New Jersey Gov. Chris Christie may have won a battle and lost the war this week, when his plan to withhold $884 million in pension payments in order to balance the budget survived a court challenge by the state's unions.
On Wednesday, Mercer County Superior Court Judge Mary Jacobson refused the request of government workers that she step in to force Christie to make the budgeted pension payments in the remaining days of fiscal year 2014, which ends Monday night. In doing so, however, she affirmed that the unions were irreparably harmed by the action and justified the Christie's move as an emergency measure only for this fiscal year.
The judge said that unions had a legitimate concern about their pension and a legal right to their funding. She opened the way for a unions to sue Christie for his planned underfunding of the pensions as soon as early July.
"Perhaps most importantly, Judge Jacobson in her ruling reaffirmed that these pension contributions are a contractual right of the members of the pension system," said New Jersey Education Association president Wendell Steinhauer. "The governor's action was a substantial breach of that right."
After hearing nearly two hours of oral arguments from lawyers for the unions and the New Jersey Office of the Attorney General, Jacobson surprised some in the court by telling them she would come back to the court with a decision in a few minutes.
About 20 minutes later Jacobson returned to the courtroom and orally summarized a roughly 100 page written decision. Given the limited time for the unions' relief in this fiscal year, the judge said she had decided to write the decision based on the written briefs in the case prior to the oral arguments. The oral arguments had not changed her mind, she said.
The judge said she wanted to allow time for appeals of her decision.
Jacobson said she would deny the unions' request that she order the New Jersey government to adhere to the 2011 pension agreement in its fiscal year 2015 budget because the government was still preparing the budget. She said she had no standing to rule on a budget that had not yet been adopted.
Regarding the fiscal 2014 spending, she said that the bar for her to order the state government to provide funding for pensions was made higher by the limited time the government had to come up with the money.
The government had only discovered in late April that it was facing a greater-than-$1 billion shortfall in revenue for the fiscal year.
Jacobson said the unions had succeeded on two of the four points they needed for the injunctive relief.
First, the unions had succeeded in showing that the state had made a contractual promise in the 2011 agreement to ramp up its contributions to the pensions.
Second, the unions had succeeded in showing the likelihood of irreparable harm if the state did not make the scheduled full pension payment by the end of June. This was because any money not appropriated by the state to the pension fund by July would go back to the state's coffers.
On the other hand, the unions had failed to show likelihood of success on the merits of their argument and in terms of the balance of the equities of the situation, the judge said.
The state government has dramatically scaled back its pension funding contribution for fiscal year 2014 because it was necessary to do so to meet essential service spending, Jacobson said.
The unions had asked for the judge to use the state's $300 million unreserved fund balance for making part of the pension payment. Jacobson said the state had shown that financial experts believed the state's $300 million was already very slim. The state succeeded in showing that the state's fiscal health would be threatened if the state did not pay its debt service or if it used the undesignated fund balance, the judge said.
The governor's order reducing the current fiscal year's pension payments was justified by the serious situation, which allowed the impairment of the contracts with the workers, the judge said. The governor has legally acted under the Disaster Control Act to breach the contractual pension promise, she said.
Since the governor's action doesn't mean the government employees are in danger of not getting their pensions in the next few years and making the pension payments would endanger essential civil services, what the judge called equities didn't favor the unions, she said.
In the state legislature, Democratic leaders are proposing proposed various tax increases to keep to the 2011 agreement's increased pension contribution levels while maintaining a balanced budget.
However, some observers say these measures have little chance of adoption as Christie has steadfastly rejected the possibility of tax increases and has a line-item veto. The legislature is unlikely to pass any tax increases with the two-thirds vote needed to override Christie's veto.
This would seemingly open the way to Christie's underfunding of the pension system in fiscal 2015 by more than $1.6 billion compared to the level he had agreed to in 2011.
But some observers say that Jacobson's ruling may prove troublesome for Christie's pension plans in fiscal 2015. After the hearing, State Troopers Fraternal Association of New Jersey President Christopher Burgos, one of the case's plaintiffs, said that Jacobson's ruling was sympathetic to the unions on some points.
Burgos said he anticipated appealing Jacobson's ruling on the fiscal 2014 pension contributions. Jacobson indicated that she was sympathetic to unions' claim that the pensions were being dangerously underfunded.
Steinhauer said his union will file a suit challenging Christie's fiscal 2015 pension contributions.
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Corrected June 27, 2014 at 10:09AM: An earlier version had an incorrect amount for the amount of pension payments Christie planned to withhold.