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Christie’s $2.4 Billion Cut Triggers Battle Over Future of NJ Pension System

And while Christie declined to discuss potential options yesterday, he left little doubt where he wants to go with his comments to the Peter G. Peterson Fiscal Summit 2014 in Washington, D.C., last Wednesday that “the only way is to stop the insanity of a defined benefit pension system that we cannot afford and of a healthcare system that Obamacare called a Cadillac plan.”

Yesterday, the Republican governor was quick to shrug off the pension law he and Sweeney pushed through in 2011 as inadequate to the challenge of fixing New Jersey’s pension system. He insisted that the law was simply “a first step” and a “product of compromise” with the Legislature.

It is a compromise Christie is now clearly prepared to abandon: If the state’s pension payment is cut to $681 million next year, as planned, there is no way the state would be able to get back on track the following year and make the $3.2 billion payment that would be required in FY16 in the fifth year of the original seven-year ramp-up.

Court Challenge

While the 2011 pension law eliminated cost-of-living increases for retirees – a decision that is still being contested in court -- and required public employees to pay more toward their pensions and healthcare, Christie said “we need to be more aggressive” in attacking retiree costs.

While this year’s budget crisis was a direct result of wealthy taxpayers shifting hundreds of millions of dollars of income into 2012 to avoid an increase in the top federal income tax rate in 2013, Christie repeated the contention he made in his January State of the State speech that soaring pension, retiree healthcare, and debt-service costs were going to eat up 94 percent of this year’s revenue increase and crowd out other spending needs.

“We can continue to struggle every year or we can do substantive reform,” Christie said. “If we don’t do it, we will not be able to provide tax relief and we will not have funding to meet the challenges of the 21st Century,” he said, ticking off K-12 education, higher education, hospital care, and drug treatment as essential spending priorities.

Christie identified $165 million in spending cuts this year and $128 million in similar cuts next year to help balance the budget, but said he decided against fiscal “gimmicks” such as pushing pension and school aid payments due by June 30 into the following fiscal year to create “one-shot” savings in this year’s budget -- a strategy he has pursued with property tax rebates and other programs in past years.

Christie dismissed threats of a union lawsuit, warned that pension change would have to happen regardless of who was serving as governor, and urged union leaders “to engage in a meaningful way in robust pension and health benefit reform and tell the truth to your members.”

New Jersey Education Association President Wendell Steinhauer said it’s Christie who needs to start telling the truth.

“I guess I should be shocked, but after watching this governor in action breaking promise after promise, how can I be?” Steinhauer asked. “In 2009, when Christie was running for governor, he said he’d never do anything to touch pensions. But that’s what he did in 2011, when he reduced pensions for retirees (by cutting cost-of-living increases). That’s when he promised that the state would make its full pension payments, and now he’s broken that one, too.”

Steinhauer vowed that the NJEA is “going to pursue every legal avenue available to us. We believe the action he has taken is illegal. He broke his own law that he signed,” adding that the governor cannot override a law simply by signing an executive order, as Christie did to cut $900 million from this year’s pension payment.

He noted that Christie will have to negotiate the $1.5 billion cut in next year’s pension payment as part of a budget deal with a group of Democratic legislative leaders “who put their neck out on the line and used up a lot of political capital to get the 2011 pension law passed. For them to put their neck out and then have the governor pull back, if I were them, I would be pretty mad -- even furious.”

No one may be more furious than Sweeney, the Ironworkers Union leader whose sponsorship of the pension bill cost him the endorsement of the state AFL-CIO in August 2011 and may have permanently cost him the support of the public employee unions in his expected 2017 bid for the Democratic nomination to succeed Christie as governor.

'Callous' Cuts

"The governor's proposals are callous and yet another attempt by this administration to point the finger at someone else,” Sweeney said. “This administration has overestimated revenues for years. And while they have asked the middleclass and the working poor to suffer, they have rewarded the state’s wealthiest’’ -- a reference to his call last Friday to the Democratic State Committee to push for a millionaire’s tax surcharge on the current top income tax bracket of 8.97 percent.

Assembly Speaker Vincent Prieto (D-Hudson) asserted that Christie’s inability to come up with a more palatable solution to the current deficit “is the result of five years of budgeting decisions that left New Jersey no room to handle any revenue shortfall, let alone a crisis.

“Sadly, we have no easy solutions to the problems created under this administration,” Prieto said. “Abandoning pension payments only make things worse down the road, and that’s unfair to taxpayers who rightly deserve and expect better from someone who vowed to fix the state.”

Senate Budget Committee Chairman Paul Sarlo (D-Bergen) agreed.

“This is a governor who came into office promising to fix our fiscal problems, but because of his failure of leadership, rosy revenue projections, and poor economic policies, we have not solved a thing,” said Sarlo. “Today, he blamed the pension payment for his fiscal troubles, but conveniently left out the fact that his revenue projections collapsed as most predicted. He should stop blaming the one group who has actually made sacrifices to help solve the state’s budget problems and point the finger back at himself.” Assembly Budget Committee Chairman Gary Schaer (D-Passaic), whose panel will hear from Sidamon-Eristoff today, said about the governor’s decision to chop pension payments, “There's nothing responsible about kicking the can down the road. Simply put, the Governor’s office has no long-term plan to address New Jersey's fiscal health.”

Whether the governor’s short-term plan is adequate will also be a topic for debate in Schaer’s committee today when David Rosen, budget director for the nonpartisan Office of Legislative Services, puts his revenue forecast side-by-side with Sidamon-Eristoff’s.

Rosen’s revenue projections were a combined $526 million less than the treasurer’s for FY14 and FY15, when the pair presented their initial revenue forecasts on April 1, and Rosen’s estimates have been closer to the mark than Treasury’s overestimates for the past three years in a row.

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