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Arithmetic and Reality
Sanity in the Garden State?

In contrast to the Supreme Court of Illinois, New Jersey’s highest court ruled yesterday that state pension programs are ultimately subject to the rules of arithmetic. Governor Chris Christie, who has not yet announced his candidacy for president, cut $1.6 billion in funding for the state’s woefully underfunded pension system last year because of a revenue shortfall. The state supreme court has now overruled a lower court’s decision in favor of public sector unions, saying that while it regretted the hit to public trust the decision would entail, there was no constitutional protection for pensioners who had put their faith in the system. Reuters:

“That the State must get its financial house in order is plain,” wrote Justice Jaynee LaVecchia in the opinion. “The need is compelling in respect of the State’s ability to honor its compensation commitment to retired employees. But this Court cannot resolve that need in place of the political branches.” […]

Philip Fischer, municipal research strategist at Bank of America Merrill Lynch, said the court essentially ruled that the contribution was so large it violated the state constitution’s debt limitation clause.

“It takes the heat off the pension issue at least for a little while and allows the legislature and the unions to … figure out a way to fund pensions consistent with the debt limitation in the constitution,” he said.

All parties are now expected to negotiate a “comprehensive solution,” said State Senate Republican Leader Tom Kean.

This victory for Christie doesn’t get New Jersey out of the long-term mess in a meaningful way, of course. S&P still threatened a downgrade if the comprehensive solution was not found, and Moody’s intoned gravely about the ruling “reinforcing the state’s ongoing reliance on onetime budget solutions.”

Unlike Illinois, which is now being forced to improvise wildly to make ends meet (see: Chicago), New Jersey has bought itself some time. Let’s see if they use it wisely, or whether they just use the extra mile of road they’ve been given to kick the can a little bit further.

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  • Kevin

    My reading of this is that it massively increases the state’s bargaining position against the public sector unions regarding what to do about pensions. In IL the courts have said, if there is no agreement the unions get paid their pensions. (The. Ash may not work out but the unions will ignore that for now.). In NJ they have said I the absence of an agreement the political branches (legislature & governor) can more or less do whatever they decide to. This in IL the unions have no incentive to compromise, while in NJ they will have a large incentive to negotiate.

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