The Pen/Ben Impasse: Suggested Solutions

So the state public employee unions and Gov. Christie are at an impasse now. The unions this year showed strength by not bending to the Pen/Ben Commission’s call for extreme changes. However, the unions want a continuing and higher level of state contributions into their plan to insure its solvency. The 2011 law agreed to by both parties was violated by Christie who said he did not have enough money. The N J Supreme Court sided with him that the debt limitation clause did not allow him and the legislature to bind the government to future payments.

In effect Christie can contribute whatever he wants while the fund’s liabilities continue to march toward bankruptcy. Such is not a good scenario for him or the unions. In the meanwhile the annual actuarially sound contribution needed in a few years could exceed $7 billion, be a huge drag on the budget, and continue to increase without a solution. Both Christie and the unions need to come together.

Having violated the very law he touted for years, Christie should take the first step toward a solution. There is now a concurrent resolution (ACR244) passed by the legislature which urges, but cannot require, that the governor make his pension contribution of $1.3 billion by July 15 for fiscal year 2016. The short-term cost of borrowing the money will be far less than the interest received by investing it all early. Also by doing so Christie could not wait until the end of the budget cycle and then say he has insufficient funds. This would be a sign of his good faith toward the unions. Alternately, and less desirable, he could sign bill S3100 on his desk which requires pension contributions be made on a quarterly basis starting August 1. His failure to do either is sheer arrogance and no way to start the bargaining he says he wants.

For bargaining strategy, the difficulties of the process, other options available to unions, and what the Supreme Court said in spite of ruling in Christie’s favor, go below the fold.

The unions’ distrust of him is understandable, but with a show of good faith on Christie’s part unions have an incentive to bargain and to reach further toward their goal of increasing contributions into the fund. The unions could agree under a mutual contract with some of his demands, but make them conditional on the governor’s continued contribution into the plan at a specified actuarially sound level to be achieved by specified dates. At each milepost if the governor does not meet the obligation the changes are not made. If he does meet the obligation the changes are implemented. In the long run if the unions agree to some modifications and the governor continues to increase the level of contributions, our Pen/Ben has an opportunity to return gradually to solvency. As the governor wants reforms and the budget will suffer without them, such a plan might be workable.

The process is neither easy nor simple as hard bargaining would be necessary and there are actually five Pen/Ben plans in different financial positions and under different rules. The unions would have to accept some changes, but the governor would have to follow through with his commitments. For the unions concerned with the future of Pen/Ben the main goal should be to increase contributions. For the governor some modifications to union benefits would decrease the burden on future contributions and release pressure on the budget. Right now we are at a stand-off with each side digging in its heels, creating a bigger and bigger financial hole.

There are other possible solutions. Launching a federal suit is probably a hail Mary. It could take many years to resolve, even if a lower court accepts the case. The U.S. Supreme Court itself accepts only about 80 cases a year. Ultimately, the likelihood of the Supreme Court accepting the case and ruling favorably is not high, and by then Pen/Ben is in dire straits.

The NJ Supreme Court left open another option. It said, “Voter approval is required to render this a legally enforceable contractual agreement compelling appropriations of this size covering succeeding fiscal years.” Time has almost run out for ballot question this november so voter approval or disapproval would not occur at the earliest until november next year. Realistically it would seem unlikely that voters would be content to mandate annual state contributions of $5 to $8 billion or more in future years without some corresponding modifications agreed upon by unions.

Let’s remember that while the NJ Supreme Court held on June 9 that the 2011 law “does not create a legally enforceable contract,” it did declare that “The State must get its financial house in order … The loss of public trust due to the broken promises is staggering … The need is compelling in respect of the State’s ability to honor its compensation commitments to retired employees.” The ruling ends with the statement, “This is not an occasion for the judiciary to act on the other branches behalf.” In effect the court recognizes the magnitude of the problem and urges action, but leaves the resolution up to the other branches.

Better to act now, to assure that Christie (and in the future another governor) takes appropriate action first, and then for unions to reciprocate with their end of the agreement, on a specific periodic basis. It works both ways: if the governor does not comply then unions don’t either. If the unions don’t follow through then the governor does not reciprocate. Christie with the court at his back is in a strong position now, but the unions have also shown they can be resolute.

Now is the time for negotiations. The unions can still protect Pen/Ben with tough bargaining because even Christie realizes that a worsening Pen/Ben is not only a severe budget problem but a PR and credit-rating problem. Both sides would give up something and both sides gain something. In the end this could be a win-win for each.  

Comments (5)

  1. Jersey Jazzman

    I appreciate the spirit in which this is written, Bill. But let’s be clear:

    Public workers have ALREADY given up plenty, and have received nothing in return.

    Our contributions to the pensions are on schedule to rise a total 2 percentage points, up to 7.5%. Our payments for health benefits have doubled or tripled in some cases. The retirement ages went up.

    Yet, according to NJPP, our pensions are already some of the stingiest in the nation.

    The central issue is the state’s refusal to raise taxes so it can make its contributions. So long as Chris Christie continues to run for president, however, this will never happen.

    So why should unions negotiate? They will never gain from Christie what is required: higher taxes leading to larger pension payments.

    If the unions “give up” anything at this point, there will be no meaningful reciprocal action from the state. We have to be honest with ourselves about this.

  2. 12mileseastofTrenton

    until Christie leaves office and that awful, one-sided commission he appointed disbands.


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