By Dan Aubrey
To Pay or not to pay,” is the New Jersey Supreme Court question at the heart of the ongoing pension drama continuing in Trenton.
At stake are an ailing state pension system that supports 770,000 beneficiaries and a constitutionally required balanced state budget built on below-anticipated revenues. A governor with presidential ambitions who also adamantly refuses to raise taxes to make up a shortfall is also a complicating factor.
The latest act appeared on May 6 when assistant attorney general Jean Reilly represented Gov. Christie and asked the court to overturn a lower court ruling that agreed with state and public workers union — including Communications Workers of America and New Jersey Education Association — and found that the Christie Administration needing to honor a 2011 union pension payment agreement known as Chapter 78.
That agreement, named after the public pension statue, was hailed by Gov. Christie as a bi-partisan effort between his Republican administration and the Democratic-controlled state legislature to reform the pension system. The union approved agreement was built on Christie’s promise to fully fund pension obligations in exchange for union members agreeing to higher contributions and lower cost-of-living raises.
When the Christie administration diverted $1.57 billion in pension funds in 2014 to balance the state’s 2015 fiscal budget, New Jersey State Troopers Fraternal Organization president Christopher Burgos entered a suit to grant the union’s request to require the administration to fund the pensions as agreed. The suit Christopher Burgos v. State of New Jersey has gained the support of other state and public unions.
This past February 23 — the day before Christie introduced his 2015-2016 state budget to the legislature — Mercer County Assignment Judge Mary Jacobson agreed with the unions and ordered the governor to work with the legislature to find a way to replace $1.57 billion in pension funds that Christie diverted to balance the 2015 fiscal year budget.
The administration appealed and at the May 6 hearing Reilly argued that Chapter 78 was unconstitutional, that the unions were attempting to “subvert” the state constitution by violating the state’s appropriations clause, and that the state administration and legislature could not be forced to support a particular program without voter approval.
She added that Christie administration has paid a total of $4.2 billion to the pension and intends to pay $1.5 billion in 2015-2016. She also mentioned an additional $200 million attributed to unexpected tax receipts and announced hours before that day’s hearing.
The argument was heard by the panel of seven judges, comprising three Democrat appointees (Chief Justice Stuart Rabner, Barry Albin, and temporarily assigned appellate division judge Mary Catherine Cuff), three Christie appointees (Anne M. Patterson, Lee Solomon, and Faustino J. Fernandez-Vina), and one independent (Jaynee LaVecchia).
Their questions and comments — along with those of the presenting attorneys — reflect the case’s lack of precedent and complications.
When Rabner said that Chapter 78’s language seemed to be unequivocal in that it bound the state to make regularly scheduled payments, Reilly countered, “No matter how unequivocal the language, you cannot create a contract that violates the fiscal laws of the constitution,” said Reilly.
Albin followed and said the administration’s desire to be relieved of its obligations while requiring union members to uphold their end “sure sounds like a bait-and-switch” type of action. When he pointed out that it was unprecedented to have a governor try to have a law he championed be declared unconstitutional, Reilly replied, “It’s only the plaintiffs’ interpretation of the law that renders it unconstitutional.”
Cuff’s question if Chapter 78 was a conditional agreement resulted in Reilly saying that this is the “essence of what we’re saying. One legislature cannot bind another with regard to appropriations.”
Albin, however, argued that the language for Chapter 78 was reviewed by both the nonpartisan Office of Legislative Services and the governor’s counsel before it was signed into law, a point that Reilly conceded while calling the legislation “rushed.”
Albin then expressed his concern that the administration and legislature could use appropriations as something to hide behind rather than live up to prior obligations. Reilly replied: “That’s the way our state has operated.”
The plaintiff’s lead attorney Steven Weissman argued in turn that Jacobson was correct in her finding and that “a legislature can create a contractual obligation that binds future legislatures.” He argued that state and public pension funds were “not far from insolvency,” that “there is no doubt the funds will go bankrupt” without the required payments, and that “Chapter 78 was enacted specifically to avoid that result.”
Later Rabner and Patterson expressed concern about the court interfering with the state budget process, with Weissman citing school funding as a precedent. LaVecchia also noted her concerns about the court mandating annual payments by the executive and the legislature branches, with Weissman noting that Chapter 78 was a preexisting obligation.
And then Solomon asked the important question: what would happen if the legislature and the governor could meet Jacobson’s goal to work in agreement? The quick answer came from NJEA attorney Kenneth Nowak: “The court will see what efforts were made,” adding that “Raising taxes is an option.”
The significance of the day’s court hearing was summed up by the Record newspaper: “The Supreme Court heard arguments for more than three hours Wednesday, much longer than is its custom, and it drew a powerful crowd into the audience: Senate President Stephen Sweeney, acting Attorney General John J. Hoffman and Christie’s chief counsel, Christopher S. Porrino. In another break from tradition, the justices agreed to hear the case as an emergency appeal, letting Christie skip the state’s intermediate appellate court — signaling the importance with which they view the case.”
While the Supreme Court’s decision is to come in June — at the same time that the state prepares a balanced budget to begin on July 1 — it will not be the last word on the pension situation: Christie is calling for new pension reforms that include a retirement plan and reductions in local government health coverage. And a suit filed in January by the boards of trustees of the Public Employees’ Retirement System (PERS), the Teachers’ Pension and Annuity Fund of New Jersey (TPAF), and the Police and Firemen’s Retirement System (PFRS) filed the suit in Mercer County Superior Court has yet to have its day in court.
