Law and Politics

New Jersey Court Rules Christie Can Stiff Pension Funds

June 10, 2015
By Steven Wishnia

New Jersey’s legislature does not have the power to compel Gov. Chris Christie to make adequate contributions to the state’s pension funds, the state Supreme Court ruled yesterday.

The 5-2 decision reversed a February lower-court ruling that the governor had violated a 2011 law mandating that the state fully fund its pension systems when he withheld more than $2.5 billion in payments required for fiscal 2014 and 2015. A coalition of public-worker unions sued Christie, arguing that his refusal to fund pensions adequately unconstitutionally impaired the state’s contracts with their members—who had agreed to concessions in exchange for the increased funding in the 2011 law.

Justice Jaynee LaVecchia, who wrote the majority opinion, said that the workers’ argument was morally “unassailable,” but that the state constitution prohibited the legislature from making appropriations that extended for more than one year or creating debts of more than 1% of the state budget without voter approval.

The decision split along party lines. All five justices in the majority were appointed by Republican governors, including three by Christie. The two dissenters were chosen by Democrats.

 “This ruling is disheartening for current and retired employees who have gone to work, lived by the rules and faithfully paid into the system,” Charles Wowkanech, president of the New Jersey State AFL-CIO, said in a statement. “After dedicating their entire careers to public service, this ruling leaves them more worried than ever that their modest pensions won’t be there when they need them.”

About 800,000 current and retired workers are members of the New Jersey public pension system, the state AFL-CIO said in a statement. “It’s important to remember that everyone has been doing their part to restore the pension system to fiscal health, except the governor,” it added. “Pensioners have increased their contributions, retirees have forfeited cost-of-living increases, local governments have paid their full share, and the Legislature has sent the Governor a balanced budget with full pension funding, which he of course vetoed.”

The 2011 law, Chapter 78, explicitly stated that each member of the state’s pension systems “shall have a contractual right to the annual required contribution amount” and the failure of the State to make the required contribution “shall be deemed to be an impairment of the contractual right.” Another law required the state to increase its annual contributions to the fund over seven years so they would be enough to cover the systems’ unfunded liabilities by the 2018 fiscal year. The state made those payments for 2012 and 2013, when they were one-seventh and two-sevenths of the full amount.

But in May 2014, after the mandated contribution went up to three-sevenths, Gov. Christie, saying the state couldn’t afford to pay $1.58 billion, issued an executive order cutting it by more than half, to less than $700 million. In fiscal 2015, the state’s contribution was less than one-third of the $2.25 billion required, $1.57 billion short. Christie used his line-item veto to block a budget appropriating the full amount, on the grounds that he opposed the tax increases enacted to cover it.

A coalition of 17 unions challenged those actions in court, including several police unions and the state branches of the AFL-CIO; the American Federation of State, County and Municipal Employees; the American Federation of Teachers; and the Communications Workers of America. State Senate President Stephen Sweeney and Assembly Speaker Vincent Prieto joined them. The Christie administration countered that the 2011 law violated the Appropriations and Debt Limitation clauses and the line-item veto provision of the state Constitution.

The Debt Limitation clause provides that the Legislature may not create “a debt or debts, liability or liabilities of the State” that exceed 1% of the amount appropriated in a given fiscal year without voter approval. The court agreed, rejecting the unions’ claim that the clause was intended to prevent the state from incurring large new debts, not from paying debts already due.

The 2011 law could not “create the type of legally enforceable contract… entitled to protection under the Contracts Clauses of either the State or Federal Constitutions,” Justice LaVecchia wrote. “In short, neither the fact that Chapter 78 seeks to correct the failure of previous administrations to properly fund the pension systems nor plaintiffs’ designation of the Chapter 78 funding mechanism as an ‘operating expense’ of government remove Chapter 78 from the Debt Limitation Clause’s purview.”

The judge wrote that the decision was not “striking down” the law and “that there is no question that individual members of the public pension systems are entitled to this delayed part of their compensation upon retirement.” All she was saying, she concluded, was that the state had to find a different means to “get its financial house in order” and “forge a solution to the tenuous financial status of New Jersey’s pension funding in a way that comports with the strictures of our Constitution.”

That logic, Justice Barry T. Albin wrote in dissent, amounted to an absurd constitutional analysis “that the political branches cannot be compelled to fund the pension system. 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.”

“Rights protected by the Federal Constitution cannot be defeated by a novel interpretation or reconfiguration of state contract law,” he added. “The State’s withholding of monies from a public worker’s pension is no different than the State’s withholding part of the worker’s salary…. If the enforceability of a contract depends on the willingness of the Legislature to appropriate money in any particular year, then, by the majority’s logic, no contract is enforceable. That conclusion will come as a great surprise to many who count on the good faith and credit of the State in honoring its contractual commitments.”

June 10, 2015

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