Reaction to Dems’ Proposal Hints at Possible Area of Compromise on Pensions

Some GOP lawmakers react favorably to idea of making quarterly payments as show of ‘good faith’ and to take advantage of investment returns

Credit: NJTV
Sen. Robert M. Gordon (D-Bergen and Passaic) chairs the state Senate Legislative Oversight Committee.
Democrats, who control the Legislature, and Gov. Chris Christie, a Republican considering a run for president, are stuck in gridlock on the public-employee pension issue.

But if the impasse eventually breaks – or Christie ends up moving on — the first glimpse of a possible compromise may have come earlier this week when budget committees in both the Assembly and Senate advanced a measure that would change the way the state makes contributions into the pension system.

The measure is sponsored by four Democrats — Assemblymen Benjie Wimberly (D-Passaic) and Joseph Lagana (D-Bergen) and Sens. Linda Greenstein (D-Mercer) and Robert Gordon (D-Bergen). But the concept of the bill — shifting the state’s pension-payment schedule from annual to quarterly — won praise this week from some Republicans and even earned one of their votes in committee on Tuesday.

Wimberly said making quarterly pension payments would demonstrate a “good-faith” effort on the part of the state to honor its commitments to employees after recent years during Christie’s tenure when payments have been reduced or skipped altogether.

“I think ‘good-faith’ is a key term in this issue here,” he said.

Assemblyman Chris Brown (R-Burlington), though he raised some concerns, voted for the bill as it advanced out of the Assembly Budget Committee. Two other Republicans abstained, but suggested they could also end up voting for the measure when it comes before the full Assembly today.

“I like this concept,” said Assemblyman Declan O’Scanlon (R-Monmouth). “I’m going to abstain right now, (but) I’m sympathetic to it.”

Assemblyman Jay Webber (R-Morris) also promised to take a closer look before today’s floor vote.

“I’m going to spend a couple days and try to get some analysis on the numbers,” Webber said. “I might very well be a ‘yes’ when it comes to the floor.”

That there’s any hint of bipartisanship on the pension-funding issue is remarkable given the high-profile feud between Christie and Democratic legislative leaders that’s now lasted for well over a year.

Democrats favor tax hikes to raise the money needed to shore up the chronically underfunded pension system, while Christie wants to enact sweeping changes to cut costs.

Neither side can get what it wants without cooperation from the other party – something that seems unlikely at the moment. Democrats are refusing to entertain Christie’s proposed reforms and instead are preparing later today to send him a new budget that would increase spending on pensions. But Christie is expected to use his constitutional line-item veto authority to remove that spending, just as he did under similar circumstances last year.

Two other bills going to the governor later today but destined for vetoes would hike taxes on personal income over $1 million and on corporate earnings.

Right now, the state pension contribution is made at the close of each fiscal year, which end June 30. This year, the payment will be $681 million, plus another $212 million that became available late in the year as tax collections surged beyond revenue projections.

In recent years, as Christie’s budgets have left little money in a rainy-day surplus fund to absorb unforeseen costs or sluggish revenue collections, the contribution into the pension payment has been raided to keep the budget balanced, something required by the state constitution.

And that’s happened even after Christie signed laws in 2010 and 2011 that committed the state to making a series of increasing payments over a seven-year term to reverse the damage caused by prior underpayments by Christie and other governors from both parties that has left the pension system at least $40 billion in debt.

The state Supreme Court ruled earlier this month that the Christie administration doesn’t have to abide by the legislative payment schedule — saying only voters can make such long-term commitments — even though the reform effort also forced employees to pay more toward their pensions.

A first attempt to establish a quarterly-payment schedule came last year after Christie first announced he was breaking his pension-funding promise. Sponsors said the change would ensure at least some funds make it into the pension system in lean years while also giving the state a chance to make money off the payments, since the pension system’s assets are professionally managed and have earned impressive returns in recent years.

But Christie vetoed last year’s proposal, saying in part that the state’s revenue schedule wouldn’t allow for the quarterly payments. Big chunks of money come into the budget during the second half of the fiscal year, including after the holiday shopping season and once April income-tax payments are collected.

“Simply wishing in a law that sufficient funds will be available on specific future dates does not change the fiscal realities of revenue collection during the course of a twelve-month year,” Christie wrote in a veto message he sent back to lawmakers late last year.

Lawmakers then tried but failed to override Christie’s veto.

The latest version of the bill resets the quarterly payment schedule to coincide better with the state’s cash-flow trends. Last year’s version called for an initial payment to be made on July 15, just two weeks into the fiscal year, when little cash is available. Other payments would have been due on Oct. 15, Jan. 15 and April 15.

In the new version of the bill, the first two payments would be due on Aug. 1 and Nov. 1. The last two payments would come due on Feb. 1, well after the holiday shopping season, and May 1, several weeks after the income-tax filing deadline.

Even if the state has to borrow money initially to make the first two payments, proponents of the bill argued that the investment returns off those first payments would generate more than enough income to absorb the cost of short-term borrowing.

[related]While the bill drew one Republican vote in the Assembly Budget Committee, the Senate Budget and Appropriations Committee approved it strictly along party lines. But at least one Republican on that panel also suggested he was open to the sponsors’ goal.

Sen. Steve Oroho (R-Sussex) said his concern is that, absent a more comprehensive look at the overall state budgeting cycle, the change could result in simply putting some other item up on the chopping block whenever there are shortfalls.

“Obviously, making the payments throughout the course of the year, I support,” Oroho said. “But what becomes last? That’s always going to end up being the problem because we have to have a balanced budget.”

“I’m going to vote no. However, if we look at it in a comprehensive format — different story,” he said.