Christie cuts pension payment to cover revenue gap

Gov. Christie signed an order to make the payment cut.
Gov. Christie signed an order to make the payment cut.
Posted: May 22, 2014

TRENTON - Confronting an end-of-year revenue shortfall that he said had reached $1 billion, Gov. Christie announced plans Tuesday to slash New Jersey's pension-system payments - changing course on a plan that had been intended to shore up the system in the long term.

The Republican governor, who has touted his commitment to making pension-system payments as a mark of fiscal responsibility, said that an increasingly strained budget - with new spending needs and revenue now estimated to fall $2.75 billion below administration projections for the current fiscal year and next - necessitated the cuts.

"Today I'm doing what I need to do to fulfill my constitutional obligation to balance the budget," Christie said. "I'm going to pledge to make the payments we need to make to not make the hole any deeper."

The payments had been scheduled at $1.58 billion for the fiscal year ending June 30 and $2.25 billion next year.

Christie issued an executive order Tuesday to cut the payment to $696 million for the current year.

For next year, Christie's budget plan will include a payment of $681 million, he said. The plan, originally based on $34.4 billion in revenues, now assumes $32.7 billion in revenues.

Two of the state's largest public-sector unions said Tuesday that they would take legal action. Democrats blasted Christie's decision but did not offer specifics on an alternative solution.

The original pension payments were the products of laws passed early in Christie's first term that required public workers to pay more toward their pensions. The state, in turn, agreed to make escalating payments into the system, which had been underfunded for years.

The reduced payments cover the obligations the state is currently accruing, Christie said, but do not account for prior years of skipped payments.

"In a time when we're confronted with this type of challenge, I cannot also pay for all the sins of my predecessors," Christie said.

Resuming his call for changes to the state pension system, Christie said: "I said the problem was looming. But I never expected that it would come this quickly.

"But it has come, and there is no breathing room left. And we have to deal with the problem directly."

Democrats - who have opposed further pension system changes - and unions accused Christie of shifting blame to his predecessors and avoiding responsibility for his administration's overly optimistic revenue projections.

"When we take the oath of office, we inherit the responsibility for all of New Jersey's government as it is, not as we would like it to be," said John S. Burzichelli (D., Gloucester), chairman of the Assembly Appropriations Committee. "To pretend to do otherwise is reckless at best."

The New Jersey Education Association (NJEA) and Communications Workers of America (CWA) both announced plans to go to court over the proposal.

Christie's actions "are not only immoral, in that they place the pensions of tens of thousands of retirees and active workers at risk, but they are illegal," said Hetty Rosenstein, New Jersey director of the CWA. "He is breaking the law."

NJEA president Wendell Steinhauer said the union would "pursue every legal avenue to stop this reckless and illegal attack on working-class New Jersey residents."

At the news conference, Christie said he was "not worried about the legality" of his proposal.

He said he had few options to fill the revenue shortfall, which opened up after April tax collections widely missed administration projections - apparently due to the state's underestimating the effect of the federal "fiscal cliff" that led to a spike in payments in 2013 and a drop this year.

Christie said the shortfall is now $1 billion. According to his executive order, the state also has additional spending needs of $260 million for Health and Human Services programs and winter Department of Transportation operations.

Administration officials found some savings in the budgets - $160 million this year and $128 million the next, Christie said.

In choosing what to cut beyond that, "I made the decision we are not going to blindside our students," Christie said. "We are not going to blindside our seniors" or residents who rely on other state programs.

Christie said he did not want to resort to "gimmicks," such as shifting the scheduled pension payment several days into the next fiscal year.

"There's just not a lot of places to go here," Christie said.

The pension system was revised in 2010 and 2011, with laws that increased the retirement age for public workers, eliminated cost-of-living adjustments, and required public workers to pay more toward their pensions.

The 2011 law required the state to make "normal" contributions to the system, as well as an "annual unfunded accrued liability contribution," to be determined in consultation with an actuary.

Christie - who has said the state's unfunded pension liability is $52 billion - has been calling for more pension changes to reduce the state's costs.

On Tuesday, he repeated that message, describing the rising costs as unsustainable.

"Our problem is, we have made promises to people we cannot keep," Christie said. "So we have to adjust this. . . . People have to get real about what the situation is going to be going forward."

Christie said he expected to announce proposals related to the pension system next month.

The pension cuts "are a temporary solution" to the budget problems, he said. "But everything is at risk long-term."

Democrats did not outline their next steps Tuesday, but issued sharp criticisms of Christie.

"The governor's proposals are callous and yet another attempt by this administration to point the finger at someone else," Senate President Stephen Sweeney (D., Gloucester) said in a statement. "This administration has overestimated revenues for years."

Sweeney, who previously threatened to shut down the government if Christie did not make the payments, said the Legislature would "work to resolve this issue in a manner that is fair to the hardworking, middle-class people of this state."

Sweeney has said the state should consider a so-called millionaire's tax to raise more revenue. Christie said Tuesday that he would not raise income taxes.

Assembly Speaker Vincent Prieto (D., Hudson) said Christie was responsible for "five years of budgeting decisions that left New Jersey no room to handle any revenue shortfall, let alone a crisis."

While some of the state's revenue shortfall could have been cushioned by a larger budget surplus - New Jersey carries a surplus of about 1 percent of spending - increasing those reserves would require spending cuts elsewhere, Christie said.

He said Democrats who blame him for the state's economy, which has lagged other states in job growth and recovery from the recession, are also responsible.

"They have been fully partners in these policies," Christie said. "Not just mine - they're ours."


mhanna@phillynews.com

609-989-8990

@maddiehanna

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