Judge lets Christie cut pension payment this year

Gov. Christie is expected to announce the administration's proposals for closing an $800 million budget shortage this week, possibly before the state treasurer appears before the Assembly Budget Committee on Wednesday. (MICHAEL BRYANT / Staff Photographer/File)

TRENTON - A Superior Court judge ruled Wednesday that Gov. Christie's executive order last month reducing the state's payment to the pension system was justified to address a "staggering" revenue shortfall for the fiscal year that ends Monday.

In rejecting a motion by more than a dozen unions for a preliminary injunction against Christie's order, Judge Mary C. Jacobson said the governor's need to protect the state's fiscal health outweighed his impairment of a contract that requires bigger pension payments.

Left unanswered is what might happen to Christie's plan for the state's payment in fiscal year 2015, which begins Tuesday. He proposed last month slashing the payment from $2.25 billion to $681 million to help fill a $1.7 billion shortfall.

Jacobson did rule that Christie breached the state's contract with the unions, included in a 2011 law that changed the pension system, violating statute and the New Jersey constitution.

She did not dismiss the complaint and said her ruling was specific to fiscal 2014. A "different analysis could very well be required" for the next fiscal year, Jacobson wrote.

The unions said they would consider an appeal, but they seemed intent on challenging Christie's 2015 pension-payment cut. Democrats, who control the Legislature, expect to pass a budget Thursday that would include the full payment for the next fiscal year and pay for it by raising taxes on the state's highest earners. Christie has said he would veto the tax increases.

Hetty Rosenstein, director of the New Jersey Communications Workers of America, the state's largest public-sector union, said there was "no question" her organization would return to court.

"This issue ultimately is going to get litigated," Rosenstein told reporters outside the courthouse following Jacobson's decision.

In a statement, Christie said he was "pleased the court recognized the necessity and urgency of this decision so that we can provide key funding for our schools, our colleges, our hospitals, and other essential services."

The case stemmed from Christie's decision in late May to cut his budgeted pension payment for the current fiscal year from $1.58 billion to $696 million as part of an effort to plug a $1 billion revenue shortfall. His revised payment covers pension costs accrued during the current fiscal year, but not the unfunded liability that has accumulated over time, which the governor has referred to as the "sins of the past."

The fiscal crisis emerged after tax revenue in April fell short of the Treasury Department's projections.

Unions said Christie could not dip into the funds budgeted for the pension.

They pointed to a provision in a 2011 law that gave union members a contractual right to statutorily mandated payments by the state. The law was part of a broader change of the pension system, beginning in 2010, that required the state to phase in larger payments over seven years in exchange for increased employee contributions.

There are about 800,000 active and retired employees in the pension system.

The unions filed suit this month seeking a preliminary injunction either to compel the Christie administration to make the full payment or to allocate $300 million in surplus for the next fiscal year to the pension fund. They also asked Jacobson to freeze the state's remaining nonessential appropriations.

To win a preliminary injunction, the unions first had to show that such relief was needed to prevent irreparable harm. Jacobson ruled that since the funds are available only through the end of the fiscal year, the unions did face such harm.

"It's not just money," Jacobson told Assistant Attorney General Jean Reilly during oral arguments Wednesday. "It's the lives of hundreds of thousands of public employees who are depending upon the funds for pension allowances when they retire."

She also cited their contractual rights as well as Christie's signing the 2014 appropriations bill that included the full pension payment into law.

But the judge said the unions did not prove that their case had a reasonable probability of success on its merits, a second threshold requirement for winning a preliminary injunction.

"Contractual rights created by the Legislature are not absolute," she wrote, explaining that they were "subject to the governor's powers over appropriations" during an emergency.

She cited the Disaster Control Act, which says the governor can issue executive orders to "provide for the health, safety, and welfare of the people of the state." The state had argued that the alternatives to cutting the pension payment were limited to slashing funds for hospitals, nursing homes, higher education, and other "essential services."

Christie "was right between a rock and a hard place," Jacobson said in announcing her decision.

Jacobson also noted the governor's constitutional duty to balance the budget. She ruled that the pension cut was "reasonable and necessary," since Christie turned to it as a last resort late in the fiscal year.

The CWA had asked Jacobson to order Christie to put the $300 million in rainy-day money toward the pension fund.

"We know the budget has to be in balance," Steven Weissman, the CWA's attorney, told Jacobson. "The constitution tells us that. But the constitution doesn't tell us you need a $300 million surplus."

But Jacobson ruled the state needed to maintain the budget cushion to protect its fiscal health. That money is typically used to plug budget deficits or for emergency situations that the state cannot predict.

Failure to fund the state's long-term pension obligations, Jacobson wrote, "appeared to have a short-term impact that could be addressed and possibly ameliorated in the future."