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Pension Ruling Sets Up Showdown Over New Jersey Budget

Democrats who control the New Jersey Legislature say they are planning a new budget that still makes a full pension-fund payment that's no longer required by law, setting up another showdown with Gov. Chris Christie.

By Melissa Hayes and Dustin Racioppi

Democrats who control the New Jersey Legislature say they are planning a new budget that still makes a full pension-fund payment that's no longer required by law, setting up another showdown with Gov. Chris Christie.

But how lawmakers deal with the chronically underfunded pension fund after hammering out a new spending plan, which must be signed into law on July 1, remains an open question.

While the governor favors a proposal to switch to a 401(k)-style system, some legislative leaders said on Wednesday that they are leaning toward stretching the current seven-year payment schedule over a decade, instead. And one Republican assemblyman called for a special session to lay out any and all ideas for a sustainable, long-term remedy.

One thing, however, is clear: Tuesday's 5-2 ruling by the state Supreme Court that invalidated part of a law that required the administration to make billions of dollars in scheduled contributions to the public-employee pension fund did little to bring the legislative and executive branches closer to solving a decades-old problem.

"That's the $1.8 billion question, isn't it?" said Passaic Democrat Gary Schaer, chairman of the Assembly Budget Committee, referring to the amount Christie has vowed to slash from the scheduled contribution in the upcoming budget.

Although he made the first two scheduled payments, Christie, citing revenue shortfalls, reduced the state's contribution for the 2014 budget. That trim was upheld by a Superior Court judge who warned, however, that she would not allow another cut the following year.

When Christie reduced the 2015 payment by $1.57 billion, the judge ordered him and the Legislature to find the money. But Christie appealed to the Supreme Court, which said this week that the law he signed in 2011 was not an enforceable contract, essentially setting up the governor to continue making reduced contributions.

And his 2016 budget proposes just that: a $1.3 billion payment instead of the $3.1 billion outlined in his reforms. But Democrats plan to include the full amount in the Legislature's version of the budget.

Christie and Republican legislators immediately called for the public employee unions to come to the negotiating table and agree to additional changes to their pensions and health benefits. The unions have pledged to fight the New Jersey ruling, possibly taking it to the U.S. Supreme Court, and Democrats said on Wednesday than they don't believe public workers should have to make further concessions when the state hasn't kept up its end of 2010 and 2011 legislation that required public employees to pay more in exchange for stepped-up state contributions.

Democratic leaders in the Assembly and Senate agree that they want the state to make the full $3.1 billion contribution for fiscal 2016.

"We are two weeks away from our constitutional deadline, and I believe that we have an obligation this year, in the short-term, to fund the full pension payment ... recognizing that the governor may not agree with how we fund it," said Paul Sarlo, D-Wood-Ridge, the Senate Budget and Appropriations Committee chairman.

Sarlo said he hopes to have a budget before his committee by June 22. He said it would take a combination of things to fund the larger pension payment, including a surcharge on higher incomes and cuts in other areas.

Assembly Speaker Vincent Prieto, D-Secaucus, also supports making the larger pension payment in the next budget but has suggested then shifting from seven years of phased-in payments, to 10 years.

That's something the Christie administration is already doing. The 2016 budget payment of $1.3 billion is three-tenths the actuarially required contribution rather than the scheduled five-sevenths payment of $3.1 billion.

"I think he gets the idea," Prieto said of the governor. "We need to spread out our payments over time."

Hunterdon County Republican Assemblyman Erik Peterson is calling for a special session to find consensus on a solution. Although he said the session should put all ideas on the table, he was against spreading out the pension fund payments.

"Extending out the term typically doesn't resolve the underlying problems," he said. "It gets you by, it buys time. I don't think that's fair to the people of New Jersey."

Sarlo said a discussion of stretching out the payments would have to wait until after the Legislature passes a budget for the coming fiscal year.

"The Senate president and I feel we have an obligation to make the payment the five-seventh payment, which is a difficult thing to do because the economy has just not grown the way it was supposed to have grown," he said adding that other states have seen their economies rebound at a faster pace than New Jersey has.

A spokesman for Christie said he wouldn't speculate on whether the governor would see the need to push for a special session, as Peterson is suggesting. Christie issued a statement on Tuesday praising the court's decision and calling on unions to return to the table.

The New Jersey Education Association was initially working with Christie's New Jersey Pension and Health Benefit Study Commission but cut off communications earlier this year, saying the governor had overstated those discussions in his budget address.

Thomas Healy, the head of that commission, said in a statement on Tuesday that the panel has put forth proposals to fund the pension going forward _ one of which would require public workers at all levels of government to agree to health benefits concessions to free up money to make the pension payments.

Senate Minority Leader Tom Kean Jr., R-Union, said he hopes all sides can come together in the near future to work on a plan.

"My hope is once we go through the rhetorical phase of this process that we can find a substantive solution," he said. "Everybody wants to solve this issue. It's in everybody's best interest to find a near-term and a long-term solution for this issue that is affordable to the taxpayers of the state of New Jersey."

But Sarlo said it will be hard to persuade unions representing the public workers to agree to additional concessions.

"They feel that government at every level has violated their trust, whether it's the governor or the Legislature, regardless, it's going to be very hard to bring them back," he said.

The Communication Workers of America in Trenton, which represents state workers, on Wednesday circulated letters from Hetty Rosenstein, the union's state director, pledging to continue fighting for the larger payment, adding that the union would take the issue to the U.S. Supreme Court if its lawyers advise it to.

The union plans to hold a telephone town-hall-style event for its members Thursday night to bring them up to date on the court ruling and what action it will take going forward.

(c)2015 The Record (Hackensack, N.J.)

Caroline Cournoyer is GOVERNING's senior web editor.
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