Yesterday, the New Jersey Supreme Court handed a victory to Governor Chris Christie and pension reformers everywhere. In a 5-2 ruling the state Supreme Court sided with the Governor to stave off major budget cuts and handed a major defeat to public unions and their allies. The ruling is also a boost to Christie’s embattled Governorship and prospective Presidential bid.
The origins of the case stem from Christie’s and Democratic legislative leaders efforts to address the state’s pathetically woeful public pension system. In a landmark 2011 reform of the state’s pension system, public employees had to pay more and the government was locked into making up for years of skipped or reduced contributions. The state also agreed to escalating payments over seven years. Retirees saw their cost-of-living increases suspended, while current workers had their retirement ages raised as part of the deal.
But last year, state tax revenue unexpectedly came in short of projections, setting off a budget scramble. The state, unable to meet its payment obligations, solved their budget issues by reducing planned contributions to the tune of $2.5 billion for the 2014-2015 budget year. More than half of that, $1.6 billion is for the current fiscal year. And while Christie plans to put $200 million back into the system by June 30th (when the 2014 budget ends) and $1.3 billion in for the 2015 year it is far below the $3.1 billion for 2015 the 2011 agreement calls for.
Public employee unions and legislative Democrats did not take kindly to the Governor’s solution. Filing a lawsuit in state court the plaintiffs alleged that under-funding the state pension agreement was unconstitutional and violated the 2011 law. In a lower court ruling public employee unions won. But the state Supreme Court agreed with the Governor’s legal team that if they court sided with unions, the court could be setting itself up for getting dragged into many future budget disagreements.
Obviously, such a ruling is a significant defeat for unions in New Jersey and nationwide. In the case of New Jersey specifically, the ruling does not solve the state’s pension woes. The state’s pension system is still underfunded. Another piece of Christie’s pension plan is to reduce health benefit costs and use the savings to stabilize pension funds. Current workers would also have their defined benefit plans frozen and replaced with 401(k)-style plans.
Nationally, such news is a welcome relief to numerous state and local governments struggling to deal with their pension issues. Last month in Illinois the state Supreme Court overturned the state’s 2013 pension reform plan which cut workers cost of living increases and increased the retirement age. The court unanimously found such efforts violated the state’s Constitution which stated worker’s retirement benefits could not be cut.
Localities and state’s across the country have had to shore up their systems. Many cities in California have suffered from pension issues which has led to the bankruptcies of Stockton and Vallejo. As a result, former San Jose mayor Chuck Reed reformed his city’s pension system and turned future workers benefits into a 401K style system. Former San Diego Councilman Carl Demaio and 2014 Congressional candidate also helped his city push through aggressive pension reform measures. Now, both of these officials are teaming up with a coalition of moderate Democrats, Republicans and businesses to get a statewide initiative on the ballot to reform pensions. The measure would remove Constitutional protections for public employees health benefits and wages. New Jersey’s ruling is a boost to such efforts.
Public employees benefits have been increasingly under attack from both Democrats and Republicans and as a result pensions have been increasingly targeted for stabilization. Runaway public pensions have dragged down states fiscal situations and led to lower quality of medical care and teaching in unionized states. But New Jersey’s court decision offers reformers hope that even in a blue state reform can happen and be preserved.