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The Record – Decision day for N.J. pension dispute
June 8, 2015, 11:09 PM Last updated: Monday, June 8, 2015, 11:09 PM
By SALVADOR RIZZO STATE HOUSE BUREAU | The Record
The state Supreme Court will have the last word today in the battle between Governor Christie and public-sector labor unions over one of the biggest budget problems in the state – what to do about the ailing pension system.
That comes just as a former chairman of the Federal Reserve is warning in a new report that New Jersey’s finances are in dire straits from top to bottom.
The high court is scheduled to hand down a ruling this morning, deciding whether Christie’s move to cut $1.57 billion from pension funding this fiscal year violated the rights of hundreds of thousands of public workers and must be reversed. The governor will be in New Hampshire as he lays the groundwork for a presidential run.
The decision could land with immediate impact on Christie’s $32.5 billion budget for the current fiscal year, potentially forcing the governor and state lawmakers to come up with $1.57 billion for the pension system within weeks before the June 30 deadline to close the budget year. The Christie administration and non-partisan budget analysts have said it would be nearly impossible to find the money, aside from a $212 million windfall generated from April tax collections.
Experts say the court decision will also reverberate for years to come – either by squeezing billions of dollars out of the state’s yearly budget for its beleaguered retirement system, or by freeing up that money for other programs. Whatever the court rules will bind not only Christie but his successors.
“Fixing the pension system is critical to ending the fiscal nosedive that has resulted in New Jersey’s credit rating being downgraded a record nine times under Governor Christie,” said Senate President Stephen Sweeney, D-Gloucester, who submitted a legal filing urging the court to uphold the pension law. “We cannot afford to wait.”
Christie has said that he is unwilling to raise taxes to round up funds for the pension system because New Jersey already has one of the highest tax burdens in the country.
Magnifying the problem, on the eve of the ruling, a group of national budget experts led by former Fed chairman Paul A. Volcker released a report flagging New Jersey’s yearly budgets as some of the most fragile in the country.
New Jersey tax collections have “failed to keep pace with expenditures” in the years after the Great Recession, according to the Volcker Alliance, and Christie made the problem worse in recent years by producing overly optimistic revenue forecasts that failed to live up to his expectations. The resulting cash shortfalls threw a wrench into his yearly budgets and forced unexpected cuts.
Such states as California were once in similarly bad shape and are now on the mend, but New Jersey is still stuck in neutral, the report said. The group noted that transportation funding is running dry, health care benefits are underfunded by $53 billion, and Christie’s moves to cut pension contributions in recent years have exacerbated a problem building since the 1990s.
“While California has taken aggressive measures to get its fiscal house in order, New Jersey is still seeking lasting solutions,” the Volcker report said.
“Unless it is reversed by a state court, the 2014 decision by Republican Governor Chris Christie to block a pension-funding schedule agreed to with the legislature means retirement liabilities will keep rising,” the group warned. “That will lead eventually to cuts in existing programs, including education and infrastructure investment, unless new revenue can be raised or pension costs reduced.”
Responding to the report, Joseph Perone, director of communications for the Department of Treasury, said in a statement: “Although obviously a product of limited research based on press reports and other secondary sources, the report offers valuable general observations about structurally sound budgeting. While this administration has made significant progress in righting the budget ills that we inherited after 20 or more years of mismanagement and irresponsibility, there remains more work to be done, particularly in the realm of passing additional reforms to rein in New Jersey’s out-of-control public employee entitlement costs.”
At stake in the Supreme Court is a pension-reform law Christie signed in his first term, which pledged larger payments into the strapped retirement system for seven years, until the funds regained their health in 2018.
Christie once touted that law as his signature legislative achievement, a bipartisan agreement that raised retirement costs for public workers, but also pledged more tax dollars toward their underfunded pensions. Christie said it was government at its best, protecting the retirement income of 770,000 beneficiaries in the state after years of governors who neglected the growing crisis in the pension funds.
But after years of slow economic growth, Christie discontinued the pension payments he had promised and told the state courts his pension law violated the state constitution by creating a new debt voters did not approve.
His attorney, Assistant Attorney General Jean P. Reilly, told the Supreme Court during oral argument last month that the pension law should be seen as an “aspirational” statement, not a legally binding one.
In the current fiscal year, Christie cut a $2.25 billion pension payment to $681 million, sparking the lawsuit now before the Supreme Court. In the previous year, the governor cut a $1.57 billion payment to $696 million.
Public-worker unions representing teachers, police, firefighters and state workers have filed a series of lawsuits challenging Christie’s cuts. A pension law Christie signed in 2011 gave workers a contractual right to the higher payments, the unions argue, and those rights have strong legal protections because the U.S. Constitution mandates states to honor their contracts.
In February, Superior Court Judge Mary C. Jacobson ruled in favor of the unions and ordered Christie and lawmakers to come up with the $1.57 billion that was cut from the current year’s pension contribution. Christie made an emergency appeal directly to the Supreme Court, which heard arguments in May.
According to state officials, the pension system is funded at 51 percent, with $40 billion in unfunded liabilities, one of the lowest funding ratios of any state. Combined with the state’s unfunded health care liabilities, New Jersey is facing $90 billion in costs, with no plans to cover them, according to the Volcker Alliance.
Star Ledger - N.J. pension fight might not end with state Supreme Court ruling
TRENTON — If the state Supreme Court rules Tuesday that New Jersey's public workers have a contractual right to pension funding and orders Gov. Chris Christie to pay back the $1.6 billion he cut from the current budget, the fight may not end there.
State Assemblyman Declan O'Scanlon (R-Monmouth) said he would consider defying a court decision that would order such a huge payment with only three weeks left in the fiscal year, saying it would crush New Jersey's taxpayers and economy.
That kind of response could set up a power struggle between the courts and the other two branches of New Jersey government.
"If the court acts in a way that is completely unrealistic... I think our duty then is to act responsibly in the face of that irresponsible court action," O'Scanlon said.
"It's obviously something I've thought about. I would bet it's something that others have thought about. And I think it's a safe bet it's something the governor has thought of as well," he said. "This governor has proven over and over again he's willing to take these issues head on."
A spokesman for Christie declined to comment.
The court has been asked to weigh in on a dispute between Gov. Chris Christie, who slashed $1.57 billion from this year's pension payment to balance the budget, and public worker unions, who say that cut violated their contractual right to full pension funding.
The decision comes as the end of the current fiscal year looms just three weeks away.
The court could strike down all or part of a 2011 pension law that guaranteed the state would ramp up payments into the pension system, or it could uphold the law, and possibly order the state to restore the full payment.
A lower court in February ruled that the 2011 pension law created a contract between employees and the state, and Christie was in breach.
Christie appealed the decision, stressing that the court shouldn't play a role in budget disputes and doesn't have the power to force the Legislature or governor to make an appropriation.
O'Scanlon said he, and possibly others, may be willing to test that authority.
"I think as responsible legislators and what I know to be a responsible governor, I think we take action to meet the spirit of the court's ruling, if not the letter of the ruling... And that may mean defying the court," O'Scanlon said.
Christie has said the state simply can't afford to make the payment. He slashed a $2.25 billion planned contribution to $681 million after tax collections came up short.
His treasurer and the state Legislature's chief budget analyst have said that so close to the end of the fiscal year the state's coffers are nearly bare.
Christie also recommends underfunding next year's payment by $1.8 billion in his proposed budget.
Democrats have proposed raising taxes on millionaires to generate some of the cash for the fiscal year beginning July 1, while Republican lawmakers and Christie oppose the tax hike.
"I don't need a court to tell me what the dynamics are," O'Scanlon said. "The court decision doesn't change how much revenue we have... The court decision isn't really going to change what we know at all."
Assemblyman Lou Greenwald (D-Camden), said he expects the high court to uphold the lower court's ruling, which will only reinforce what he already knows: "It's the law and we have to follow it.
"I would be shocked if this decision was anything other than that."
The question remaining is what leverage the court has if the governor or lawmakers refuse to comply, Greenwald added.
"It really is just a check and balance, but a very important check and balance to the public to say this is an obligation and it has to be funded," he said.
There is an element of judicial brinksmanship anytime the courts order the other branches to act, Robert Pallito, a Seton Hall University political science professor and a former attorney, said. He expects the court to stop short of ordering a payment rather than risk that type of interbranch showdown.
"This is a tricky case for separation of powers reasons," he has said. "Courts don't like to order the political branches to raise funds or make payments."
NJ Spotlight - Former Fed Reserve Chairman Takes NJ to Task for Poor Budgeting Practices…Report from Volcker Alliance knocks state for diverting clean-energy funds, skipping and shortchanging pension payments
John Reitmeyer | June 9, 2015
New Jersey’s fiscal practices have come under harsh criticism by national budget watchdogs, just as the state’s Supreme Court is set to issue an opinion this morning in a much-watched public-employee pension-funding case that’s rooted in recent state budget problems.
New Jersey’s failure to properly fund its pension system drew one of many unfavorable scores for the state in a report released yesterday by the Volcker Alliance, an organization led by former Federal Reserve Bank Chairman Paul Volcker.
The report comes as Volcker’s group is trying to bring more attention to the fiscal challenges that states across the country are facing coming out of the most recent recession -- and the lengths that many states are going to in order to obscure those challenges.
“The continued fiscal stress is tempting states to continue, and even intensify, budgeting and accounting practices that obscure their true financial position, shift current costs onto future generations, and push off the need to make hard choices on spending priorities and revenue practices,” Volcker, a former economic adviser to President Barack Obama, writes in the report’s preface.
New Jersey was one of three states reviewed by the organization for the report, which is entitled “Truth and Integrity in State Budgeting: Lessons from Three States." The budgeting practices in California and Virginia were also scrutinized, and the effort will likely be expanded soon to cover more states.
But so far, it’s New Jersey that scores the worst.
“New Jersey is a state that is continually challenged, both in Republican and Democratic administrations,” said William Glasgall, a former Bloomberg News managing editor who now serves as the Volcker Alliance’s program and editorial director for state and local accountability and improvement programs.
“This is a state that’s got a lot of challenges,” Glasgall said while speaking at a news conference inside the Roosevelt House in Manhattan that coincided with the release of the report. “It’s not a secret. They know they have problems too.”
New Jersey is not following several good budgeting practices that are identified in the report, including conducting consensus-revenue forecasting and regularly putting aside adequate funding into a rainy-day surplus account. The state raiding funds raised to promote the use of clean energy, was also knocked for delaying property-tax relief payments to homeowners and using revenue from bond premiums and from refinancing debt to fill budget gaps.
But it’s the skipped pension payments that could have the most direct consequences for Gov. Chris Christie’s administration, which has been dealing for months with a lawsuit filed by public-employee unions that has progressed this year all the way to the state Supreme Court.
A ruling that’s due to be released at 10 a.m. this morning by the high court will have significant ramifications on the latest state budget that Christie, a Republican, is asking Democrats, who control the Legislature, to approve in the final weeks before the July 1 deadline for a balanced budget that is set in New Jersey’s Constitution.
Public-worker unions want the court to mandate a series of increasing pension payments that Christie committed the state to making in a 2011 reform law that also required employees to pay more toward their pensions as well.
But even as the workers have been paying more, Christie has since backtracked, saying the state can’t afford to live up to its end of the deal because tax collections haven’t grown at the rate that was originally projected when the 2011 deal was struck and revenue forecasts were more promising.
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And Christie -- who is now exploring a run for president in 2016 -- has proposed a budget for the next fiscal year that would contribute $1.3 billion into the pension system, which covers the retirements of 773,000 current and retired workers. That’s far short of the $3.1 billion he previously promised to pay.
California and Virginia have also struggled to fund their respective pension systems, though Virginia has made improvements in more recent years, the Volcker foundation’s report says. A spokesman for the New Jersey Department of Treasury issued a lengthy statement yesterday afternoon that took issue with much of the report’s findings, saying many of the budget issues are longstanding and that the report omits improvements the administration is attempting to make in the budget that’s been proposed for the fiscal year that begins July 1, including more pension reform. Spokesman Christopher Santarelli said the Christie administration has made “significant progress in righting the budget ills that we inherited after 20 or more years of mismanagement and irresponsibility.”
“The administration continues to acknowledge the importance of structurally sound budgeting and will continue to build on past progress,” Santarelli said. “To that end -- and in contrast with tax increases advanced by public-employee unions -- the administration continues to advocate sustainable increases in pension payments made possible by spending restraint, coupled with reforms to bring benefit levels in line with the private sector.”
The report follows up on work that Volcker and former New York Lieutenant Governor Richard Ravitch did together in 2012 when they published the “State Budget Crisis Task Force,” which also took a hard look at New Jersey. Ultimately, they said they envision expanding the close scrutiny of state governments to cover all 50 states and possibly even local governments.
“Consider this an introduction -- an important introduction,” Volcker said yesterday.
The report’s focus on revenue forecasting comes even as lawmakers here have been working on legislation to improve the state’s projections. This comes in response to recent gaps that Christie, who took office in early 2010, has had to close after forecasts came up short, though the current budget is running about $200 million ahead of projections.
A total of 28 states already use a consensus-revenue forecasting model that includes input from both the executive branch and lawmakers, but New Jersey still does not, according to the report. A legislative budget analyst here prepares a forecast for lawmakers to consider, but it’s only advisory.
Consensus forecasting with agreement among the branches can “remove revenue estimates from politics and allow leaders to focus more attention on allocating available resources where they are most needed,” the report says. And though not a perfect system, the report noted that in Virginia, where consensus forecasting is part of the annual budget process, revenue projections were off by $350 million during the 2014 fiscal year, the same year that many other states faced wider shortfalls. New Jersey’s revenue forecast was off by more than $1 billion that year.
The Senate Budget and Appropriations Committee late yesterday afternoon advanced a bill sponsored by Sen. Robert Gordon (D-Bergen) that would establish, among other changes, consensus-revenue forecasting in New Jersey. An identical version of the bill has already passed the full Assembly. Santarelli, the Treasury spokesman, did not comment when asked about the measure yesterday.
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