NJ Supreme Court Hears Pension Matter

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The New Jersey Supreme Court took up the issue of whether the State violated the law when it failed to make this year’s full pension payment.

The Case

Lawyers representing the state and public worker unions argued for more than three hours before the New Jersey Supreme Court on May 6 over the constitutionality of the 2011 pension reform law known as Chapter 78.  The question stems from the Governor’s failure to include the agreed upon pension amount (3/7) in the current year’s budget.  The matter was certified to the high court after Mercer Assignment Judge Mary Jacobsen ruled in favor of the unions, including NJPSA, back in February ordering the Governor and the Democrat-controlled Legislature to find a way to restore the $1.57 billion in pension fund payments that had been conditionally vetoed out of the budget by the Governor back in June of last year.


It was just four years ago that Gov. Chris Christie and Democrats in the Legislature struck a bipartisan deal to address years of underfunding the public-employee pension system. The legislation mandated increased contributions into the system from both from the state and its workers. Christie hailed it as his signature achievement.

But yesterday the Christie administration’s own lawyers were before the state Supreme Court arguing that the law — or at least the section that applies to the state payments it seemingly required — does not stand up to constitutional muster.  The validity of that about face by the administration is at the heart of the legal question the seven Supreme Court justices.

The unions maintain the reform law referred to repeatedly in court as Chapter 78 created a contract protected by the federal constitution and that it must be honored except under very limited circumstances. But the administration’s lawyer argued that under New Jersey’s constitution only obligations approved by voters are mandatory, and that everything is “subject to appropriation.”

The justices heard the arguments yesterday as the state fiscal year is reaching its final weeks, and their ruling will have far-reaching implications for the budget, the pension system, and overall state finances.

The Arguments

The Christie administration argued that Chapter 78, which the Governor once championed as a bipartisan effort to get the pension fund back on pace to full health, is unconstitutional to the point that neither he nor the Legislature can be forced to spend money on a particular program unless the appropriation has been approved by the voters.

Lawyers representing the unions argued that Christie and the Legislature entered into a legally binding contract that requires them to schedule payments into the fiscally troubled pension systems for hundreds of thousands of current and retired public employees.

Delving Deeper On the Arguments

Assistant Attorney General Jean Reilly urged the court to overturn Jacobson’s ruling.

“Difficult decisions must be made” when it comes to the “allocation of scarce resources among competing and worthwhile goals,” she said.

The unions’ argument, Reilly said, “subverts the constitution” in that it would violate the appropriations clause.

“It is a blueprint for locking down an ever-increasing portion of the state budget,” she said.

Reilly pointed out that the administration has paid $4.2 billion into the pension plans in the past five years and plans to pay $1.5 billion in the upcoming fiscal year. That includes $200 million in additional revenue that just became available through unexpected tax receipts.

Chief Justice Stuart Rabner said the language of Chapter 78 seemed to be unequivocal in that it binds the state to make regularly scheduled payments.

“No matter how unequivocal the language, you cannot create a contract that violates the fiscal laws of the constitution,” Reilly said. “Whatever contractual rights there may be are subject to the appropriations clause.”

Justice Barry Albin said it was “unprecedented” that a governor is looking to have a law he championed be declared unconstitutional.

“It’s only the plaintiffs’ interpretation of the law that renders it unconstitutional,” Reilly said.

Albin noted that the state is arguing that it be relieved of its obligations while at the same time seeking to enforce provisions that require union members to contribute more to their pensions and to accept lower payouts.

“That sure sounds like a bait-and-switch,” Albin said.

“There are severability provisions,” Reilly said. “The rest [of the statute] can be held valid.”

Appellate Division Judge Mary Cuff, temporarily assigned, asked if Chapter 78 was a “conditional agreement.”

“That’s the essence of what we’re saying,” Reilly said. “One legislature cannot bind another with regard to appropriations.”

Albin asked what would happen if future legislators or governors simply refused to pay.

“I don’t think that would happen for political reasons,” Reilly said.

Albin said the language of the legislation was reviewed by both the non-partisan Office of Legislative Services and the governor’s counsel before it was signed into law.

Reilly conceded that, but added that the legislation was almost rushed through.

Albin said it appeared as though the governor or the Legislature could “hide behind the appropriations clause” if one or the other didn’t want to live up to prior obligations.

“That’s the way our state has operated,” Reilly said.

Plaintiff’s Case

The lead attorney for the plaintiffs, Steven Weissman, said Jacobson was correct in finding that the governor and the Legislature entered into a binding contract.

“A Legislature can create a contractual obligation that binds future legislatures,” said Weissman.

Weissman warned about the consequences if the obligations of Chapter 78 are not enforced.

The pension funds, Weissman said, “are not far from insolvency.”

If the required payments are not made, “there will be nothing,” he said. “There is no doubt the funds will go bankrupt.”

“Chapter 78 was enacted specifically to avoid that result,” he said.

Rabner asked how the court could rule in the plaintiffs’ favor without becoming involved in the budget process.

Weissman said the court has involved itself in the budget process before, specifically when it comes to school funding.

“The court has always treaded very carefully,” he said. “We’re not saying the court has the right to just say, ‘Raise taxes.’”

Justice Jaynee LaVecchia said it concerned her that the court was being asked to mandate that the executive branch and the Legislature be bound to pay something every year.

“We don’t even know how far out,” she said.

Weissman said Chapter 78 did not create a debt or liability.

“This was a preexisting obligation,” he said.

Kenneth Nowak, representing NJPSA, including other education groups,said the state was attempting to make the argument that any contract it entered into could be voided merely by citing the appropriations clause.

Justice Anne Patterson returned to whether it was proper for the court to have a role in the budget-making process. She raised the hypothetical situation where the court could be asked to order layoffs in order to balance the budget.

Nowak said that would not be the court’s role.

“The court’s role is to say, ‘What you did was not really enough,’” he said.

Justice Lee Solomon asked what would happen if the Legislature and the governor could not reach an agreement, a goal Jacobson said they should work toward.

“The court will see what efforts were made,” Nowak said. “Raising taxes is an option.”

The Governor has adamantly refused to consider raising any taxes and has repeatedly insisted he would not sign onto any tax increases passed by the Legislature.

In her ruling, Jacobson said Christie had 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.”

Christie is facing a second lawsuit, filed in December by the boards of trustees for three of the public-sector pension funds, over his decision to strip $2.4 billion out of the 2014 fiscal year budget to once again solve a revenue shortfall.

The justices did not indicate yesterday when a ruling may be issued.

Source: NJ Law Journal, NJSpotlight