Largely overshadowed by the bitterly contentious dispute over the Christie administration’s underfunding of the public pension system was the provision in the 2011 reform law that eliminated automatic cost of living adjustments (COLAs) for retirees.
It’s been thrust back into the center of the debate with a warning from Senate President Steve Sweeney that if the adjustments are restored by the state Supreme Court, the additional cost will bankrupt the system.
While his stated intention may have been to call attention to the fiscal implications of reinstating the COLA, his prediction of impending bankruptcy was also an effort to restore some level of legitimacy and credibility to the four-year-old law, one that he played a key role in enacting.
The heart of that law established a formula and timetable for the state to follow to fulfill its funding obligations in return for increased employee contributions and freezing the cost of living adjustment for as long as 30 years. Withholding the COLA accounted for more than 60 percent of the projected $122 billion savings over three decades.
When Christie — citing budget restraints — reduced dramatically the state’s share in the 2014 and 2015 fiscal years, employee groups hauled him into court, demanding that the administration comply with the statute and provide the funds.
In June, the court held that mandating future expenditures violated the state Constitution and that decisions on funding levels properly rested with the executive and legislative branches.
As a result, Christie’s cuts stood.
The court is scheduled to hear arguments this month in the COLA litigation, and if it holds that the payments must be resumed, the only elements of the 2011 law remaining will be that requiring increased employee contributions and raising the retirement age.
As Sweeney contemplates seeking his party’s nomination for governor in 2017, such a ruling would expose him to accusations that by joining the governor to muscle the pension changes into law he bears responsibility for placing the burden of bailing out the system squarely on the backs of public employees.
His colleagues and leaders of organized labor were unhappy with Sweeney’s aligning himself with the governor, but he argued that, while difficult, the changes were a crucial step toward guaranteeing the solvency of the system well into the future and ensuring that earned benefits would be locked in upon retirement.
With the court’s decision in June and the possibility that the COLA will be restored, Sweeney’s position is weakened greatly.
This turn of events has led to thus far privately expressed suspicions that Sweeney had been snookered by the governor, that Christie and his staff were fully aware that revenues would be insufficient to meet the mandated payment levels, that cuts would be necessary, and — as the administration argued successfully in court — that the law itself was unconstitutional.
Christie would have the opportunity to boast of his bipartisanship skills in winning legislative approval of the changes, but in light of the Supreme Court ruling could argue that the state could no longer afford the system and more dramatic revisions were necessary.
Sweeney would be left holding the bag, unable to muster enough votes to override a gubernatorial veto of tax increases to fund the system and powerless to force the administration to come up with the money from other sources.
For his part, Christie could reinforce his anti-tax-increase credentials while proposing a legislative package to create a new pension system with greater fiscal stability and certainty of benefits.
Understanding the political dilemma he faced by being boxed in by the governor and anxious to avoid the rising wrath of public employee unions, Sweeney proposed a massive federal government loan program to assist states like New Jersey in dealing with rising and potentially unsustainable pension costs.
He conceded that the prospect of Congress creating a $1 trillion loan program was “a long shot” — politico-speak for dead on arrival. In truth, his proposal was designed more to send a message to the important labor constituency that he was not surrendering and would continue to aggressively pursue funding solutions that did not rely on further employee concessions.
Whether Christie suckered Sweeney makes for interesting Statehouse corridor gossip, but there’s little doubt that the governor emerged from the controversy with little political damage and Sweeney did not.
In the meantime, the pension system remains badly undercapitalized and with both sides at an impasse hopes for a compromise are extremely dim.
Should Christie fill the two years and four months remaining in his second term, he’ll continue to insist that he’s proposed a viable and effective program to rescue the pension system and that Democratic legislative obstructionism is to blame for the lack of action.
While a court ruling restoring the COLA would add a sense of urgency to the deliberations, Sweeney’s options are severely limited, perhaps even restricted to hoping for the election of a Democratic governor in 2017, a chief executive who would reinstate the income tax surcharge on wealthy New Jerseyans, raise the corporate tax temporarily, and devote the revenue to the pension system.
If that sounds like a Sweeney for Governor television commercial, it’s because it is.