February 24, 2015
A New Jersey judge on Monday struck down Governor Chris Christie's plan to cut $1.6 billion of contributions from its public pension system, dealing a blow to the expected 2016 Republican Presidential contender.
Christie had proposed the cuts last May to try to plug a $2.7 billion revenue shortfall projected through fiscal 2015.
Superior Court Judge Mary Jacobson said New Jersey could not renege on its obligations to teachers, firefighters and police who sued the governor and state legislature, which is controlled by Democrats.
"The court cannot allow the State to 'simply walk away from its financial obligations,' especially when those obligations were the State’s own creation," Jacobson wrote.
While New Jersey's projected budget shortfall was "staggering," the statute failed to adequately explain why the cuts were reasonable, the court said.
Christie spokesman Michael Drewniak said the governor would appeal.
"The Governor will continue to work on a practical solution to New Jersey's pension and health benefits problems while he appeals this decision to a higher court where we are confident the judgment of New Jersey's elected officials will be vindicated," Drewniak said in a statement.
Damon Silvers, director of policy and special counsel for the AFL-CIO union, which was one of the plaintiffs, said the decision "reinforces what should be black letter law, pension promises by government to the people who work for government are real contractual obligations that must be honored and must be funded."
In the lawsuit filed in June, unions said Christie's move to reduce pension contributions to $1.38 billion from $3.85 billion through fiscal 2015 was a violation of employees' contract rights under the state and federal constitutions.
"This ruling is the predictable and unfortunate result of the governor's fiscally irresponsible decision," Democrats Assembly Speaker Vincent Prieto, Assembly Majority Leader Lou Greenwald and Assembly Budget Chairman Gary Schaer said in a joint statement. "We will be reviewing this ruling as we decide how best to proceed."
New accounting methods in November showed New Jersey's pension system funded at just 44 percent.
Christie had vetoed the fiscal 2015 payment, citing his constitutional responsibility to deliver a balanced budget.
The court noted that while the end of New Jersey's fiscal year was only four months away, it was conceivable that there may be revenue available by the time the pension fund payments are due as tax revenues may exceed expectations.
Marcy Block, an analyst at Fitch Ratings, said the governor’s repudiation of the pension payment was included in Fitch’s assessment when it downgraded New Jersey last year. Fitch rates New Jersey single-A with a negative outlook.
Block added that Fitch would be looking to Christie’s fiscal 2016 budget proposal due on Tuesday to see if revenue collections were improving, noting that if the state ultimately is forced to make the payment it would have to come up with the money.
Illinois, which has the worst-funded state pension system, is also arguing that it lacks the cash to fully fund its public pensions, as it defends a 2013 law that cut retirement benefits.
Unions have claimed that law is unconstitutional, but Illinois has said its so-called police powers to fund and provide essential state services trump protections for public worker retirement benefits.