Christie Wants State Supreme Court to Intervene in $1.6B Pension Case

Meir Rinde | April 1, 2015 | Politics
Administration argues there's no time for appellate division to rule on earlier decision, wants to move ahead to state's top court immediately

Richard J. Hughes Justice Complex in Trenton, home of the NJ Supreme Court.
The Christie administration yesterday launched its counterattack on a court order that the state must make a $1.57 billion pension payment by June 30, arguing that a Superior Court judge violated the state constitution by taking control of the budget process from the Legislature and governor. It asks the state Supreme Court to quickly take over the case.

In a court filing, Assistant Attorney General Jean Reilly says events since Judge Mary Jacobson issued the order in February have added urgency to the request for direct Supreme Court intervention rather than an appeals court review. Those include demands by state worker unions that the state obey the order and new legal filings asking the court to compel full pension payments in fiscal 2016 as well.

“The trial court’s decision has thus caused an avalanche of litigation and, without immediate review, will potentially grind the budget process to a halt as the elected branches await the trial court’s imprimatur of their fiscal and policy decisions,” Reilly wrote in the Supreme Court filing.

Reilly’s request to skip the appeals court is the latest move in a legal battle over pension payments that started last year, after Gov. Chris Christie canceled two years of legally mandated payments toward the state’s unfunded pension liability. The total long-term liability amounts to either $37 billion or $83 billion depending on the method of calculation.

Under legislation signed by Christie in 2011 and considered the signature achievement of his first term, the state was to increase its pension payment every year until reaching the full contribution amount in the seventh year. But when tax receipts came in lower than expected, Christie did an about-face and said the state could not afford the payments. He did not contribute $890 million last year and the $1.57 billion for this year that was promised by the law, and his attorneys have been arguing in the court that the law he signed is unconstitutional.

Jacobson ruled that the state could forgo the 2014 payment due to a fiscal emergency, but said in February but that the state must make the payments this year.

Christie has hammered at the pension issue in recent town halls but so far Democratic leaders have failed to embrace his plan. They say he must first make the payments, which are required by a 2011 pension reform law he signed and that Jacobson ordered him to make for the current fiscal year.

“This is deferred compensation for people. It isn’t a present,” said Robert Klausner, an attorney for the trustees of the state’s largest pension funds, which sued the state separately over the payments. “For all the people who work in New Jersey for the benefit of the public — police, fire, teachers, sanitation workers, you name it, all the way up to judiciary — pensions are simply a deferred portion of the pay that they’re promised.”

Constitutional questions

In an effort to ensure that the state would start putting increasingly large sums toward its unfunded pension liability, after years of failing to make payments, the 2011 law created a contractual obligation for the state to pay and authorized the unions and their pension funds to sue if the funds were withheld.

[related]When the unions did sue last year, Reilly argued 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. It also conflicts with the governor’s veto power, she said. But in the February decision Jacobson ruled that contractual rights were also constitutionally protected and rejected other Reilly’s arguments, saying that the payments were deferred pay rather than a debt and that she was only ordering adherence to the law, not a specific financial appropriation.

In a 110-page appeal brief intended for the Supreme Court, Reilly takes aim at those arguments, saying that Jacobson’s validation of the pension law’s legal strategy amounts to an attempt to rewrite the state constitution and seize budget authority reserved to the legislature and governor.

“On the basis of a mere statute, the trial court has fabricated a constitutional right to pension funding and effected a wholesale reordering of the State’s constitutionally-enshrined fiscal process,” Reilly wrote.

The court “impermissibly thrust itself into the annual budget process as a super-referee and permanent player,” she said, and “has erased the dividing line of separation of powers.”

Abiding by Jacobson’s decision would return the state to the “dysfunctional, pre-1947 era,” before the current constitution was written, “when inflexible earmarking of state revenues for specific programs and purposes crippled the state’s ability to deal with pressing societal needs,” Reilly wrote.

Multiple cases in play

The filing argues that the Supreme Court should take the case now despite rules that call for the appeals court to resolve certain procedural issues first and despite the fact that the unions have not yet had a chance to respond to the administration’s appeal. Reilly say the constitutional issues implicated, the novel separation-of-powers questions raised, and the looming end of the fiscal year on June 30 justifies an emergency transfer of the case to the high court.

At the same time, related cases are continuing. Christie’s proposed budget released in February again would not make the full pension contribution, allocating $1.3 billion instead of the $3 billion called for by the pension reform law. Several unions have filed suit to order Christie to make the full payment, and last week Jacobson set May 12 as the date for oral arguments in the case.

The Supreme Court also has not disposed of a case challenging the pension law’s elimination of cost-of-living-adjustments (COLAs) for 300,000 retirees. A lawyer in that case, Charles Ouslander, said yesterday that the court has five times put off a decision on whether to hear the plaintiffs’ appeal of a previous adverse decision and will review it next on April 21.

A successful appeal in that case, which also rests on an issue of contractual rights, could wipe out projected savings and add $74 billion in pension costs over 30 years.

Some observers have suggested it could be in the Christie administration’s interest to use the appeals process to put off a final Supreme Court decision on Jacobson’s ruling for as long as possible, so as to avoid having to come up with the billions of dollars an affirmation of her order would require.

However, the multiple lawsuits in play could also be making it difficult to peg the actual size of the state’s pension liability, complicating budget-planning efforts and making a quicker resolution more important.

“I would think that perhaps there’s an effort to get everything up to the Supreme Court at once, and answer the underlying constitutional question of, can the state be forced to pay?” Klausner said.