Justices Debate Christie's Pension Cuts

by | May 7, 2015

By Andrew Seidman

The Christie administration on Wednesday told the New Jersey Supreme Court that granting public workers a contractual right to pension funding would violate the state constitution and place a "fiscal stranglehold on the state in perpetuity."

Hearing oral arguments in Gov. Christie's appeal of a ruling that he had violated his own pension law, the justices wrestled with questions over separation of government powers and budget priorities.

The case revolves around how to interpret a 2011 law that Christie and others said was designed to shore up New Jersey's chronically underfunded pension system by requiring both the state and public workers to contribute more money.

"The very proponents of this legislation now come before the court just a few years after passage and ask it to be declared unconstitutional," Justice Barry T. Albin said. "This is sort of unprecedented."

He asked Assistant Attorney General Jean P. Reilly if the administration was asking the court to uphold the law's provision requiring increased worker contributions but to strike down the state's obligation.

"And if you're doing that, is that some sort of bait and switch?" Albin asked. He later added: "Are you giving the public workers their money back?"

Aren't the two provisions "completely independent of one another?" asked Justice Faustino Fernandez-Vina.

Reilly said nothing in the law's text "makes one beholden to the other." She added that the Legislature also had the authority to unilaterally increase workers' contributions.

Some of the justices didn't seem to buy that argument.

"This bill has been described as a bipartisan compromise," Chief Justice Stuart Rabner said. "What was the compromise if not increased contributions on both sides?"

The court's ruling is likely to affect the state budget for the fiscal year that begins July 1, if not the current one. It also could have implications for the $80 billion pension system for nearly 800,000 active and retired public workers.

At issue is Christie's decision in June to slash the state's required $2.25 billion contribution to the pension system for the current fiscal year by $1.57 billion amid a revenue shortfall.

Public-sector unions sued, alleging that Christie had violated the 2011 law, which granted workers a contractual right to bigger pension contributions phased in over seven years.

The law also required public workers to pay more toward their pensions and health care, among other provisions.

A lower court judge ruled in February that Christie had substantially impaired workers' contractual rights without demonstrating a reasonable and necessary purpose for doing so. The judge said the rights were protected by the U.S. and state constitutions.

Christie appealed, arguing that pension funding, like all other nonvoter approved spending, was subject to the annual budget process. His administration also says that affirming a right to an annual line-item for the pension system would infringe upon the governor's constitutionally protected veto authority and violate a provision of the constitution that requires voter approval of debt.

Lawyers for the unions said the law unmistakably established a contract.

In response to an earlier Supreme Court ruling, the Legislature specifically included language in the 2011 law establishing a contractual right to pension funding, they said.

After years of skipped payments, the state adopted the 2011 law to put its "fiscal house in order," said Steven P. Weissman, an attorney for the Communications Workers of America and other unions.

The pension system has an unfunded liability of $40 billion under the state's accounting and $83 billion under federal accounting standards.

Several of the pension funds are expected to run out of money in the next decade or so, according to a commission Christie established to study the issue.

The law didn't create new debts that would have needed voter approval, Weissman argued. Rather, it established a schedule to pay down accrued pension liabilities.

Nevertheless, said Justice Jaynee LaVecchia, the law established a long-term, binding obligation on future legislatures, thus implicating the constitution's debt-limitation clause.

Weissman said that clause concerned borrowing, not deferred compensation.

Tthe pension system must be given the same priority in budgeting as funding for education, said Michael A. Bukosky, a lawyer representing the state troopers union. The state constitution mandates legislative support of a "thorough and efficient" public-school system.

"I'm saying we're first in line," Bukosky said.

The justices then turned to a more vexing issue. Courts have ruled that states can impair contracts if they show that doing so was "reasonable and necessary" for the public good. How can the judiciary answer that question in what Justice Anne Patterson described as an "enormously complex" budget process?

Repeatedly asked various iterations of that question, Weissman said at one point, "I'm struggling."

Justice Albin interrupted: The state can impair a contract if doing so serves an "important public service."

"We have to make that decision," he said.

Union lawyers said the court needed to assess what efforts the state made to meet its obligations.

Reilly, the state attorney, said "the public service" was to balance the budget in accordance with the constitution in a tight fiscal climate.

Justice Patterson appeared wary that the judiciary would be forced to intervene every time a fiscal crisis arose and the executive or legislative branches decided to slash pension funding.

This could force the courts to all but instruct the political branches to raise taxes or cut spending elsewhere -- policy decisions she suggested were not the province of the judiciary.

But Weissman said the court would be forced to intervene at some point. The pension funds are "not far from insolvency."

(c)2015 The Philadelphia Inquirer