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The Record - Court’s ruling on N.J. pension funding sets up budget battle
June 10, 2015, 11:11 PM Last updated: Wednesday, June 10, 2015, 11:15 PM
By MELISSA HAYES and DUSTIN RACIOPPI State House Bureau
Democrats who control the Legislature say they are planning a new budget that still makes a full pension-fund payment that’s no longer required by law, setting up another showdown with Governor Christie.
But how lawmakers deal with the chronically underfunded pension fund after hammering out a new spending plan, which must be signed into law by July 1, remains an open question.
While the governor favors a proposal to switch to a 401(k)-style system, some legislative leaders said on Wednesday that they are leaning toward stretching the current seven-year payment schedule over a decade instead. And one Republican assemblyman called for a special session to lay out any and all ideas for a sustainable, long-term remedy.
One thing, however, is clear: Tuesday’s 5-2 ruling by the state Supreme Court that invalidated part of a law that required the administration to make billions of dollars in scheduled contributions to the public-employee pension fund did little to bring the legislative and executive branches closer to solving a decades-old problem.
“That’s the $1.8 billion question, isn’t it?” said Passaic Democrat Gary Schaer, chairman of the Assembly Budget Committee, referring to the amount Christie has vowed to slash from the scheduled contribution in the upcoming budget.
Although he made the first two scheduled payments, Christie, citing revenue shortfalls, reduced the state’s contribution for the 2014 budget. That trim was upheld by a Superior Court judge who warned, however, that she would not allow another cut the following year.
When Christie reduced the 2015 payment by $1.57 billion, the judge ordered him and the Legislature to find the money. But Christie appealed to the Supreme Court, which said this week that the law he signed in 2011 was not an enforceable contract, essentially setting up the governor to continue making reduced contributions.
And his 2016 budget proposes just that: a $1.3 billion payment instead of the $3.1 billion outlined in his reforms. But Democrats plan to include the full amount in the Legislature’s version of the budget.
Appeal to unions
Christie and Republican legislators immediately called for the public employee unions to come to the negotiating table and agree to additional changes to their pensions and health benefits. The unions have pledged to fight the New Jersey ruling, possibly taking it to the U.S. Supreme Court, and Democrats said on Wednesday than they don’t believe public workers should have to make further concessions when the state hasn’t kept up its end of 2010 and 2011 legislation that required public employees to pay more in exchange for stepped-up state contributions.
Democratic leaders in the Assembly and Senate agree that they want the state to make the full $3.1 billion contribution for fiscal 2016.
“We are two weeks away from our constitutional deadline, and I believe that we have an obligation this year, in the short-term, to fund the full pension payment … recognizing that the governor may not agree with how we fund it,” said Paul Sarlo, D-Wood-Ridge, the Senate Budget and Appropriations Committee chairman.
Sarlo said he hopes to have a budget before his committee by June 22. He said it would take a combination of things to fund the larger pension payment, including a surcharge on higher incomes and cuts in other areas.
Assembly Speaker Vincent Prieto, D-Secaucus, also supports making the larger pension payment in the next budget but has suggested then shifting from seven years of phased-in payments, to 10 years.
That’s something the Christie administration is already doing. The 2016 budget payment of $1.3 billion is three-tenths the actuarially required contribution rather than the scheduled five-sevenths payment of $3.1 billion.
“I think he gets the idea,” Prieto said of the governor. “We need to spread out our payments over time.”
Hunterdon County Republican Assemblyman Erik Peterson is calling for a special session to find consensus on a solution. Although he said the session should put all ideas on the table, he was against spreading out the pension fund payments.
“Extending out the term typically doesn’t resolve the underlying problems,” he said. “It gets you by, it buys time. I don’t think that’s fair to the people of New Jersey.”
Sarlo said a discussion of stretching out the payments would have to wait until after the Legislature passes a budget for the coming fiscal year.
“The Senate president and I feel we have an obligation to make the payment the five-seventh payment, which is a difficult thing to do because the economy has just not grown the way it was supposed to have grown,” he said adding that other states have seen their economies rebound a faster pace than New Jersey has.
Call to trim benefits
A spokesman for Christie said he wouldn’t speculate on whether the governor would see the need to push for a special session, as Peterson is suggesting. Christie issued a statement on Tuesday praising the court’s decision and calling on unions to return to the table.
The New Jersey Education Association was initially working with Christie’s New Jersey Pension and Health Benefit Study Commission but cut off communications earlier this year, saying the governor had over-stated those discussions in his budget address.
Thomas Healy, the head of that commission, said in a statement on Tuesday that the panel has put forth proposals to fund the pension going forward – one of which would require public workers at all levels of government to agree to health benefits concessions to free up money to make the pension payments.
Senate Minority Leader Tom Kean Jr., R-Union, said he hopes all sides can come together in the near future to work on a plan.
“My hope is once we go through the rhetorical phase of this process that we can find a substantive solution,” he said. “Everybody wants to solve this issue. It’s in everybody’s best interest to find a near-term and a long-term solution for this issue that is affordable to the taxpayers of the state of New Jersey.”
But Sarlo said it will be hard to persuade unions representing the public workers to agree to additional concessions.
“They feel that government at every level has violated their trust, whether it’s the governor or the Legislature, regardless, it’s going to be very hard to bring them back,” he said.
The Communication Workers of America in Trenton, which represents state workers, on Wednesday circulated letters from Hetty Rosenstein, the union’s state director, pledging to continue fighting for the larger payment, adding that the union would take the issue to the U.S. Supreme Court if its lawyers advise it to.
The union plans to hold a telephone town-hall-style event for its members tonight to bring them up to date on the court ruling and what action it will take going forward.
Email: hayes@northjersey.com and racioppi@northjersey.com
NJ Spotlight - Governor, Democrats Face Complex Challenges in Wake of Christie's Court Victory…Sweeney says his party can't negotiate budget with Christie, unions ponder constitutional amendment to force full pension payments
John Reitmeyer | June 10, 2015
Gov. Chris Christie and lawmakers dodged a huge bullet yesterday when the New Jersey Supreme Court issued a ruling that stopped short of forcing them to come up with $1.6 billion for the public-employee pension system in the final weeks of the state’s fiscal year.
But the 5-2 opinion handed down by the high court now presents a whole new set of challenges to the Republican governor, who is expected to announce soon a run for president. Nor do Democratic legislative leaders get away unscathed: They're being pressured by public-worker unions to find a way around Christie to get more money into New Jersey’s chronically underfunded pension system.
And those public-worker unions, meanwhile, now have to consider whether they want to wage a lengthy and potentially costly appeal to the U.S. Supreme Court or throw their support behind some other scheme to secure their retirements, like a constitutional amendment requiring more state pension funding.
There are also implications for the pension system itself, which covers the retirements of roughly 773,000 current and retired workers, and for the next state budget, which must be in place by July 1. Christie and legislative leaders remain far apart on the pension-funding issue and many other important fiscal matters.
If nothing else, the next few weeks in Trenton should be interesting.
The much-anticipated Supreme Court ruling handed down yesterday hinged on whether the Christie administration could be forced to honor a 2011 pension-reform law he enacted that required both increased employee contributions toward their pensions and established a series of escalating state payments over a seven-year term that were promised as a contractual right of the employees.
While employees have been paying more since the law went into effect, Christie went back on the state’s promise to increase funding last year to help solve state budget problems. He cut a $2.25 billion contribution down to $681 million, though he now says he can add another $200 million before the fiscal year ends on June 30.
The public-worker unions sued the Christie administration in response to the cuts, seeking to enforce the language in the reform law known as Chapter 78 that promised the larger payments as a contractual right.
But the court’s majority, led by Justice Jaynee LaVecchia, ruled there is no contractual right under the state constitution because it provides that only voters can put the state on the hook for long-term obligations that total more than 1 percent of the annual budget, which is $32.8 billion.
“Efforts to dedicate monies through legislative acts other than the annual appropriations act have no binding effect,” the majority said in its opinion, which reversed a lower court ruling issued in February.
A dissenting opinion written by Justice Barry Albin and joined by Chief Justice Stuart Rabner argued that the employees had a contractual right to the state payments that is protected by the U.S. Constitution and case law going back centuries.
“The State cannot enter into a public contract when to do so benefits it, and then legislatively impair that contract when abiding by the contract no longer suits it,” Albin wrote in the dissenting opinion, which also said the majority’s ruling “has no contemporary legal support.”
Christie, who was in New Hampshire yesterday as he continues to lay the groundwork for an expected presidential run, issued a statement praising the Supreme Court’s ruling as a victory for taxpayers.
He also said it was a win for “limited, constitutional government that recognizes the proper role of the executive and legislative branches of government.”
And while Christie may have won short-term budget flexibility from the court’s opinion, the ruling now opens up a line of attack for possible GOP presidential primary opponents, said Ben Dworkin, director of Rider University’s Rebovich Institute for New Jersey Politics.
Specifically, it exposes Christie’s handling of a state economy that was supposed to get enough of a boost from business-tax cuts that he wrote and lucrative corporate tax breaks to make the increased pension payments affordable. The ruling also brings more attention to the two-term governor’s decision to break a promise on a key piece of legislation that was in many ways the signature achievement of his first term in office.
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“It makes him look like a typical politician,” Dworkin said. “His whole national persona is wrapped up in him being the atypical politician, the guy who is different than everybody else.”
And in the short-term, Christie is now also facing a bitter fight over the next state budget, with Democratic leaders who worked with him on the 2011 law digging in and saying they want the state to live up to the bigger payments even if the court is not mandating them.
Senate President Stephen Sweeney (D-Gloucester), appearing with union leaders during a news conference in the State House yesterday, said he and Assembly Speaker Vince Prieto (D-Hudson) are in agreement that state funding for the pension system in the next budget should total $3.1 billion, not the $1.3 billion payment recommended by Christie in his proposed budget.
“We will pass a budget again this year that will fully fund the pension system because we can,” Sweeney said, adding that more revenue could be generated by increasing taxes on those earning over $1 million.
He also came down hard on Christie for breaking his word -- and for spending too much time this year out of state trying to build momentum for a presidential run.
“We made a commitment. My word mattered to me,” Sweeney said. “When you make a commitment you honor it.”
“We can’t do his budget. There’s no way we’re going to be able to negotiate a budget with him,” Sweeney said.
For their part, the unions -- still a force in state politics, especially this year with all 80 state Assembly seats up for grabs in November -- said they’re still considering whether to appeal the state Supreme Court’s ruling.
Lobbying lawmakers to support a constitutional amendment that would ask voters to authorize the increased state pension payments needed to prop up a system that right now is underfunded by at least $40 billion is also on the table, said Charles Wowkanech, president of the New Jersey AFL-CIO.
And the union leaders made it clear that they have no interest in working with Christie on a host of new benefits reforms that he’s proposed, including freezing the current pension system and moving employees into a new retirement plan with features of a 401(k).
“We have no reason to waste a single minute talking to him,” said Wendell Steinhauer, president of the New Jersey Education Association. “His vision goes no further than the end of his term.”
“The governor doesn’t have any credibility in this area as far as we’re concerned,” said Hetty Rosenstein, state director for the Communications Workers of America union in New Jersey.
But Republican lawmakers reacted to the court ruling yesterday by calling for more cooperation going forward, saying growing employee pension and health-benefits costs still need to be addressed despite the court’s ruling and the bad blood between the governor and the unions.
“It is time to move forward,” said Senate Minority Leader Tom Kean Jr. (R-Union).
“The only way to fix this long-term problem is for people to sit down, roll up their sleeves, and not walk away until we have a final plan,” said Assemblyman Declan O’Scanlon (R-Monmouth).
Wall Street also weighed in yesterday, with Moody’s lead New Jersey analyst Baye Larsen saying the court ruling “stabilizes the state’s 2015 financial position,” but suggesting it could also exacerbate state budget problems in the future.
It was Moody’s, one of the leading Wall Street credit-rating agencies, that earlier this year lowered New Jersey’s credit rating for a third time during Christie’s watch, citing “pension contribution shortfalls” as a key factor. The Moody’s downgrade followed earlier actions by Fitch Ratings and Standard & Poor’s, giving Christie the record for the most credit-rating downgrades from all three agencies during one gubernatorial administration.
New Jersey also just scored poorly in a review of state budget practices that was released on Monday by a watchdog organization run by former Federal Reserve Chairman Paul Volcker. The review faulted the state for, among other things, underfunding the pension system and relying heavily on one-shot budget fixes. Larsen, the Moody’s analyst, said the pension ruling “reinforces the state’s ongoing reliance on one-time budget solutions and will perpetuate large structural imbalances and a rapidly increasing pension burden.”
The Record on Pension funding – Editorial
June 10, 2015 Last updated: Wednesday, June 10, 2015, 11:59 AM
GOVERNOR CHRISTIE received good news on Tuesday in New Hampshire, where he was making another stop in his undeclared campaign for the presidency. Christie learned of the state Supreme Court's 5-2 decision allowing him to shortchange a promised payment into the state's employee pension system. Christie can break a promise made to public workers without breaking the law, the court ruled.
For someone who wants voters to trust him enough to possibly elect him president, this is a Pyrrhic victory. The pension reform bill that was the subject of the court's decision was once touted by Christie as a bipartisan triumph. A Republican governor made a deal with Democrats controlling the Legislature that if public employees increased their payments into the pension system, the state would make not only the annual required payment, but additional payments over a seven-period to restore the fiscal integrity of the system.
Christie kept his word for two years but then began reducing the payment, citing budget shortfalls as a result of the state's slow economic recovery from the recession. The governor also ratcheted up his anti-union rhetoric, saying public workers needed to make more concessions. Insufficient pension funding followed.
Individuals and representatives of public employee unions went to the courts to force the governor to make the agreed-to payments. A lower court ruled in their favor, but the state appealed, and the state Supreme Court heard the case in May.
If the court had required Christie to make a full payment in this current fiscal year's budget — which ends this month — there would have been chaos in Trenton. Yet the court's majority ruling did not take that into account. It held that the law violated the Debt Limitation Clause, which requires the state to obtain voter approval to pay off large sums of recurring debt.
But the Debt Limitation Clause was created to ensure that the state didn't start investing in shaky real estate deals or dubious financial ventures without a check from voters. The debt envisioned would be a result of the state's taking on new obligations, not paying public employees a benefit they earned.
The minority on the court argued that position — making a payment into the public employee pension system is not debt, it is a contractual agreement. While we agree with the minority, the court's decision is clear: Regardless of intent, the Legislature and the governor did not have the authority to require the state to make larger payments into the pension system.
However, the court did not rule the law unconstitutional. Public employees are still bound to make increased payments. As Justice Barry Albin wrote for the minority, "Thus, public workers continue to pay into a system on its way to insolvency."
On that point, all the justices were in agreement: The pension system is in serious trouble. Yet the court's decision almost guarantees nothing will change in the near future. Democratic legislators who were sold out by Christie are not going to try to persuade public workers to make more concessions. And public workers no longer have reason to believe the state is operating in good faith.
They were made promises that either could not be kept or would not be kept. That more concessions by public employees will be needed in the future is a certainty, but before that can happen, public employees need assurances that a promise is a promise.
On that score, Christie has little credibility left. He chose to balance the state budget by reducing the agreed-to payment into the pension system. He did exactly what previous governors did, except none of them went so far as to tout a law that would make the pension shorting impossible only to renege on the promise.
The tragedy here is that if the state continues to do nothing, the pension system will fail – not next year or the one after, but it will fail. In a statement Tuesday, Christie urged all stakeholders to "come back to the table" and find a solution with him. Those stakeholders believed they did just that in 2011, only to find that the governor's pledge was like their future pension benefits: something much less than promised.
Star Ledger - On pensions, reject Washington-style gridlock - Editorial
Print Email By Star-Ledger Editorial Board The Star-Ledger
on June 11, 2015 at 7:45 AM, updated June 11, 2015 at 8:22 AM
Gov. Chris Christie's "victory" in the pension case before the Supreme Court is a puny thing, and no cause for celebration.
It does nothing to stop New Jersey's descent into financial ruin. It only delays the day of reckoning by allowing the governor to again skip promised payments into the fund, a move that will increase the cost of repairs by allowing the shortfall to grow.
Christie is like a deadbeat who just won a few months delay in paying off his credit card debt. Yes, it's a relief. But the bill still has to be paid, and grows larger every day.
So, what now?
The easy political move for both sides is to take shelter behind partisan barricades and lob grenades.
For Democrats, that means refusing to negotiate with Christie until he agrees to make full pension payments, as promised in 2011, even though the state's stagnant economy is not generating the needed revenue. For Christie, it means demonizing public workers, and demanding an orthodox conservative solution of deep benefit cuts with no offsetting tax increase, even for millionaires.
Both sides need to get real. Democrats are right to feel burned by Christie. It was beyond cynical for him to sign this law, claim it as a legacy achievement, and then argue in court that it was unconstitutional.
But their core demand is not close to being realistic, given the economic slump and the steeply escalating payments spelled out in the 2011 law.
If the state made full payments on its pension and health costs for public workers, the bill would consume 23 percent of the state budget within two years, according to the governor's bipartisan advisory commission. That's about double the portion today. That would force deep cuts in core education and health programs, along with sizable tax increases. It's not going to happen.
Christie is being equally mule-headed. Democratic leaders like Senate President Steve Sweeney say he must at least make a good faith effort to meet his obligations under the 2011 law.
He and other Democrats are insisting that Christie agree to increase the millionaire's tax as part of any deal. That would raise about $600 million a year, enough to soften the blow of a new round of benefit cuts. That's a reasonable demand. And two-thirds of New Jersey voters side with Democrats.
Poll: Majority favor tax hikes on wealthy
The answer is as obvious as it is painful. Both sides must give. The bipartisan commission proposed a plan to cut health payments by $1.7 billion a year, and to invest that money in the pension funds. Add $600 million a year in new revenue, and the two sides would be within striking distance of a deal.
Will it happen? It would kill Christie in New Hampshire. So he'll have to decide whether he cares more about New Jersey's future or his own personal ambitions. The record so far is not encouraging.
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NJ Spotlight - Bill Calls for Three-Year Freeze on Charter-School Approvals, Expansions…Sponsors acknowledge little immediate chance of passage, but legislation still stirs up plenty of protest
John Mooney | June 10, 2015
It has almost no chance for passage anytime soon, but a bill calling for a moratorium on new charter schools in New Jersey is causing quite a ruckus nonetheless.
State Assemblywoman Mila Jasey (D-Essex), a prominent voice in the charter school debate over the last few years, filed the legislation in early May. It calls for a three-year freeze on state approval of new charter schools or expansion of existing charters. The bill is co-sponsored by state Assemblyman Patrick Diegnan (D-Middlesex), chairman of the Assembly’s education committee.
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Jasey acknowledged yesterday that the bill faces long odds, at best, with a Democratic caucus divided over charter school policy and a Republican governor who would never sign such a bill.
But she said the move was largely meant to try to resolve the long-running debate over how to oversee the growing charter school movement. Legislation to replace the state’s 20-year-old charter law has been pending – if not stalled -- for at least two years.
“I dropped the bill to force the conversation,” said Jasey, now co-chair of the Legislature’s Joint Committee on the Public Schools, a largely deliberative body. “Sometimes, in order to get everyone to come to the table, you need to force it.”
Nevertheless, Jasey’s bill has struck a sensitive nerve in the charter school community, with its state association mounting a public campaign against the legislation over the last month and more than 100 charter advocates and families picketing Jasey’s office yesterday in Maplewood.
Among those protesting was Charles Love, a Newark activist with one child in the North Star Academy charter schools.
“We have waited long enough for the (district) schools to get their act together,” he said in an interview afterward.
Love said charters aren’t the only solution, acknowledging that not all of them fare so well. But many, like North Star, do excel, he said, and squelching their growth would only hurt kids.
“The more options we have for low-income black and brown kids, the more you level the playing field,” he said.
The bill, and the ensuing protest, have stirred up an interesting political drama that has largely left the Legislature and the Christie administration all but paralyzed in trying to find a solution.
Diegnan, the co-sponsor of Jasey’s bill, said he also wants to spur some resolution, but he acknowledged that agreement even among Democrats has been elusive. Diegnan has proposed one bill that would tighten controls and standards for charters, but other Democrats have their own bills proposing rules that are vastly different.
Diegnan said yesterday that he didn’t see any new action taking place with Jasey’s bill – let alone any other charter bills – at least until the end of the year.
“In all honesty, this has been a lot more difficult than I thought it would be,” Diegnan said.
But charter advocates are taking no chances. Among the organizers of the rally yesterday was Ryan Hill, the president of the KIPP charter school network in Newark and Camden, which is among the fastest-growing in the state.
Hill, a long-time leader in the charter school movement, led a group of charter families who met with Jasey on Friday to discuss her bill, only to leave frustrated with her explanation that it was about spurring a political discussion.
“There are plenty of forums you can have that don’t include filing legislation,” he said. “Of course there are changes needed in the charter school law, but nothing that [Jasey is] doing makes that happen.”
And while Hill conceded that the bill faces tough political prospects, the charter school community felt it important to speak up now.
“This is just the beginning,” he said. “Our parents are tired of being beaten up.”
Star Ledger - A bill that holds charter kids hostage | Editorial
Print Email By Star-Ledger Editorial Board The Star-Ledger
on June 10, 2015 at 6:03 PM
For suburban parents, charter schools are a political debate. For a desperate parent in Newark, where so many schools are failing, they are an educational lifeline.
Tens of thousands of parents lined up on the most recent waiting lists at KIPP and NorthStar, two top charters that are the most requested schools in Newark.
Now, a bill from Assemblywoman Mila Jasey (D-Essex and Morris) would effectively slam the door on them. It would impose a moratorium on the expansion of any charter school in the state, leaving all those parents out of luck. This prompted a heated protest outside her office on Tuesday.
Not only would this bill cut off charter school growth to accommodate new kids, it would also deny kids already enrolled a chance to advance to the next grade. This is because charter schools often grow one grade level at a time. Many don't yet have their charters approved for the upcoming school year, and Jasey's bill would forbid the education commissioner from doing so.
Seek Academy, one of KIPP's newest elementary schools, currently only has permission from the state to grow up until second grade. When those kids hit third grade, under Jasey's bill, they'll have nowhere to go. They'll all be kicked back into the district schools.
Jasey acknowledges she is doing this for political reasons. She says she wants to force a conversation about updating the state's charter law, and the concerns of outraged parents "can be addressed in a hearing."
But several legislators have already proposed changes to the state's charter law. That conversation is going on already. A moratorium would only hold kids hostage to these political battles. What Jasey has done is turn a conversation into an angry protest.
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