Christie’s Cuts in Pension Payments Head to Court

Lawyers for New Jersey Governor Chris Christie head to court to defend his decision to cut payments to the state’s pension system by almost $2.5 billion as he faces a budget showdown with Democratic lawmakers.

More than a dozen unions sued to block Christie’s plan to reduce pension contributions by $884 million in the fiscal year ending June 30 and by $1.57 billion next year. Christie, a Republican, claims a drop in anticipated revenue forced him to trim pension payments to balance his $33 billion 2014 budget.

The unions, representing teachers, firefighters and others, claim Christie illegally gave himself permission to ignore a 2010 law by cutting contributions to the pension system, which is underfunded by more than $50 billion. Christie’s lawyers today will argue to Superior Court Judge Mary Jacobson in Trenton that she can’t usurp his role in budget-balancing.

“This court cannot ignore the fact that not only did the governor refuse to make the FY 2014 contribution because of a purported emergency, but the treasurer has proposed to not make the FY 2015 contribution,” union lawyers said in a June 23 filing. “By no stretch of the imagination can one find a fiscal emergency for FY 2015.”

Lawyers for Christie, 51, argue that he had to reduce pension contributions this year by $884 million and make a payment of $696 million. The state’s constitution requires the budget to be balanced.

Christie Comments

“I would love to be the governor sitting here doing what my predecessors did -- giving out the candy,” Christie said today at a town hall meeting in Haddon Heights. “It’s always easier to give out candy. Everyone smiles at you.

‘‘We don’t have any more candy to give out.”

He said he can’t raise taxes for pension payments.

“What are we going to do -- raise taxes every year by a billion or a billion and a half to pay for pensions?” he said. “We cannot afford the promises made by politicians before me.”

In a June 18 court filing, Charlene Holzbaur, director of the Office of Management and Budget, said, “The only viable option to bridge the budget gap and end the fiscal year without a deficit was to reduce the state’s pension contribution.”

Though Democratic lawmakers have pledged to restore the reductions, New Jersey’s constitution gives the governor broad authority to reject any spending they might add.

No Alternative

The governor won’t consider any tax increase and says he has no alternate plan for closing a deficit that may top $2.7 billion through June 2015.

Christie said when he introduced a $34.4 billion budget for next fiscal year that pension, health-benefit and debt payments threatened to crowd out spending on services such as schools and public safety. Last month, he cut revenue forecasts for this year and next by a combined $2.75 billion as income-tax receipts fell short.

For fiscal 2015, which begins July 1, the pension payment will be $681 million, less than one-third of the $2.25 billion he had pledged.

Without an agreement by July 1, some operations may shut down. The last time that happened in New Jersey was in 2006, when Democratic Governor Jon Corzine ordered nonessential services halted for almost a week after lawmakers in his own party balked at a sales-tax increase.

In 2010, Christie signed a law that required the state to make one-seventh of its pension payment in fiscal 2012 and then raise it each year until it hit the full amount in 2018.

Deficit Fluctuation

New Jersey’s pension deficit, which reached $53.9 billion in 2010 after a decade of skipped payments and expanded benefits, fell to $36.3 billion. It then grew to $47.2 billion in 2012 as Christie made only partial contributions.

The burden and a sluggish economic recovery have led to six credit downgrades under Christie.

Because of the lower payments Christie proposed last month, the state’s share of the pension gap, now $38 billion, will exceed $40 billion by 2016 as its funded ratio drops to 50.8 percent from 53.7 percent, Treasurer Andrew Sidamon-Eristoff told lawmakers in May.

The case is Communications Workers of America v. Christie, L-1304-14, Superior Court of New Jersey, Mercer County (Trenton).

To contact the reporters on this story: David Voreacos in federal court in Newark, New Jersey, at dvoreacos@bloomberg.net; Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net. Joe Schneider, Andrew Dunn

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