Gov. Chris Christie and lawmakers dodged a huge bullet yesterday when the New Jersey Supreme Court issued a ruling that stopped short of forcing them to come up with $1.6 billion for the public-employee pension system in the final weeks of the state’s fiscal year.
But the 5-2 opinion handed down by the high court now presents a whole new set of challenges to the Republican governor, who is expected to announce soon a run for president. Nor do Democratic legislative leaders get away unscathed: They’re being pressured by public-worker unions to find a way around Christie to get more money into New Jersey’s chronically underfunded pension system.
And those public-worker unions, meanwhile, now have to consider whether they want to wage a lengthy and potentially costly appeal to the U.S. Supreme Court or throw their support behind some other scheme to secure their retirements, like a constitutional amendment requiring more state pension funding.
There are also implications for the pension system itself, which covers the retirements of roughly 773,000 current and retired workers, and for the next state budget, which must be in place by July 1. Christie and legislative leaders remain far apart on the pension-funding issue and many other important fiscal matters.
If nothing else, the next few weeks in Trenton should be interesting.
The much-anticipated Supreme Court ruling handed down yesterday hinged on whether the Christie administration could be forced to honor a 2011 pension-reform law he enacted that required both increased employee contributions toward their pensions and established a series of escalating state payments over a seven-year term that were promised as a contractual right of the employees.
While employees have been paying more since the law went into effect, Christie went back on the state’s promise to increase funding last year to help solve state budget problems. He cut a $2.25 billion contribution down to $681 million, though he now says he can add another $200 million before the fiscal year ends on June 30.
The public-worker unions sued the Christie administration in response to the cuts, seeking to enforce the language in the reform law known as Chapter 78 that promised the larger payments as a contractual right.
But the court’s majority, led by Justice Jaynee LaVecchia, ruled there is no contractual right under the state constitution because it provides that only voters can put the state on the hook for long-term obligations that total more than 1 percent of the annual budget, which is $32.8 billion.
“Efforts to dedicate monies through legislative acts other than the annual appropriations act have no binding effect,” the majority said in its opinion, which reversed a lower court ruling issued in February.
A dissenting opinion written by Justice Barry Albin and joined by Chief Justice Stuart Rabner argued that the employees had a contractual right to the state payments that is protected by the U.S. Constitution and case law going back centuries.
“The State cannot enter into a public contract when to do so benefits it, and then legislatively impair that contract when abiding by the contract no longer suits it,” Albin wrote in the dissenting opinion, which also said the majority’s ruling “has no contemporary legal support.”
Christie, who was in New Hampshire yesterday as he continues to lay the groundwork for an expected presidential run, issued a statement praising the Supreme Court’s ruling as a victory for taxpayers.
He also said it was a win for “limited, constitutional government that recognizes the proper role of the executive and legislative branches of government.”
And while Christie may have won short-term budget flexibility from the court’s opinion, the ruling now opens up a line of attack for possible GOP presidential primary opponents, said Ben Dworkin, director of Rider University’s Rebovich Institute for New Jersey Politics.
Specifically, it exposes Christie’s handling of a state economy that was supposed to get enough of a boost from business-tax cuts that he wrote and lucrative corporate tax breaks to make the increased pension payments affordable. The ruling also brings more attention to the two-term governor’s decision to break a promise on a key piece of legislation that was in many ways the signature achievement of his first term in office.
[related]“It makes him look like a typical politician,” Dworkin said. “His whole national persona is wrapped up in him being the atypical politician, the guy who is different than everybody else.”
And in the short-term, Christie is now also facing a bitter fight over the next state budget, with Democratic leaders who worked with him on the 2011 law digging in and saying they want the state to live up to the bigger payments even if the court is not mandating them.
Senate President Stephen Sweeney (D-Gloucester), appearing with union leaders during a news conference in the State House yesterday, said he and Assembly Speaker Vince Prieto (D-Hudson) are in agreement that state funding for the pension system in the next budget should total $3.1 billion, not the $1.3 billion payment recommended by Christie in his proposed budget.
“We will pass a budget again this year that will fully fund the pension system because we can,” Sweeney said, adding that more revenue could be generated by increasing taxes on those earning over $1 million.
He also came down hard on Christie for breaking his word — and for spending too much time this year out of state trying to build momentum for a presidential run.
“We made a commitment. My word mattered to me,” Sweeney said. “When you make a commitment you honor it.”
“We can’t do his budget. There’s no way we’re going to be able to negotiate a budget with him,” Sweeney said.
For their part, the unions — still a force in state politics, especially this year with all 80 state Assembly seats up for grabs in November — said they’re still considering whether to appeal the state Supreme Court’s ruling.
Lobbying lawmakers to support a constitutional amendment that would ask voters to authorize the increased state pension payments needed to prop up a system that right now is underfunded by at least $40 billion is also on the table, said Charles Wowkanech, president of the New Jersey AFL-CIO.
And the union leaders made it clear that they have no interest in working with Christie on a host of new benefits reforms that he’s proposed, including freezing the current pension system and moving employees into a new retirement plan with features of a 401(k).
“We have no reason to waste a single minute talking to him,” said Wendell Steinhauer, president of the New Jersey Education Association. “His vision goes no further than the end of his term.”
“The governor doesn’t have any credibility in this area as far as we’re concerned,” said Hetty Rosenstein, state director for the Communications Workers of America union in New Jersey.
But Republican lawmakers reacted to the court ruling yesterday by calling for more cooperation going forward, saying growing employee pension and health-benefits costs still need to be addressed despite the court’s ruling and the bad blood between the governor and the unions.
“It is time to move forward,” said Senate Minority Leader Tom Kean Jr. (R-Union).
“The only way to fix this long-term problem is for people to sit down, roll up their sleeves, and not walk away until we have a final plan,” said Assemblyman Declan O’Scanlon (R-Monmouth).
Wall Street also weighed in yesterday, with Moody’s lead New Jersey analyst Baye Larsen saying the court ruling “stabilizes the state’s 2015 financial position,” but suggesting it could also exacerbate state budget problems in the future.
It was Moody’s, one of the leading Wall Street credit-rating agencies, that earlier this year lowered New Jersey’s credit rating for a third time during Christie’s watch, citing “pension contribution shortfalls” as a key factor. The Moody’s downgrade followed earlier actions by Fitch Ratings and Standard & Poor’s, giving Christie the record for the most credit-rating downgrades from all three agencies during one gubernatorial administration.
New Jersey also just scored poorly in a review of state budget practices that was released on Monday by a watchdog organization run by former Federal Reserve Chairman Paul Volcker. The review faulted the state for, among other things, underfunding the pension system and relying heavily on one-shot budget fixes.
Larsen, the Moody’s analyst, said the pension ruling “reinforces the state’s ongoing reliance on one-time budget solutions and will perpetuate large structural imbalances and a rapidly increasing pension burden.”