Christie’s Cuts in Pension Payments Head to Court

Lawyers for New Jersey public employee unions urged a judge to stop Governor Chris Christie from cutting payments to the state’s pension system by almost $2.5 billion as he faces a showdown with Democratic lawmakers over the budget.

More than a dozen unions sued to block Christie’s plan to reduce pension contributions by $887 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 the payments to balance his $33 billion 2014 budget.

Unions for teachers, firefighters and other state workers claim Christie ignored a 2010 law by shrinking contributions to the pension system, which is underfunded by more than $50 billion. Superior Court Judge Mary Jacobson in Trenton asked union lawyers about Christie’s position that she can’t usurp his role in budget-balancing.

“For 2014, it doesn’t appear that the money is available,” Jacobson told Steven Weissman, an attorney for the Communications Workers of America, during the hearing. “So how could I order the funding of an unfunded liability when the money isn’t available?”

Weissman said the state should make pension payments of at least the $300 million that he said represents the budget surplus this year. Pension recipients have a contractual right to contributions to their funds, he said.

‘Purely Political’

The state’s position, Weissman said, is that “the court has no jurisdiction over this matter, that this is a purely political matter. We know that the court shall have jurisdiction over a contractual right.”

In response, Assistant Attorney General Jean Reilly argued that Christie’s constitutional responsibility to balance the budget trumps any contractual rights that workers may have to pension payments. She said the $300 million figure is only an estimate, and the size of the surplus won’t be known until at least December when the state’s books are reconciled.

“If the state didn’t start the year with this cash on hand, it would jeopardize its ability to exercise its core function,” Reilly said.

Christie, 51, said he would make a payment of $696 million this year.

‘Candy’ Handouts

“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.”

At the hearing, Weissman questioned whether budget officials had accurately represented the state’s fiscal health.

When the judge asked Reilly about that point, she said: “It is not this court’s role to look under the state’s seat cushions and determine what spare change can be put into the pension fund.”

When the judge pressed the point, Reilly said: “There is no money left this year. Even if there were, it would go to essential services.”

‘Viable Option’

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.

Christie, who has vowed not to raise taxes, said today he’ll veto any increases passed by the Democratic-controlled legislature. He has said 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. He also cut his proposed spending plan to $32.7 billion.

Budget Bill

The Assembly and Senate budget panels, dominated by Democrats, on June 25 approved a $34.1 billion budget bill that for three years would increase income taxes on residents earning more than $1 million annually. It also would raise the corporate tax rate to 10.35 percent from 9 percent for one year.

The combined estimated revenue of $1.12 billion would go toward a $2.25 billion pension payment.

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 the full payment recommended by actuaries in fiscal 2012 and then raise it each year until it hit the full amount in 2018.

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.

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 for the state 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).

Before it's here, it's on the Bloomberg Terminal.