A judge ruled February 23 that the Christie Administration must work with the Legislature to find a way to replace $1.57 billion in pension funds that were diverted to balance the state's current budget. The decision comes on the eve of the Governor’s budget address, scheduled for February 24, where he outlines his budget for the coming year which begins on July 1, 2015.
Mercer County Assignment Judge Mary Jacobson, in a 130-page ruling in Burgos v. New Jersey, said the administration violated the contractual rights of hundreds of thousands of current and retired public sector workers by line-item vetoing the pension payment out of the budget. Jacobsen said Christie's decision "constitutes a facial violation of the funding requirements of the public pension statute," otherwise known as Chapter 78.
Jacobson denied the state's motion to dismiss the lawsuit and granted the unions' request for relief. She did not, however, set a deadline. Jacobsen’s ruling was appealed by the State late yesterday.
Background
Chapter 78, enacted in 2011, was hailed as a bi-partisan effort between Christie and the Legislature aimed at reforming the pension system for current and retired public-sector workers. Christie promised to fully fund the State’s pension obligation, with a seven year ramp up period, in return for public employees agreeing to increased contributions and lower cost-of-living raises. The state's retirement systems currently face about $83 billion in unfunded mandates.
The Case
During oral arguments in January, Assistant Attorney General Jean Reilly said Jacobson should dismiss the unions' lawsuit because Christie acted within his authority when he made the decision to line-item veto the funds out of the fiscal 2014 budget.
"The decision was reasonable in light of the unprecedented revenue shortfall," Reilly said. The state's constitution requires a balanced budget and does not allow for deficit spending.
Funding decisions, Reilly said, are governed by the debt limitations clause and the appropriations clause of the state constitution.
But Jacobson said Chapter 78 created a contract between the government and the pension funds, which means that the contracts clause of the U.S. Constitution also must be considered. Jacobson noted that options, such as tax increases, were available that could have shored up the state's finances.
In her ruling, Jacobson said Christie has done an "apparent about face" regarding his position on the accomplishment of passing Chapter 78, adding that he initially described it as an "historic effort" and his "biggest governmental victory."
Jacobson said the clear intent of Chapter 78 was to "insulate the state contributions into the pension funds from the vicissitudes of the political process that had placed the integrity of the funds in significant jeopardy in the past."
Impact
The decision, which comes eight months into the current fiscal year, and a day before next year’s budget cycle starts, will likely send lawmakers scrambling to find solutons.
State Assembly Majority Leader Lou Greenwald said yesterday he doesn't know where they would find the money in this year's $32.5 billion budget.
"The impact on programs at the end of the year would be devastating," state Assembly Majority Leader Lou Greenwald (D-Camden) said.
But Greenwald said there could be a solution on the horizon. He said public workers unions had "come to the table with real suggestion and real reform to try to create a pension payment and longevity that is sustainable and reliable and predictable."
"The reality is we have to either make draconian cuts and make the payment," Greenwald said. "Or we have to be doing what we have been doing over the course of the last number of months, which is work hand-in-hand with the people that are most dramatically impacted by the pension, which is the public workers. It's their retirement."
The Governor is expected to address some of these discussions as part of the budget address today. Early hints indicate that the NJEA has been in active conversation with the Governor’s New Jersey Pension and Health Benefit Study Commission (Governor Appoints Members to His New Jersey Pension and Health Benefit Study Commission, August 14, 2014).
Stay tuned as details unfold.
Source: NJ Law Journal, Star Ledger