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Regulation and Compliance > State Regulation

Christie wins pension battle as court punts funding crisis

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(Bloomberg) — Governor Chris Christie won a decisive victory over New Jersey unions when the state’s highest court ruled he isn’t required to fill a $1.57 billion pension budget gap, defusing an issue that hung over his potential presidential campaign.

While the ruling averts an immediate cash crunch, the pension hole continues to restrain spending on schools, tax relief and municipal aid. Christie has vowed not to raise taxes even as he acknowledges there’s no alternate plan for closing a deficit that may top $2.7 billion through June.

The New Jersey Supreme Court ruled it’s up to the state legislature to resolve the funding issue.

“That the state must get its financial house in order is plain,” the court said Tuesday in a 5-2 decision. “The need is compelling in respect of the state’s ability to honor its compensation commitment to retired employees. But the court cannot resolve that need in place of the political branches.”

Christie, a Republican, said last year that an unanticipated drop in revenue forced him to trim pension payments to balance the budget, as required by law. The move came after Christie and the Democratic-led legislature approved a bill in 2011 that increased the state’s annual payments into the pension fund in exchange for higher employee contributions.

Christie made the first two payments, deferred $887 million last year when revenue sagged, and withheld payment on the remainder for the year ending June 30.

Unions sue

Unions for teachers, firefighters and other public employees sued seeking full payment into a pension system underfunded by $83 billion. State court Judge Mary Jacobson sided with the governor in June 2014.

She said that confronted with “staggering” shortfalls in the state’s budget that year, Christie acted reasonably in making only a partial payment to cover current employees while deferring the $887 million to help close the gap left by previous governors.

Jacobson, however, ruled in February that Christie and state legislators had had enough time to find a solution to the pension crisis.

The issue is dire for New Jersey regardless of the ruling, which simply determines how quickly the gap gets funded. In the meantime, the state’s retirement burden continues to grow, casting a shadow on its budget and driving down its credit rating, which has already been cut a record nine times. Full payment

David Rosen, the legislative budget officer, told lawmakers last month that it may not be “fiscally possible” to come up with the amount needed to make a full payment. Assistant Attorney General Jean Reilly told the Supreme Court at a hearing last month that the governor is willing to pay an additional $200 million before the fiscal year ends.

Christie’s bid for state pension reform helped propel him into the national spotlight and could continue to haunt him as he weighs a run for the White House in 2016. The issue may leave an opening for Republican rivals who also have gubernatorial experience such as Scott Walker of Wisconsin, Jeb Bush in Florida and John Kasich in Ohio.

Those men have the ability to say “we ran our state a lot better than you have,” Patrick Murray, director of polling at Monmouth University in West Long Branch, New Jersey, said in a phone interview on Monday.

Christie’s total 2016 spending plan of $33.8 billion has yet to be scheduled for a vote in the legislature as it approaches the June 30 deadline. A separate union lawsuit is also pending on a $3.1 billion commitment that Christie cut to $1.3 billion.

The case is Burgos v. New Jersey, L-1267-14, Superior Court of New Jersey, Mercer County (Trenton).


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