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N.J. Supreme Court Says 'No' to Unions; Allows Gov. Christie to Delay Pension Payments

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Whether one sees New Jersey Governor Chris Christie as confronting or punting, it’s hard to deny he knows a crisis when he sees one.  The New Jersey Supreme Court sees one as well.  On June 9, the Court ruled 5-2 that Christie was within bounds in delaying a large portion of contributions to the state’s severely underfunded public-employee pension system.  The ruling, a clear blow to the unions who brought forth the suit, for now averts a potential fiscal collapse.  Critics claim Christie, who is expected shortly to enter the Republican presidential race, broke a law he signed in 2011, effectively passing the buck to his successors.  Supporters counter the ruling gives the legislature breathing room to fix a system whose condition has resulted from years of excessive union contract demands.  It’s a familiar story in other states, too.

For several years, state employee pension systems have threatened to become a fiscal black hole.  In its annual pension report issued a year ago, Standard & Poor’s calculated that in 2012 the 50-state average of assets, which include many local government employees (especially teachers), amounted to only 70.9 percent of long-term liabilities; the median figure was 65.8 percent.  This is a dangerous situation.  Pension experts generally agree that the minimum threshold for a healthy system is 80 percent; the benchmark for “critical status” in private-sector retirement plans insured by Pension Benefit Guaranty Corporation is 65 percent.  The five lowest-ranking states in the Standard & Poor’s survey were funded at well below 60 percent.  Illinois, profiled by National Legal and Policy Center only a few weeks ago, had the nation’s worst-funded system at 40.4 percent.  Rhode Island, whose situation NLPC analyzed in December 2013, was funded at 58.1 percent.  In each case, the state had taken steps to shore up its system, only to be challenged in court by public-sector unions.  In Illinois, labor organizations persuaded the State Supreme Court to invalidate reforms enacted by the legislature late in 2013.  In Rhode Island, the unions coaxed an out-of-court settlement from state officials, effectively winning back a sizable portion of benefits lost through 2011 reform legislation.  “Pension reform” is an irresistible idea in the abstract – until the political battles begin.  

The Standard & Poor’s study estimated the 2012 funding level for New Jersey at 64.5 percent, somewhere in the lower part of the middle of the pack.  Another study, by Morningstar, put the state figure that year at 65.4 percent, down from 73.2 percent in 2008 and 67.5 percent in 2011.  Taken together, by any reasonable measure, the state’s 10 pension plans – seven for state employees and three for local employees – are in borderline critical condition.  New Jersey officials, from Governor Christie on down, know this.  That’s why these past few years they’ve been scrambling to close a funding gap that now is around $40 billion, or $5,000 per resident. 

Chris Christie was elected governor in November 2009 largely on the basis of his calls for pension reform.  And reform in New Jersey was overdue.  Each year starting in 1997, in fact, the State had failed to make its full required annual contributions, thus diminishing the the overall asset-to-liability percentage.  Public-sector unions were central to this situation.  According to the U.S. Census Bureau’s Current Population Survey, 58.9 percent of state and local government employees in New Jersey in 2011 belonged to a union.  That put the state in the top 10 among all 50 states, New York having the highest figure at 72.2 percent.  That kind of percentage (or “density”) gives New Jersey unions clout in negotiating contracts, thus making full pension contributions almost impossible within state constitution’s balanced budget requirements unless state and local governments are willing to institute severe cuts in vital services. 

Union-driven collective bargaining has inflated, and often wildly, the cost of state and local government in New Jersey.  Back in December 2009, the last full month in office of Governor Christie’s predecessor, Jon Corzine, the State of New Jersey’s Commission of Investigation issued a lengthy report that exposed a widespread pattern of padded wages, salaries and benefits, which served to reduce funds available for pension contributions.  The study, titled, “The Beat Goes On:  Waste and Abuse in Local Government Employee Compensation and Benefits,” summarized the situation:  “At a time of economic distress unprecedented since the Great Depression – with government budgets depleted and austerity the theme of the day even in the private sector – the gravy train continues to roll without impediment for select groups of employees on the public payroll.”  Among other findings, the report noted: 

  • “Inconsistent, non-existent and/or inadequate restrictions or caps on the accrual and cashing-in of unused accumulated sick, vacation and other leave at retirement, a phenomenon that enables select local government employees to collect, in addition to generous pensions, lump-sum payouts sometimes ranging well into the six figures and in amounts larger than the equivalent of a full year’s salary.”
  • “Provisions that enable local public employees to collect cash for unused leave annually while employed, thus effectively circumventing any caps that may exist locally on the redemption of accrued leave at retirement.”
  • “Costly allocation of various forms of so-called ‘terminal leave,’ including arrangements that allow local public employees to stay on the public payroll, using up accrued sick time and other leave at full salary and benefits, occupying a position without showing up for work – in some case for up to a year – prior to retirement.”

The Executive Summary noted the following abuses of public trust:

Camden.  One of the poorest cities in the entire nation, never mind New Jersey, Camden, right across the Delaware River from Philadelphia, knows how to treat its employees well.  Between 2004 and 2008, 20 city workers received combined cash benefit payouts of more than $2.3 million, or about $115,000 per worker, when they left their jobs.

Rockaway Township (Morris County).  Five employees during 2005-08 received a combined $780,000 in payments – more than $155,000 apiece – for cashing out their unused holidays and other accumulated time.

Harrison (Hudson County).  A small commuter municipality across the river from New York City, the Town of Harrison was unusually generous to 23 public employees who had retired during the previous six years.  The workers collected $1.8 million in combined payouts for unused sick and vacation leave – the equivalent of more than half of the average annual town tax bill.

Examples from other sources include the following:  a contract clause negotiated by police unions in a number of New Jersey municipalities enabling members to collect $25,000 or more a year via “extra duty” pay at construction and utility repair sites, regardless of whether they had performed work; $30 million annually in New Jersey Turnpike Authority costs attributable to mandatory union featherbedding clauses; and, in a not at all atypical case cited by Governor Christie himself, a 49-year-old retiree who had paid $124,000 toward his pension and health care plans, and by law, must receive $3.8 million in retirement payouts.    

This situation was many years in the making.  And a series of administrations in both parties usually preferred passivity to confrontation.  One governor, Chris Christie’s immediate predecessor, Jon Corzine, actually was an advocate for the unions.  A former executive at Goldman Sachs, Corzine wasn’t bashful about where he stood.  At a 2009 rally in Trenton, the state capital, he declared before the assembled public employees:  “We will fight for a fair contract.”  The scene was surreal.  Here was a sitting governor, whose job it is to negotiate on behalf of his state, inspiring his opponents to demand more at the bargaining table. 

Aside from his political leanings, Governor Corzine may have had an ulterior motive for such behavior.  As Union Corruption Update noted on two occasions (here and here), Corzine had a very real conflict of interest.  During April 2002-August 2004, while as a U.S. senator from New Jersey, he lived with Carla Katz, leader of Communications Workers of America (CWA) Local 1034, which represents close to 10,000 state employees, plus thousands more private-sector employees.  In 2005, the romance over, Corzine was running for governor.  Unfortunately, for him, a number of media outlets revealed that he had loaned Katz $470,000 a few years earlier through a company he controlled in order for her to buy her home from her estranged husband.  After their breakup, Corzine converted the loan to a gift.  Katz, meanwhile, had her own ethical problems.  An internal review by the CWA national board concluded that Katz had extensively misappropriated union funds.  This led to her dismissal.  Corzine had to fight in court to prevent the divulging of his e-mail exchanges with Katz during contract negotiations.  He prevailed, but his credibility was damaged to the point of being vulnerable to political challenge.                      

And a challenge came in 2009, courtesy of Republican Chris Christie, who had served as U.S. Attorney under George W. Bush.  Christie campaigned for getting pension, health plan and other costs under control. 

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