Judge Rules Against Christie Administration in State-Employee Pension Case

Meir Rinde | February 24, 2015 | Budget, Politics
State on the hook for seven years of increasing payments, as spelled out in the administration’s signature pension-reform law

Superior Court Judge Mary Jacobson
Superior Court Judge Mary Jacobson’s decision yesterday ordering the state to make a $1.57 billion pension payment by the end of June rests heavily on her conclusion that the 2011 pension law signed by Gov. Chris Christie was intended to give state employees a court-enforceable right to such payments.

“The New Jersey Legislature deliberately and unequivocally created contractual rights for public employees for seven years of increasing state payments,” she wrote in her 130-page ruling.

Lawyers for Christie had fought to avoid yesterday’s decision, arguing that the law was unconstitutional, even though he enthusiastically endorsed the bill when he signed it and the measure is considered his signature achievement of his first term. But Jacobson’s ruling arguably validates the original strategy of the governor and Legislature to empower the courts to make them meet their obligations to hundreds of thousands of current and retired state employees.

Jacobson first found the pension law constitutional last summer, after Christie announced in April that he was canceling two years of payments — about $890 million for fiscal 2014 and the $1.57 billion for 2015 — and the state employees’ unions sued.

She allowed the state to skip the payment for 2014, accepting the administration’s argument that the late discovery of a tax-revenue shortfall had created a fiscal emergency. But she rejected arguments by the state’s lawyers that the law requiring the payment was unenforceable, paving the way for yesterday’s order

Urging quick action

During a hearing last month focused on the payment for fiscal 2015, which ends June 30, the judge again appeared sympathetic to lawyers for the unions and the state’s pension funds. In the summary judgment issued yesterday, Jacobson said the state had plenty of time to find a way to make the payment and now needs to act quickly.

“While there are less than five months remaining in FY 2015, the court cannot condone further delay,” she wrote. “The legislative and executive branches have now had almost ten months to find a solution to the pensions crisis for FY 2015, since the shortfall was discovered in April of 2014.”

“The practical reality of the situation is that time is of the essence for the legislative and executive branches to work together to come up with a solution to the pension crisis, especially given the fact that the record is devoid of any serious efforts to find a solution since the revenue shortfall accrued,” she wrote.

Despite the urgency of the order, it’s far from assured that the state will ever make a full payment. New Jersey faces a tight budget this year, and Christie said yesterday that he will appeal the decision.

The 2011 pension reform law, known as Chapter 78, sought to address the massive unfunded pension liability that the state accumulated over decades — at least $37 billion at this point — by not contributing to the funds that cover future payments to retirees.

The law suspended cost-of-living adjustments for retirees, increased the amount current workers must pay into the funds, and obligated the state to make increasingly large makeup contributions: 1/7th of the full amount the first year, 2/7th the second year, and so on until a 7/7th contribution is made in 2018. The full contribution would amount to $4 billion to $6 billion a year.

The state made the makeup payments in 2012 and 2013, but last year only put in $696 million to cover current workers’ pensions, skipping the scheduled 3/7th payment toward the unfunded liability.

Jacobson chastised the Christie administration for contending that the canceling of payments will not worsen the pension crisis, saying that the failure to make timely payments “causes the unfunded liability to increase exponentially.” She also said she does not believe the state’s assumption that it will make a full payment in fiscal 2016, which begins July 1.

“Unsurprisingly, the governor does not make any promises that the budget for FY 2016 will include a full payment for the pension systems. The court is unwilling to rely on what has now become a succession of empty promises,” Jacobson wrote.

Balancing constitutional claims

Christie administration lawyers responded to the unions’ suit by arguing that the payment requirement violates the state constitution’s debt limitation and appropriation clauses, which mandate voter approval of debt and bar the judiciary from forcing the Legislature to spend money. The pension law also conflicts with the governor’s veto power, the lawyers said.

Jacobson’s lengthy ruling responds in part by rejecting the applicability of the debt -limitation clause. She describes pension payments as a form of deferred pay, not a debt.

“In enacting Chapter 78, the state was not creating a new debt, nor was it borrowing money, but it was instead guaranteeing that the state would pay down its preexisting obligations related to normal government operations through creation of a payment plan,” she wrote.

She seeks to skirt the limits on judicial authority by arguing that she is not ordering a specific financial appropriation, but only requiring that the pension law be followed.

“If relief is provided, the court will refer the matter to the Legislature and the governor to determine how best to satisfy the judgment,” she wrote.

As for governor’s veto, Jacobson’s argument reflects the irony of Christie’s claim that a pension measure he signed into law is actually unconstitutional. Quoting from the New Jersey Constitution, she wrote that the governor has the responsibility to “take care that the laws be faithfully executed.”

“That responsibility undoubtedly includes protecting the statutorily established contractual rights of New Jersey citizens where the Legislature has intentionally and overtly imbued those rights with constitutional authority,” she wrote.

In part, the state must meet its obligations to public employees “due to the fact that the terms of the … payments were set forth — and even publicly endorsed — by the governor himself,” Jacobson said.

But underlying Jacobson’s reasoning is an acceptance of the law’s explicit intent to create a binding obligation on the state to start reducing its unfunded pension liability after ignoring that need for many years. The contracts clauses of the state and U.S. constitutions, which the law depends on, cannot simply be trumped by the debit limitation and appropriations clauses, she wrote.

“Although unusual and unprecedented, the Legislature’s choice of words in Chapter 78 gives the contractual right to state pension payments unmistakable constitutional underpinnings,” she said.