N.J. Supreme Court sides with Christie in pension case

Gov. Christie on Tuesday claimed a significant legal victory in a yearlong battle with public-sector unions over pension funding, even as analysts warned that the state's long-term fiscal condition remained precarious.

The New Jersey Supreme Court ruled that the state could not grant public workers a legally enforceable contract to greater pension funding, even though Christie signed a 2011 law establishing just that.

In a 5-2 decision, the justices said that the state constitution prohibited the governor and the Legislature from establishing such a contract without voter approval, because it would create a long-term debt.

Writing for the majority, Justice Jaynee LaVecchia described the unions' arguments as morally "unassailable" and said, "The loss of public trust due to the broken promises made through" the law was "staggering."

But LaVecchia said the constitution's framers "intended to empower the people of the state by giving them the final word in respect of creating financial commitments that might impair the state's fiscal health and have intergenerational repercussions."

Hetty Rosenstein, state director of the Communications Workers of America, said the ruling did not change her goal: "to save this pension plan and to get the funding to do it, not to shred it to pieces."

With the ruling, New Jersey averted a potential short-term fiscal crisis. State lawmakers had faced the prospect of having to add nearly $1.6 billion to the pension system before the end of the fiscal year, June 30. Budget officials had warned that would not be possible, because the state already had disbursed money for school aid and other services.

"This decision has reduced the risk of sudden late-year liquidity and budget pressure, but perpetuates severe pension underfunding and rapid growth of state liabilities," said Baye Larsen, an analyst with Moody's Investors Service.

This fiscal situation has led to several credit downgrades on Christie's watch. Analysts warn that downgrades could burden taxpayers by raising the cost of borrowing.

The pension system for nearly 800,000 active and retired public workers has an unfunded liability of about $40 billion, according to state figures.

Christie wants to scale back health benefits and switch to a 401(k)-style pension system, and on Tuesday he said it was time to "work together to find a tangible, long-term solution" to make those costs "affordable and sustainable for generations to come."

Some labor leaders raised the prospect of a constitutional amendment that would secure pension funding. Senate President Stephen Sweeney (D., Gloucester) would not comment on that option but vowed to fully fund the pension for the fiscal year that begins July 1.

Christie has proposed a $1.3 billion contribution, well short of the $3.1 billion scheduled in the 2011 law. Sweeney has proposed raising taxes on millionaires to help fund the pension.

Sweeney attacked Christie over his championing of the 2011 law. "When the governor talks about reform, this is the reform he talked about," Sweeney said at a Statehouse news conference. "This is what he ran around the country saying, 'Look what we did, America, we can get it done.' "

Christie "will do anything and say anything to bolster his pathetic presidential campaign," added Wendell Steinhauer, president of the New Jersey Education Association, the teachers' union that broke off talks with a commission Christie created to solve the pension issue.

Christie was campaigning Tuesday in New Hampshire. He said he would decide whether to run for president by the end of the month.

Since the pension case involved a federal claim, unions could appeal to the U.S. Supreme Court, said Robert Williams, professor of state constitutional law at Rutgers-Camden.

The ruling, which reversed a Superior Court ruling in February, comes a year after public-sector unions sued Christie for shorting the pension system in violation of the 2011 law.

The law, heralded by Christie at the 2012 Republican National Convention, required both workers and the state to contribute more toward the pension system.

Crucial to the case, the law also granted public workers a contractual right to greater pension funding.

While the high court agreed that Christie and the Democratic-controlled Legislature had intended to create such a contract, it concluded that they did not have the authority to do so.

That's because the constitution's debt-limitation clause prohibits lawmakers from binding the state to financial obligations that amount to more than 1 percent of the annual budget, LaVecchia wrote.

The fiscal year 2015 budget bill signed last June was $32.5 billion. The pension payment required of the state by the 2011 law was $2.25 billion, or about 7 percent of the budget - well over the threshold.

Public-sector unions had argued that the 2011 law did not create new debts; rather, they said, it established a schedule for paying down liabilities that had accrued as a result of chronic underfunding of the pension system.

The majority of the justices rejected that argument, noting that the debt-limitation clause covered debts or liabilities created "in any manner."

Like other non-voter-approved debt, the pension payments established by the 2011 law are subject to the appropriations process, the court ruled. The majority made clear that it had not declared the law unconstitutional. It remains in effect, and lawmakers can include the recommended pension payments in the budget.

But public workers do not have a contractual right to such funding, the court said.

"That the state must get its financial house in order is plain," LaVecchia wrote. "The need is compelling in respect of the state's ability to honor its compensation commitment to retired employees. But this court cannot resolve that need in place of the political branches."

The legal battle began after Christie, confronted with what he described as an unprecedented revenue shortfall last year, slashed the state's contribution to the pension system for both fiscal 2014 and the current year.

Superior Court Judge Mary C. Jacobson sided with the unions in February with regard to the 2015 payment, ruling that the governor had substantially impaired public workers' contractual rights without demonstrating a reasonable and necessary purpose for doing so.

Jacobson ordered Christie to work with lawmakers to try to make the full $2.25 billion contribution.

Christie appealed, leading to Tuesday's decision.

Joining in LaVecchia's opinion were Justices Anne Patterson, Faustino Fernandez-Vina, and Lee Solomon, as well as Judge Mary Catherine Cuff, who is temporarily assigned to the court to fill a vacant seat.

Dissenting were Chief Justice Stuart Rabner and Justice Barry Albin, who wrote that 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."

Christie last June cut the contribution to $681 million. Earlier this year, after revenue growth exceeded expectations, Christie's administration said he would add $200 million to the pension system.

That state workers are owed a pension was not in question. Rather, the justices considered whether the Legislature and governor were required to contribute a specific amount of money to the pension system each year.

$40B

Pension system's unfunded liability.

$32.5B

N.J. budget for fiscal year 2015.

$2.25B

The 2015 pension payment required of the state by the 2011 law.

$681M

Christie's budgeted payment for fiscal year 2015.

800,000

Approximate number of active and retired workers covered by the pension.EndText