Tag Archive: 2015 Budget

The Pen/Ben Combo Plan

A headline in today’s Star-Ledger N.J. Political Roundup is misleading. It states “Voters say no tax hike to fund pensions.” It’s accurate to indicate that the Quinnipiac poll shows only “12% of voters say increase taxes.” However the poll asks respondents how to make up the pension shortfall and offers three choices: increase taxes, or reduce the amount owed to workers, or a combination of increased taxes and reduced payments. In fact “53 per cent of voters say use a combination of increased taxes and reduced payments.”  Only 26% say “reduce the amount owed to workers.”

So voters in the poll do support increased taxes in combination with a reduction in the amount owed to workers. Such is a reasonable response to the quandary NJ faces. In the governor’s appointment of Pen/Ben commissioners he tasks them to develop “reform recommendations.” There is no charge for them to consider increased taxes although such is unrealistic.  

Our unfunded pen/ben liability for retirees as NJ Spotlight points out is now “$90 billion and rising.” A key reason the liability is rising is because Christie made a $900 million cut (from $1.558 billion to $695 million) in last year’s pension contribution and plans a $1.5 billion cut (from $2.24 billion to $681 million) in this year’s contribution. Because of these cuts the state contribution stipulated in the 2011 Pension Law would likely jump in 2018 from $4.8 billion to $5.5 billion” – an astonishing amount for a NJ budget.

Christie’s “No Pain No Gain” campaign speaks of a long term solution and hints at reduction in pension benefits and possibly a move to a “hybrid plan” which could include a 401 (k). However, regardless of the plan (and at the moment it is opposed by the Democratic legislature) it would have no impact on the current year and little when the FYI 2016 contribution required would likely exceed $3 billion.  

This Budget and This Governor Are Not What We Need

Governor Christie in his opening press release statement trumpets his budget actions by boasting he “acts decisively to veto over $1 billion in irresponsible tax hikes and balances a fifth consecutive budget. He makes the hard and necessary choice to protect essential services for NJ families.” Well, the tax hikes were not irresponsible. They were designed to meet a contractual obligation to State employees and retirees. He has no choice but to balance the budget as it’s required by law. As a result of his huge line item vetoes and smaller legislative cuts we end up with a budget lower than he proposed, lower than the legislature’s budget and lower than last year’s budget. Christie should have an easier time to meet his revenue projections, but he has insufficient funds “to protect essential services for NJ families.” After poorly managing the economy, not meeting a union obligation, and having the legislature cut some of his priorities, it is no surprise that he “signed the budget privately in his inner office.”

Cinderella’s Golden Carriage

In this oft-told tale a pumpkin is transformed into a golden carriage to take Cinderella to the ball. However the spell lasts only until midnight and the golden carriage to bring her home reverts to being a pumpkin. Not to worry. It took trips to two balls and a prince’s determined efforts, but the story ends happily thereafter.

The legislature’s proposed  state budget reverts back to being Christie’s pumpkin before midnight tonight, yet there are reasons to believe that the story will end happily. Although Judge Jacobson ruled there was not enough time or money to make a full contribution in the 2014 budget, she acknowledged the validity of the unions’ contract and welcomed a hearing on the pension contribution to be made in the 2015 budget. Short-changing the pension contribution increases the unfunded liabilities substantially, increases concern on the part of credit rating agencies, and is a giant step backward in solving our huge pen/ben problems.  

Pension Court Case Hearing About to Start

Update 5:10 pm: The Star Ledger reports, Judge Mary Jacobson ruled against the unions today, saying Gov. Chris Christie can cut a pension payment for the current fiscal year by nearly $900 million. She explained it “was reasonable and necessary under the circumstances of this budget shortfall of over $1 billion.” This decision applies only to the current fiscal year ending Monday night. It is not a surprise as the Treasury is bare and there are only a few days left. She will continue to hear union arguments seeking to enforce a full contribution in the next fiscal year. Here is where there is more of a chance for the unions to succeed.

At 2:00 pm today the Mercer Superior Court will hear oral argument on the consolidated pension cases at 400 S. Warren St., Trenton. The court permits live video coverage under a pooling arrangement.

After having accepted give-backs, the unions now seek enforcement of the agreement which calls for full annual state contributions into the Pension Plan. For fiscal years 2014 (ending June 30, 2014) and 2015 (ending June 30, 2015) Governor Christie wants to contribute $2.4 billion less. The unions assert that the contract cannot be abrogated. Governor Christie asserts we are in the midst of a fiscal crisis and that he needs to make these cuts to balance the 2014 and 2015 budgets.

By listening to the questions Assignment Judge Mary Jacobson asks you might get a sense of her likely verdict. Because the 2014 fiscal year ends Monday night and the judge has already read the briefs, it is reasonable to expect a very quick ruling. Unless the ruling is viewed acceptable by both sides, the losing party will then likely issue an appeal which would extend the date of a final decision.  

In the meantime the Legislature is in the process of voting on the 2015 Budget in which it is inserting revenue enhancements and other budget changes that could fund a full pension payment. If the judge upholds the validity of the contract and indicates a full 2014 payment and/or a full 2015 payment must be made soon there is pressure on the governor to consider revenue enhancements later in the summer. In the meantime he is wedded to his Plan A and is likely to line item veto most or all of the changes proposed by the legislature. For more information on possible rulings and outcomes go to this Blue Jersey diary.  

Weak-Willed Quote of the Day

Paul Sarlo (D 36) Chair of the Senate Budget Committee says,    

“I know Democrats want to hear you talk about a millionaires tax. I want to be realistic… We could talk about it, we could do it, and [Christie] could veto it. All that does is put everything on hold.”

Legislative leaders should lead, not whine that Christie would reject their proposals. Christie respects strength not weakness. He has shown that on important matters he is willing to compromise in order to get part of what he wants. Most recently he compromised on Supreme Court nominations. Now he wants to renege on state contributions to the pension plan.

A Short Primer on NJ’s Budget

Governor Christie, who weighs his NJ responsibilities against his national ambitions, has been delaying his announcement as to how precisely he proposes to cope with a $2 billion plus shortfall in the current and next year budget. His knee-jerk reaction has been to slam the pension system, but the problem is broader. Some of the steps necessary are clear but painful and difficult politically. With a budget having to be “balanced” by June 30, the longer Christie waits the less press time available to air his dirty laundry and for the legislature to propose alternatives. The legislature, however, shares responsibility and must take more initiative.