As Governor Christie heads into a crucial stretch in his campaign for the White House, back home, another pension dispute with multibillion-dollar consequences has reached a critical stage at the state Supreme Court.
A loss could spark another major budget crisis for Christie, potentially in the middle of a presidential campaign in which he often promotes his experience as a tested leader who can reform the United States’ fiscal problems and rein in $19 trillion in debt.
A group of retired prosecutors and public-worker unions is challenging a law Christie signed in 2011 that suspended yearly cost-of-living adjustments for retirees. When Christie tells voters in the rest of the country about having “fixed” New Jersey’s notoriously underfunded pension system and saved more than $100 billion over 30 years, he is referring largely to this cost-saving measure.
And the Supreme Court is being asked to strike it down as an unfair violation of workers’ rights.
Attorneys for all sides have now filed hundreds of pages of legal briefs. The court is expected to hear oral arguments next year and could issue its ruling just as Christie is competing in key primary states, or during the general-election season.
If they win, thousands of retirees — but perhaps not all of them — could begin to see bigger pension checks every year there is an increase in inflation as measured by the Consumer Price Index.
But “the retirement systems would have to recognize immediately at least $17.5 billion in additional unfunded liabilities,” lawyers for Christie wrote in a legal brief, accelerating a funding crisis for a pension system already facing $40 billion in liabilities, according to state actuaries, and $80 billion under more stringent accounting standards.
In his first term, Christie and lawmakers from both parties enacted a sweeping legislative package intended to stabilize New Jersey’s retirement funds after years of neglect from elected officials in both parties. The governor’s plan initially had three prongs: It committed billions of taxpayer dollars over seven years to replenish the pension system, raised public workers’ pension contributions and froze their yearly cost-of-living adjustments, or COLAs.
Now it has two prongs. The court, at Christie’s behest, ruled in June that he was not required to honor his seven-year funding schedule while upholding his decision to cut billions of dollars from his promised payments.
Christie began to cut those payments after his advisers seriously misjudged the state’s economic picture for 2014, at a time when Christie was making the case that New Jersey could afford a 10 percent reduction to the state income tax. The governor’s revenue forecasts turned out to be inaccurate by more than $2 billion over two years, and Christie closed the gap by slashing his planned pension contributions.
When Patrick Colligan, the president of the state Policemen’s Benevolent Association, made critical comments about Christie’s moves to short his pension payments recently, the governor called him a “pension pig” and said public workers and retirees in New Jersey have collected excessive benefits for many years.
“It’s about feeding at the trough as much as he possibly can,” Christie said of Colligan in a campaign stop in Concord, N.H.
For Christie, the present COLA dispute is his first major legal battle since he entered the presidential race on June 30. His attorneys paint a very different picture of the pension system than what Christie describes on the campaign trail and in countless television interviews and debates as a slowly building success story.
“The glaring reality that the pension system is faltering, floundering, and on the verge of failing is universally recognized,” wrote Jean P. Reilly, the assistant state attorney general arguing Christie’s case.
She warned that by restoring the yearly pension bumps for retirees, the entire retirement system could go under sooner than the nine- to 12-year time frame currently estimated by state actuaries. “The issue is whether monies in the pension funds should be drained to pay COLAs at the expense of base pensions of active employees,” Reilly wrote.
Charles Ouslander, who retired from the Hunterdon County Prosecutor’s Office, is the lead plaintiff in the case and represents himself. He argues that a 1997 state law signed by Gov. Christie Whitman gave public workers a “non-forfeitable right” to collect whatever pension benefits they were promised at the time they began their government careers. Ouslander argues that this right includes COLAs. A state appeals court agreed last year.
Public workers and retirees did not neglect to fund their pension system for the last two decades, Ouslander added; rather it was a series of governors and lawmakers who shirked their duty.
“The hypocrisy of the administration’s position … can only be described as epic in its scale,” he wrote. “The state’s attempts to use its very own malfeasance in failing to properly fund the pension system for two decades provides neither a legal nor a factual defense to the issues before this court.”
Attorneys for the New Jersey Education Association, AFL-CIO, Communications Workers of America and other major unions largely agree with Ouslander in their filings.
“The appeals panel rightly concluded, based on the plain language of the  statute, and the history of pensions in New Jersey, that the Legislature unambiguously protected cost-of-living benefits,” they argued.
Reilly said the state must avoid fiscal chaos. “While plaintiffs may cavalierly disregard fiscal constraints, neither the state nor the court has this luxury,” Reilly argued.
Christie has refused to raise taxes, and has vetoed Democratic bills that would round up funds for the pension by imposing an income tax surcharge on residents earning more than $1 million.
At the heart of the case is whether state lawmakers meant to include COLAs in the “non-forfeitable right” law that Whitman signed in 1997. The law does not mention those adjustments. But Ouslander argues it is “beyond dispute” that they are included, because the law makes reference to a “benefits program” under multiple “laws governing the retirement system,” not just a base pension.
Reilly counters that the benefits in question are more limited, encompassing only the base pension, allowances for accidents and disabilities, early or deferred retirements, and death benefits. The Legislature has never passed any law that clearly says COLAs are part of the protected pension benefits, she says.
The appeals court that ruled on the case last year found that “COLAs are such an integral part of the pension system that the Legislature must have intended that they be included as part of the non-forfeitable right guaranteed in 1997.”
Meanwhile, Moody’s Investors Service has warned the state that an adverse ruling could lead to another downgrade of its credit rating. New Jersey’s credit rating has been downgraded nine times by Fitch Ratings, Moody’s, and Standard & Poor’s since Christie took office.
If Christie loses, one of the biggest retirement funds in the pension system, the Teachers’ Pension and Annuity Fund, could see its unfunded liabilities rise 35 percent, Moody’s estimated.
Moody’s analysts wrote in an October report that “the state recently began incrementally increasing pension contributions based on a revised 10-year schedule,” instead of the seven-year schedule Christie first attempted.
“If the increases continue as planned, the state wins the COLA lawsuit, and it achieves sufficiently strong returns on its investments, the asset depletion date would continue to get further away and likely never actually occur,” they added. “However, pension contributions would likely rise to become a significant portion of the state’s budget.”
It is unclear how many retirees could be affected by the court’s ruling. The appeals court said only those workers who were on the job or began their careers from 1997 to 2010 and went on to serve long enough to collect a pension would qualify. Ouslander argues that the Supreme Court should restore the benefits for all current retirees based on fundamental fairness principles. Reilly argues that no matter what the Supreme Court decides, a trial court must conduct more fact-finding on this question.
The members of the Supreme Court split 5-2 in the earlier case over the pension payments Christie has been cutting. But Justice Jaynee LaVecchia, who wrote the majority opinion, also found that public workers “must be paid their pension benefits when due,” what some in the labor movement saw as a silver lining that would help their case in the COLA litigation.