Superior Court Judge Delays Legal Arguments on FY2016 Public-Employee Pensions

Jacobson holds up proceedings until high court rules on FY2015 payments into public-workers benefits fund

Superior Court Judge Mary Jacobson
The Superior Court judge who earlier this year ruled against Gov. Chris Christie’s administration in the ongoing litigation over how much the state is contributing to New Jersey’s public-employee pension system has put off another round of legal arguments that were scheduled to be held this morning in Trenton.

That decision likely increases the stakes for the state Supreme Court, which heard arguments last week from lawyers for the administration and more than a dozen public-worker unions on whether the governor had the right to significantly reduce a promised state pension contribution to help balance the budget in place for the current fiscal year.

A decision from the high court on that issue could come at any time.

Superior Court Judge Mary Jacobson was originally planning to hear arguments this morning on another case involving state pension payments, specifically the reduced contribution Christie is planning to make during the next fiscal year.

But Jacobson instead issued an order explaining that the case will be adjourned “pending the New Jersey Supreme Court’s decision in the related appeal concerning FY2015 funding.”

The flurry of court activity comes in the final weeks of the current fiscal year, which ends June 30. More than $3 billion in pension funding is at stake between the two fiscal years, and the court’s decision will likely have a big impact on both the annual state budget and the future health of the pension system, which covers the retirements of an estimated 773,000 current and retired workers.

There are also political implications for Christie, a Republican exploring a run for the White House who has tried to hold up pension reforms enacted in 2010 and 2011 as a national model.

The worker unions have been seeking the enforcement of a state pension-payment schedule Christie endorsed and also seemingly granted as a contractual right to the employees in a reform law that he signed in 2011.

Christie’s lawyers, however, are contending in court that the contributions he committed the state to make are not mandatory, but only “subject to appropriation” under the state constitution.

The payment schedule at issue calls for state pension contributions to increase over a seven-year term to address two decades of underfunding by Christie and prior governors from both parties, leaving the pension system with debt measured as large as $83 billion. The reform law also forced employees to pay more toward their pensions and suspended cost-of-living adjustments.

Jacobson ruled in February that Christie’s pension cut for the current fiscal year violated the terms of the 2011 reform law. Christie’s subsequent appeal set the stage for the arguments heard last week by the Supreme Court.

The $33.8 billion spending plan that Christie put forward in February for the next fiscal year calls for a $1.3 billion pension payment, not the $3.1 billion that the state would have to pay according to the next step in the seven-year payment schedule.

The unions maintained in their most recent legal brief that Jacobson’s ruling in favor of the workers earlier this year — she found that the state pension payments are a contractual right of the employees guarded with constitutional protections — means Christie has to make the larger, $3.1 billion contribution in the next fiscal year.

[related]“The Governor’s FY2016 budget violates his legal, statutory, constitutional, and contractual obligations to submit a budget recommendation to the Legislature that allocates money for all legally mandated appropriations, including the State pension systems,” the brief said.

But the Christie administration’s latest legal brief argues that the unions have no grounds to challenge the amount of funding Christie is recommending for the new fiscal year, because at this point it is still subject to the approval of the Legislature as part of the annual budget process.

“The Governor has neither authority to appropriate funds nor unilateral authority to prevent appropriation of the pension payment,” the state’s brief said.

“In short, the Governor’s budget recommendation is just the first step in the constitutionally-designed iterative budget process; the Legislature remains free to accept, modify, or reject the Governor’s recommendation,” the brief said.

Last year, Jacobson allowed Christie to reduce a planned $1.58 billion pension contribution by nearly $900 million because she ruled the state, facing a $1 billion revenue shortfall, was in the midst of a fiscal emergency and could not come up with the money to close the gap. The state constitution does not allow a governor and lawmakers to operate with a deficit.

And Jacobson’s ruling on the pension payment for the current fiscal year ordered the state to pay $2.25 billion, not the $681 million Christie said the state could afford to contribute.

But that payment could end up being closer to $900 million. The administration’s lawyers said in court last week that another $200 million will likely be added to the final payment because state tax collections appear to be outperforming revenue projections.

And though the $1.3 billion payment Christie has proposed for the next fiscal year would be the largest in the state’s history, it is also the furthest from reaching, by nearly $2 billion, what the seven-year phase-in payment should be for the 2016 fiscal year.

Christie has instead called for a new round of benefits reforms, including moving employees into a new retirement system with features of a 401(k) plan.

State Senate President Stephen Sweeney (D-Gloucester), meanwhile, has introduced a bill that would bring in more than $600 million that could be used for the pension system by increasing the state’s top-end income tax rate on earnings over $1 million from 8.97 percent to 10.75 percent.

The change would be in effect for four calendar years under Sweeney’s plan. Christie, however, has rejected on four occasions Democrats’ efforts to hike taxes on the state’s highest earners, including last year even as the state faced the $1 billion revenue shortfall.