With billions of dollars and New Jersey’s fiscal future at stake, Gov. Chris Christie won a strange legal victory Tuesday when the State Supreme Court ruled his pension reform of 2011 was unconstitutional.
The Supreme Court’s 5-2 decision reversed a lower court ruling that Christie had violated pension law by slashing $1.57 billion from the state’s pension contribution for the fiscal year that ends this month. It also gives the governor a green light for his plans to cut another $1.8 billion from next year’s pension payment.
In the short term, the judgment enables New Jersey to avoid an immediate financial crisis that would have forced the state to find enough extra cash to balance the budget by June 30. But the long-range outlook is bleak as the retirement system for public workers faces a $170 billion deficit.
“That the state must get its financial house in order is plain,” wrote Justice Jaynee LaVecchia in the majority opinion. “The need is compelling in respect of the state’s ability to honor its compensation to retired employees. But this court cannot resolve that need in place of the political branches. They will have to deal with one another to forge a solution.”
The court ruled the reform that specifically gave public workers a contractual right to the annual pension contributions by the state violated the Debt Limitation Clause and Appropriations Clause of New Jersey’s constitution.
“We therefore hold that the legislature and governor were without authority to enact an enforceable and legally binding long-term financial agreement through this statute,” concluded LaVecchia.
A scathing dissenting opinion written by Justice Barry T. Albin and joined by Chief Justice Stuart Rabner underscored a sharp division among the judges.
“The majority’s decision will have far-reaching negative consequences,” Albin wrote. “The majority has declared that it will not enforce a statute intended to stem decades of political dysfunction that has resulted in the balancing of budgets on the backs of public workers.
“The majority has concluded it will not uphold any law that the governor and legislature pass that is intended to bin the political branches to funding a pension system on which public workers relied when entering public service,” stated Albin.
Christie had once called the 2011 pension law his “greatest governmental victory.” In a statement he posted Tuesday on Twitter, the governor called the court’s decision to declare that reform unconstitutional an “important victory.”
“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,” said Christie. “In light of today’s decision, I urge all interested parties to come back to the table and partner without me to finally solve this problems for once and for all.”
The unfunded liability of the state retirement system exceeds $170 billion, according to a New Jersey Watchdog analysis based on official numbers from the state Treasury. Here’s a breakdown of that shortfall:
- $82.7 billion in unfunded liability for the pension plans of state workers.
- $53 billion in unfunded health benefits for state retirees.
- A $20.7 billion shortfall for the pensions of local public employees who collect retirement checks from the state.
- $13.8 billion to cover the post-employment benefits of those local workers.
“The situation is not only getting worse, but it is fast approaching the point at which it will be beyond remedy,” warned the governor’s Pension and Health Benefit Commission in a report released earlier this year.
The commission’s recommendations included:
- Freezing the existing state pension plans while preserving benefits earned to date by public workers;
- Creating new plans with reduced pension and health benefits for employees to match private-sector levels;
- Using a constitutional amendment to lock in pension contributions from state and local governments for 40 years; and
- Transferring control of the assets, liabilities and risks of the retirement plans to public employee labor unions.
Whether the court’s decision will force the Republican governor and the Democratic-controlled Legislature to work together or drive them further apart is the $170 billion question.
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