New Jersey Gov. Chris Christie slashed $1.6 billion in pension contribution payments from the 2015 fiscal budget.

The New Jersey Supreme Court heard three hours of testimony Wednesday in a case challenging Gov. Chris Christie's decision to reduce scheduled contributions toward state employees' pensions.

The Republican governor had appealed a Feb. 23 Superior Court ruling that sided with public employees' unions who filed a lawsuit against Christie after he stripped $1.6 billion from the state's planned 2015 pension contributions.

Assistant Attorney General Jean Reilly told the justices that allowing the pension payments to proceed would put the state in "a fiscal stranglehold."

Reilly emphasized in her oral arguments that the state is not contractually obligated to a 2011 law passed implementing a scheduled ramp-up of the state's pension funding for seven years because the action was not voter-approved.

Christie signed the law, but later switched gears saying the state would make smaller payments in 2014 and 2015 due to a budget shortfall.

The contribution schedule in the law "is simply unsustainable," said Reilly.

Reilly faced tough questions from many of the seven justices on whether workers are entitled to the scheduled pension payments based on the legislature's actions in 2011. Associate Justice Barry T. Albin raised the issue of whether future legislatures would not be bound to pay workers their pensions if they rule in favor of the state.

"You're making an argument that no contract a state enters is any good, because the next Legislature can refuse to fund it," said Albin, who was nominated to the New Jersey Supreme Court by former Democratic Gov. Jim McGreevey in 2002.

Superior Court Judge Mary Jacobson said in her Feb. 23 ruling that "the court cannot allow the State to simply walk away from its financial obligations, especially when those obligations were the State's own creation." She had ruled in late June 2014 that Christie could withhold $884 million in pension payments to balance the 2014 budget since the state had few financial options in a short time frame, but added that a "different analysis could very well be required for fiscal year 2015."

Arguing against the state were attorneys for the Communications Workers of America, New Jersey Educational Association and the New Jersey Retirement Systems Board of Trustees. Associate Justice Anne M. Patterson, a Christie appointee, expressed concerns during union arguments about the courts playing too large of a role in "enormously complex" budget matters.

Chief Justice Stuart Rabner did not indicate when a decision was expected. The state has until June 30 to finalize its fiscal 2016 budget.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.