Court Judge Mary C. Jacobson will consider, now that Christie’s veto has put the pension cut into effect.
Jacobson last Wednesday rejected a public employee union lawsuit challenging Christie’s right to cut the FY14 pension payment by $900 million, accepting the governor’s argument that a plunge in state income tax revenues discovered in late April left the governor with few options other than the pension cut to fill the FY14 gap.
But Jacobson also ruled that the 2010 pension law signed by Christie did create a contractual obligation for the state to make the pension payments required to ramp up over seven years to full actuarially required funding of its pension system by FY18 — an indication that the judge could order the state to revise the $32.5 billion budget Christie signed yesterday in order to make the full $2.25 billion payment over the next fiscal year.
If Jacobson does decide that the scheduled pension payment is a contractual obligation that the state must make this year, and the state Supreme Court ultimately agrees, the state Legislature could be called back into special session to revise the budget either by increasing revenues or by cutting other programs.
It is a battle that Democrats would relish. Sweeney, who put his political career on the line when he teamed up with Christie to pass legislation in 2011 suspending cost-of-living increases for retirees and requiring public employees to pay more for their pensions and health benefits, expressed regret that Jacobson didn’t order the state government to restore the $900 million cut from pension funding in the FY14 budget.
Prieto declared yesterday that Christie’s “failure to fully fund our pension obligation will push New Jersey closer toward fiscal disaster, and his rejection of tax relief for working families and continued support for tax breaks for millionaires is once again disappointing.”
And Assembly Budget Committee Chairman Gary Schaer (D-Passaic) noted that the failure to make the required FY14 and FY15 pension payments, which will increase the state’s unfunded pension liability from $38 billion to more than $40 billion, pushes New Jersey “one step closer to a moment of reckoning that will be far less palatable than this one.”
Christie promised in May when he announced the pension cuts that he would come out with a comprehensive plan by mid-June to cut the state’s pension and retiree health benefit liabilities, which together top $90 billion and are one of the principal reasons that the three bond-rating agencies cut New Jersey’s rating this spring for the second time during Christie’s tenure as governor.
However, Christie has yet to come up with a plan, and Kevin Roberts, Christie’s spokesman, yesterday essentially shifted responsibility to the Legislature.
“As Gov. Christie has been making clear all year, unless New Jersey’s leaders make the choice to go further with reforms; pension, benefits, and debt costs will overwhelm the State budget, monopolize resources, and threaten the investments and progress New Jersey has made over the past four year,” Roberts said in a statement defending Christie’s budget and pension cuts and his vetoes of the Democratic tax increases.
Sweeney, however, hopes that the Legislature’s ability to fully fund the $2.25 billion FY15 pension payment through tax increases on the wealthy and on corporations will demonstrate to Judge Jacobson that there is a viable option to make the scheduled payment in the upcoming fiscal year.
Jacobson is unlikely to buy Christie’s argument that it is not his responsibility to begin to pay off the unfunded liability left by the failure of past governors and legislatures to make the necessary pension payments: Not when Christie signed legislation promising to do so. Not when the pension payment schedule agreed upon would allow the unfunded liability to grow to more than $54 billion by FY18, the year the state would finally make the full actuarially required payment — which it expects to be $4.8 billion. And especially not if Christie fails to offer a long-term plan to fulfill what Jacobson has ruled is a contractual obligation.
Public employee union leaders immediately vowed to take legal action to compel Christie to make the required FY15 pension payment.
“We will do everything in our power through the courts and legislature to fight for our pensions to be fully funded,” said Patrick Colligan, New Jersey State Policemen’s Benevolent Association executive vice president.
While the court battle over the pension payments — and its potential to force Christie and the Legislature to redo the budget — will draw the most attention this summer, yesterday’s budget also has important implications for Democratic and Republican legislators, particularly the 80 members of the Assembly who will be running for reelection in November 2015, possibly with millionaire’s tax and pension payment constitutional amendments on the ballot.
“The governor today spared taxpayers from massive tax hikes that would have decimated our economy,” said Assembly Minority Whip Scott Rumana (R-Passaic). “Increasing taxes on the state’s job creators would have had a ripple effect on our economy resulting in layoffs and higher prices for consumers.”
“I think it speaks volumes that the governor’s allies in the legislature voted against this budget because they were more concerned with protecting the people of this state who theoretically might flee since they don’t have to wait around to sell their home here because they can easily afford two,” Assembly Majority Leader Lou Greenwald (D-Camden) countered.