New Jersey Supreme Court Sides With Christie Over Pension Cuts

by | June 9, 2015

By Andrew Seidman and Maddie Hanna

The New Jersey Supreme Court on Tuesday ruled that public workers do not have a legally enforceable contract to greater pension funding, handing Gov. Christie a significant victory in a yearlong battle with public-sector unions.

Even though a 2011 law Christie signed explicitly granted workers a contractual right to pension funding, the 5-2 decision said that the state constitution prohibited the governor and the Legislature from establishing such a right without voter approval, because it created a long-term debt.

Writing for the majority, Justice Jaynee LaVecchia said that the unions' arguments were morally "unassailable." And she said "the loss of public trust due to the broken promises made through" the law was "staggering."

But LaVecchia wrote that the purpose of the constitution's debt-limitation clause "dovetails with the Framers' intent for a fiscally responsible annual budget process."

"Efforts to dedicate monies through legislative acts other than the annual appropriations act have no binding effect," she wrote.

With the ruling, the state averted a potential fiscal crisis. State lawmakers had faced the prospect of having to add nearly $1.6 billion to the pension system before the end of the fiscal year, June 30. Budget officials had warned that wouldn't be possible, because the state had already disbursed money for school aid and other services.

"This decision is an important victory not only for our taxpayers who simply cannot afford these unsustainably high costs, but for limited, constitutional government that recognizes the proper role of the executive and legislative branches of government," Christie said in a statement.

Christie, who says he will decide whether to run for president by the end of the month, added: "The court's position is clear, as is mine, it is time to move forward and work together to find a tangible, long-term solution to make our pension system and public employee health-benefit costs affordable and sustainable for generations to come."

The pension system for nearly 800,000 active and retired public workers has an unfunded liability of about $40 billion, according to state figures.

Hetty Rosenstein, state director of the Communications Workers of America, said she had no interest in negotiating with Christie.

"The governor doesn't have any credibility in this area," she said in an interview. Rosenstein said the union may try to secure pension funding through a constitutional amendment, which would require voter approval.

"Our goal is to save this pension plan to get the funding to do it, not to shred it to pieces," she said.

The ruling, which reversed a Superior Court ruling in February, comes a year after public-sector unions sued Christie for shorting the pension system in violation of a 2011 law.

The law required workers to contribute more toward their pensions and health benefits; raised the retirement age; and suspended cost of living adjustments. Pitched by Christie and some legislative Democrats as a bipartisan accord, the law also required the state to make bigger contributions to the pension system after years of small or skipped payments.

Crucial to the case, the law also granted public workers a contractual right to greater pension funding.

While the high court agreed that Christie, a Republican, and the Democratic-controlled Legislature had intended to create such a contract, it concluded that they didn't have the authority to do so.

That's because the debt-limitation clause prohibits lawmakers from "binding the state to enforceable future financial obligations over a certain amount -- one percent of the annual appropriations act -- unless voter approval has been secured," LaVecchia wrote.

Total spending for the fiscal year 2015 appropriations act signed last June was $32.5 billion. The pension payment required of the state by the 2011 law was $2.25 billion, or about 7 percent of the budget -- well over the 1 percent threshold.

The clause was intended to give taxpayers the "final word" in making financial commitments that could impair the state's fiscal health, the opinion said.

Public-sector unions had argued that the 2011 law did not create new debts; rather, they said it established a schedule for paying down liabilities that had accrued as a result of chronic underfunding of the pension system.

Voter approval is only required for government borrowing, the unions argued. The majority of the justices rejected that argument, noting that the debt-limitation clause covered debts or liabilities created "in any manner."

Like other nonvoter approved debt, the pension payments established by the 2011 law are subject to the appropriations process, the court ruled.

Indeed, the majority made clear that it had not declared the law unconstitutional. It remains in effect, and lawmakers can include the recommended pension payments in the budget.

But public workers do not have a contractual right to such funding, the court said.

"That the state must get its financial house in order is plain," LaVecchia wrote. "The need is compelling in respect of the state's ability to honor its compensation commitment to retired employees. But this court cannot resolve that need in place of the political branches."

Judicial involvement in that process, she suggested, would violate separation of powers.

The legal battle began when Christie, confronted with what he described as an unprecedented revenue shortfall last year, Christie slashed the state's contribution to the pension system for both fiscal years 2014 and the current one.

Mercer County Superior Court Judge Mary C. Jacobson ruled in Christie's favor with regard to the 2014 contribution, saying the state's need to resolve a fiscal emergency outweighed other considerations.

But she allowed the lawsuit to proceed for the fiscal 2015 contribution and in February sided with the unions, ruling that the governor had substantially impaired public workers' contractual rights without demonstrating a reasonable and necessary purpose for doing so.

Jacobson ordered Christie to work with the Democratic-controlled Legislature to try to make the full $2.25 billion contribution.

Christie appealed, leading to Tuesday's decision.

Joining in LaVecchia's opinion were Justices Anne Patterson, Fernandez-Vina, Lee Solomon, and Judge Mary Catherine Cuff, who is temporarily assigned to the court to fill a vacant seat.

Dissenting were Chief Justice Stuart Rabner and Justice Barry Albin, who wrote that the court's decision "strikes down the promise made to hundreds of thousands of public workers by the political branches of government," letting the state shirk its commitments while continuing to require workers to make the contributions mandated by the law.

"The dismal logic of the majority's decision is that the political branches, in accordance with the state Constitution, can let the pension fund run dry and leave public service workers pauperized in their retirement," Albin said in the dissenting opinion.?

Christie last June cut the contribution to $681 million. Earlier this year, after revenue growth exceeded expectations, Christie's administration said he would add $200 million to the pension system.

That state workers are owed a pension was not in question. Rather, the justices considered whether the Legislature and governor were required to contribute a specific amount of money to the pension system each year.

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