Democrats for much of the past year have fought with Gov. Chris Christie over his decision to go back on a promise to increase payments into the public-employee pension system. Now they have the latest state credit-rating downgrade to back up those complaints.
When lowering the state’s rating on Thursday, Moody’s Investors Service cited a “large structural imbalance, primarily related to continued pension contribution shortfalls.”
And first on its list of ways the state could restore its previous rating was “improved pension contributions” and funding that “eliminates the risk of pension asset depletion.”
Assembly Budget Committee Chair Gary Schaer (D-Passaic) reacted to the downgrade by saying it shows Christie’s pension-funding decisions are a “major factor.”
“The financial world repeatedly and unequivocally has declared that the administration’s mismanagement of the pension system makes our state fiscally unsound,” Schaer said.
Senate President Stephen Sweeney (D-Gloucester) said a downgrade “is what happens when the administration fails to make the legally required pension payments.”
It was Sweeney who worked closely with Christie on 2011 benefits-reform legislation that won increased pension contributions from employees in exchange for increased payments from the state.
“The refusal of the administration to keep its commitment to the pension reform plan is not only unfair to the employees who are keeping their side of the agreement, it is fiscally irresponsible,” Sweeney said.
For Moody’s, the announced downgrade marked the third time it has lowered New Jersey’s credit rating by one step during Christie’s tenure, which began in early 2010.
The agency now joins Fitch Ratings and Standard & Poor’s in knocking New Jersey’s credit rating by three full steps since Christie took office – a record number of reductions for any New Jersey governor. Moody dropped its rating from Aa3 to A2; Fitch and Standard & Poor’s, from AA- to A.
Those downgrades have the potential to raise borrowing costs that are ultimately borne by taxpayers when the state has to issue debt for big-ticket items like new bridges and schools that cannot be funded in one single budget year.
They also come as a political blow to Christie, a Republican who has tried to make the case as he now explores running for president in 2016 that his policies have helped turn around state finances after years of tax increases and heavy borrowing by his predecessors.
But the Christie administration’s response to the Moody’s downgrade on Thursday pointed the finger squarely at the Legislature, saying it’s a result, not of reduced state contributions, but of lawmakers’ failure to move forward the sweeping changes to employee benefits that Christie put forward during his February 24 budget address.
The Moody’s downgrade “once again underscores the urgent need for structural reforms of our public employee pension and health-benefits system,” said state Department of Treasury spokesman Christopher Santarelli.
State lawmakers, however, have not embraced Christie’s latest benefits-reform proposals. Instead, they want him to live up to his earlier payment promises, saying they are willing to hike taxes on the rich to bring in more revenue.
The governor has proposed freezing the current pension system and moving employees into a new retirement plan with features of a 401(k). He also wants workers to accept less-generous healthcare plans and take the savings to help pay down the current pension system’s debt, which ranges between $37 billion and $83 billion depending on which accounting system is applied.
The pension debt has been building up for roughly two decades as a series of governors from both parties, including Christie, have made only partial or even no payments into the pension system to keep pace with the cost of the workers’ deferred compensation.
The new reforms Christie is now supporting came out of a report issued in February by a commission of experts the governor impaneled to study the issue of employee-benefits affordability.
Assemblyman Declan O’Scanlon (R-Monmouth) said the lack of any movement on the new pension reforms is the problem.
“The Legislature’s failure to further provide pension reform is responsible for the state’s structural imbalance,” O’Scanlon said. “We need to enact further reforms to the pension system as soon as possible.”
[related]But the pension issue wasn’t the only concern Moody’s identified in its latest report. New Jersey’s problems maintaining a healthy surplus fund and its broader economic troubles were also noted as factors by Moody’s as it lowered the state’s rating and also cut New Jersey’s credit outlook to negative.
Last year, the state discovered a $1 billion shortfall after counting April income tax returns, swamping a surplus fund that was closer to $300 million. Christie cut the pension payment and delayed nearly $400 million in property tax relief payments in response.
And just last week, new job numbers released by the state Department of Labor indicated New Jersey’s unemployment rate ticked up again to 6.5 percent, a full point above the national average.
Hetty Rosenstein, state director of the Communications Workers of America, seized on those economic issues as the bigger problem in her response to the Moody’s downgrade.
“After five-plus years at the helm, Christie’s economic plan has been a dismal failure,” she said.
Rosenstein’s union and several others are suing the Christie administration over the reduced pension funding. They want Christie to live up to the 2011 reform law, which pledged increasing state contributions over a seven-year period.
For the next fiscal year, the reform effort promised a $3.1 billion pension contribution, which was supposed to represent 5/7ths of the amount that actuaries say New Jersey should be contributing on an annual basis to restore the solvency of the $80 billion pension system, which covers the retirements of roughly 773,000 current workers and retirees.
The Christie administration, meanwhile, is arguing in court that his plan to instead make a $1.3 billion contribution during the fiscal year that begins July 1 is meaningful.
“The FY16 Budget Message recommended that the State make the single largest pension payment in New Jersey history, $1.3 billion,” the state said in a brief just filed on Thursday.
The unions won an initial court case in February with a Superior Court judge saying Christie’s plan to make a $681 million contribution during the current fiscal year instead of the $2.25 billion payment required by the reform law is illegal.
The governor is appealing that decision and the state Supreme Court has agreed to hear the case, with arguments scheduled for May 6.
And the governor said during his latest town hall-style meeting held in Bergen County last week that the unions should also be sharing the blame when it comes to the deep pension-funding hole because they didn’t sue to block prior Democratic governors from not making full pension payments.
But that drew an angry response from the New Jersey Education Association, which in fact did sue the administration of former Democratic Gov. Jim McGreevey in 2003 over the pension-funding issue. The case was eventually decided by the Superior Court’s Appellate Division in 2010, laying the groundwork for a section in the 2011 reform law that said each pension payment during the seven-year period is a contractual right of the employees.
It’s that section that the case before the Supreme Court now hinges on.
“Governor Christie’s long history of lying about pensions is all too familiar by now, but that doesn’t make it any more acceptable,” said Wendell Steinhauer, the president of the teachers union, which is also part of the latest litigation.
“From the beginning, he’s pursued a strategy of blaming others while refusing to accept responsibility for solving a problem that has grown much worse on his watch,” Steinhauer said.