Supreme Court Hears Oral Arguments about Payments to Public-Worker Pensions

Justice Albin asks state attorney if administration’s approach to pension contributions is ‘some sort of bait and switch’

Stuart Rabner, chief justice of the NJ Supreme Court
It was just four years ago that Gov. Chris Christie and Democrats in the Legislature struck a deal on a bipartisan plan to address years of underfunding the public-employee pension system. The legislation mandated increased contributions into the system from both from the state and its workers. Christie hailed it as his signature achievement, ,one that he could translate to Washington to break gridlock.

But yesterday the Christie administration’s own lawyers were before the state Supreme Court arguing that the law — or at least the section that applies to the state payments it seemingly required — does not stand up to constitutional muster.

The validity of that about face by the administration is at the heart of the legal question the seven Supreme Court justices will now have to answer after listening yesterday to roughly three hours of oral arguments made by the state’s lawyer and those representing more than a dozen public-worker unions who are seeking to see all components of the 2011 reform law enforced. The justices did not indicate yesterday when a ruling may be issued.

The unions maintain the reform law referred to repeatedly in court as Chapter 78 created a contract protected by the federal constitution and that it must be honored except under very limited circumstances. But the administration’s lawyer argued that under New Jersey’s constitution only obligations approved by voters are mandatory, and that everything is “subject to appropriation.”

The justices heard the arguments yesterday as the state fiscal year is reaching its final weeks, and their ruling will have far-reaching implications for the budget, the pension system, and overall state finances. Christie, a Republican, is also in the midst of exploring a run for U.S. president in 2016, and their decision could also have a big impact on his political aspirations given reform of the pension system has been something the governor has attempted to sell as a key part of his record.

The case also serves in some ways as a test of Christie’s aggressive approach to the very makeup of the high court, having feuded with Democrats since taking office in early 2010 over nominations to a bench that he’s termed as too “activist” in the past. But now three of the seven justices are Christie nominees, and Chief Justice Stuart Rabner was renominated by the governor as well.

The importance of the case was also reinforced by those who were in attendance yesterday for the lengthy arguments, including acting Attorney General John Hoffman, Christie’s chief counsel Christopher Porrino, and Senate President Stephen Sweeney (D-Gloucester).

Citing an “unexpected slow recovery” from the last economic recession and an “unprecedented two-year revenue shortfall,” assistant Attorney General Jean Reilly said the state simply didn’t have the full $2.25 billion that the reform law seemingly committed it to contributing during the current fiscal year, which ends June 30. Instead, Christie enacted a budget devoting $681 million to the pension system, which covers the retirements of roughly 773,000 current and retired employees.

Another $200 million may now be added to that payment because tax collections seem to be on course to beat this year’s modest projections.

“No one is walking away from the state’s obligation to the pension system,” she argued.

But Reilly was peppered with questions from the justices, including Barry Albin, who asked if the state’s decision to not live up to its commitment while still requiring the employees to pay more is effectively “some sort of bait and switch.”

He also asked why legislative attorneys and Christie’s chief counsel didn’t raise the constitutionality question before lawmakers and the governor approved the measure four years ago.
“No one figured it out?” asked Albin, who at times cited relevant case law going back to 1810 as he questioned the attorneys.

[related]And Chief Justice Stuart Rabner asked Reilly to explain how one part of the reform law could be found unconstitutional without striking down the entire law. He also asked if that type of split outcome is what lawmakers really intended when they voted for the reform bill on a bipartisan basis.

“The statute has interrelated means to shore up the pension system,” Rabner said. “Would the Legislature have wanted the legislation to survive if the state’s obligation fell apart?”

But Reilly maintained those two prongs of the law are “severable” because state appropriations are regulated by the state constitution, whereas the employee contributions are not. Asked by Justice Lee Solomon if a cure then could have been to put the bill’s provisions before voters to approve, Reilly responded “yes.”

The lawyers representing the unions, meanwhile, pressed the case on federal constitutional grounds, saying the obligation to the employees to pay their pensions was created long before the 2011 law was passed and that it is the court’s responsibility to enforce the state’s contract with each worker and retiree by shoring up the pension system.

Chapter 78 was “specifically designed to put the state’s fiscal house in order,” said Steven Weissman, the attorney for the state chapters of the Communications Workers of America and the AFL-CIO unions. “These funds are going to go bankrupt if Chapter 78 contributions are not made.”

But several justices seemed concerned that if they found the matter was one of enforcing a contract on federal constitutional grounds, then that could also mean they would have to get involved in determining the proper remedy. And if that were the case, it could mean the issue would come before them every year that the state didn’t live up to its obligations under Chapter 78, which requires a series increasing payments over a seven-year term.

For example, the amount the state is supposed to be paying under the law during the fiscal year that begins July 1 is $3.1 billion, but Christie has proposed making a $1.3 billion contribution, saying the state can afford to pay no more and that more reforms are necessary, including moving employees into a new retirement system with features of a 401(k).

“Is that an appropriate role for a court?,” asked Justice Anne Patterson. “How can that be squared with separation of powers?”

She asked a similar question of Robert Klausner, the attorney for the state retirement systems’ respective boards of trustees.

“I think you could avoid that problem,” Klausner responded. The lower-court ruling that landed the case before the Supreme Court on appeal from the Christie administration only ordered the governor and lawmakers to come up with the balance of the required state contribution — about $1.6 billion — not a specific remedy.

“It is for you to set the path and the standard,” Klausner said, adding the policymakers would still have to determine how to do it.

Asked after the hearing ended if the Legislature would have passed the law in 2011 with only the increased employee contributions, Sweeney was adamant that the intent was to create a “contractual right” for the employees to the stepped-up state contributions as well.

“The legislative intent was clear,” he said. “We never ever intended for only the employees to pay and the government to not pay.”

And he said the Christie administration’s position that a key component of the law that was signed by the governor is now unconstitutional is both “comical” and “tragic” at the same time.

“It’s tragic because we’re dealing with people’s lives,” Sweeney said.