The New Jersey Supreme Court on Tuesday upheld Gov. Chris Christie’s $1.57 billion cut in pension funding under the state’s current budget, finding that a state law at the center of the case couldn’t create the kind of contractual rights that public employee unions claim rendered the cut illegal.
The split decision reverses Judge Mary Jacobson’s ruling in February that the cut violated Chapter 78, a 2011 law that increased employee pension contributions while giving workers a contractual right to statutorily mandated pension contributions from the state.
But the 5-2 opinion handed down by the high court now presents a whole new set of challenges to the politicians in both parties, namely, just how to get more money into New Jersey’s chronically underfunded pension system.
Justice Jaynee LaVecchia said in her 68-page opinion for the court that Lawmakers and Christie himself, who signed Chapter 78 into law, didn’t have the authority to enact a legally binding and long-term financial agreement through the statute, adding that such an agreement would also clash with the constitution’s appropriations clause.
“Chapter 78’s contractual language creates, at best, the equivalent of appropriations-backed debt that is accompanied by a strong legislative expression of intent to provide future funding,” the justice said.
It’s also not the place of the Supreme Court to wade into how pension contributions should be prioritized as part of the state’s annual budget, Justice LaVecchia added. The position of public employee unions would have left courts in the tenuous position of ruling on budgetary decisions each year where pension contributions weren’t made in full, according to the justice.
“The majority didn’t view it’s decision as striking down Chapter 78. Rather, the ruling makes clear that it is subject to appropriation and the annual budget process.
Justice Barry T. Albin sharply disagreed in a dissent joined by Chief Justice Stuart Rabner, arguing that the decision eviscerates a promise that the political branches of state government made to public workers.
“The decision unfairly requires public workers to uphold their end of the law’s bargain — increased weekly deductions from their paychecks to fund their future pensions — while allowing the State to slip from its binding commitment to make commensurate contributions,” Justice Albin said. “Thus, public workers continue to pay into a system on its way to insolvency.”
Justice Albin’s hinged his dissent on the federal contracts clause of the U.S. Constitution. Chapter 78 is a binding contract that the clause prevents the state from breaking, according to the justice.
“Chapter 78 was not an aspirational or moral promise, but a solemn contract, which, once made, is binding on the State and cannot be nullified without offending the Federal Constitution’s Contracts Clause,” he said.
In a statement, Christie said the decision was a victory for taxpayers and “limited, constitutional government that recognizes the proper role of the executive and legislative branches of government.”
“The court’s position is clear, as is mine, it is time to move forward and work together to find a tangible, long-term solution to make our pension system and public employee health benefit costs affordable and sustainable for generations to come,” the governor said. “In light of today’s decision, I urge all interested parties to come back to the table and partner with me to finally solve this problem once and for all.”
Christie last year blamed revenue shortfalls when he announced a $2.4 billion reduction in pension payments under the 2014 and 2015 fiscal year budgets. In June 2014, Judge Jacobson refused to block the reduction for 2014 but didn’t rule on the 2015 contribution until earlier this year.
Reacting to the decision, Democratic leaders of the state Legislature pledged to make a full pension payment as part of the budget they send to Christie for the upcoming fiscal year, though there’s little doubt now that the governor will have the final say. Christie has proposed a $1.3 billion pension contribution for fiscal year 2016, well below the $3 billion contribution that unions have argued is statutorily required.
The public-worker unions, meanwhile, now have to consider whether they want to wage a lengthy and potentially costly appeal to the U.S. Supreme Court or throw their support behind some other scheme to secure their retirements, like a constitutional amendment requiring more state pension funding.
There are also implications for the pension system itself, which covers the retirements of roughly 773,000 current and retired workers, and for the next state budget, which must be in place by July 1. Christie and legislative leaders remain far apart on the pension-funding issue and many other important fiscal matters.
The case is Christopher Burgos et al. v. State of New Jersey et al. v. Communications Workers of America AFL-CIO et al. v. Chris Christie et al., New Jersey Education Association et al. v. State of New Jersey et al. and Probation Association of New Jersey, Professional Case-Related Unit et al. v. State of New Jersey et al., docket number 75736, in the Supreme Court of New Jersey.