New Jersey Gov. Chris Christie won a major victory for his efforts to gain more control over Garden State finances without raising taxes when the state Supreme Court said Tuesday he could forego a $1.6 billion pension fund payment.
Christie, who is considering a 2016 bid for the Republican presidential nomination, announced the cut last year as part of an effort to curb the state’s budget deficit, currently estimated at $2.7 billion. Organized labor groups sued, saying the state was legally obligated to pay into the fund, but in a 5-2 decision the court said the governor and state legislature were not required to make the payment.
“That the state must get its financial house in order is plain. The need is compelling in respect of the state’s ability to honor its compensation commitment to retired employees. But the court cannot resolve that need in place of the political branches,” the majority opinion said.
The ruling is the latest blow to the notion that state and local pension funds are untouchable. Last year, Detroit retirees approved a 4.5 percent annual cut in a vote on their pension. The vote was pushed by Michigan Gov. Rick Snyder as part of an effort to deal with the Motor City’s bankruptcy.
The New Jersey situation came about when state revenues fell far short of projections last year. Christie’s budget included $2.5 billion in cuts to address the shortfall, including taking $1.6 billion out of a scheduled $3.1 billion payment into the pension system. The $3.1 billion was part of a deal Christie struck with public employee unions in 2011 to strengthen the underfunded pension. It involved both workers and the state making greater contributions over the next seven years.
The New Jersey state employee pension fund is in bad shape. As of fiscal 2014, it has an estimated $83 billion in unfunded liabilities and can pay only about 44 percent of its future obligations. Private-sector pension funds are considered to be in “critical status” by the Labor Department if that cannot cover 65 percent of their future obligations.
Unions sued over the reduced payments and succeeded in getting a lower court to rule that the governor and legislature had to make them. The Supreme Court overruled that Tuesday. Christie, who has fought to resolve the state’s budget problems without raising taxes, hailed the ruling.
“This decision is an important victory not only for our taxpayers who simply cannot afford these unsustainably high costs, but for limited, constitutional government that recognizes the proper role of the executive and legislative branches of government,” Christie said in a statement.
He has proposed alternate plans to address the shortfall, including moving the workers into 401(k)-type plans.
Unions called the court’s decision “a blow to the rule of law,” arguing it allows Christie to provide the illusion that he has balanced the budget without actually getting the state’s long-term liabilities under control.
“The court’s ruling that Gov. Christie is not bound by the laws that he signs and enforces on others is, in my view, indefensible,” said Wendell Steinhauer, president of the New Jersey Education Association. “This ruling has given the governor permission to kick the pension can down the road for the rest of his term. By doing that, the court has now increased the state’s future pension liability and ensured that taxpayers will bear a much greater burden in years to come.”
