New Jersey Supreme Court Allows Christie’s Cut in Pension Contributions

The Supreme Court of New Jersey ruled in a 5-2 decision today in favor of the Chris Christie administration, reversing a lower court’s ruling that found Gov. Christie’s roughly $1.6 billion cut in 2015 pension contributions violated an enforceable contractual obligation. The state’s high court ruling effectively allows that and future proposed cuts to stand. This is welcomed news for Christie and the state of New Jersey as an unexpected decline in revenue means the state has no money to make the contributions.

Christie is not the first, when faced with budget shortfalls, to make less than the required pension contributions. From 2000 to 2004, the state skipped pension contributions entirely while increasing benefits, and Christie has actually contributed more than any of his five predecessors.

The reason Christie’s cut sparked a lawsuit while the others didn’t is the result of a 2011 pension reform measure Christie signed into law. In return for concessions by pension beneficiaries (suspension of cost-of-living adjustments, increase in the retirement age and higher worker contributions), the law promised a gradual increase in the state’s pension contributions over seven years until it reached its full annual required contributions.

When Christie did not make the required contributions, public sector unions sued, claiming that his administration was violating a contractual obligation. A New Jersey trial court ruled the state had a contractual obligation to make the payments, and that when Christie slashed $1.57 billion from the state budget, he violated that obligation.

However, today’s New Jersey Supreme Court’s ruling held that the 2011 reform “does not create a legally enforceable contract that is entitled to constitutional protection” because the state constitution’s Debt Limitation Clause effectively prohibits the state from “compelling multiyear financial payments in the sizeable amount called for by this statute.” In other words, the promises made in the 2011 pension reform law could not be considered binding because making them binding would otherwise violate the New Jersey Constitution.

So is this good or bad news for N.J.’s budget, N.J.’s taxpayers and N.J.’s state pensioners? Well, it may be good news for the current budget as the state has no money to make the required contributions. And it could be good news for taxpayers if public sector unions are now more willing to come to the negotiating table.

Hopefully this decision will spur New Jersey to action and fiscal sanity rather than allowing the state to kick the can down the road. New Jersey faces significant fiscal woes, and massive unfunded public pension obligations are a huge part of those woes. Every bill that is not paid and every pension contribution that is not made will be added, with interest, to future taxpayers’ bill.