Incompetence at Emergency Levels in New Jersey

As reported by The Record, an opinion prepared by lawyers who work for the Office of Legislative Services (OLS) says that Governor Christie does not have the authority to close a budget shortfall in the fiscal year that begins July 1 by cutting the planned payment into the state pension system by $1.57 billion though he likely does have the authority to cut the pension contribution in the current fiscal year, which ends June 30, reasoning:

that Christie’s cut in the current fiscal year “may be warranted by necessity” given there is a $1 billion gap between revenue projections and actual tax collections, and there are only a few weeks left to close it.

Delaying the full payment just a few days into the new fiscal year “would be more defensible,” the opinion says.

But not making the full payment in the new fiscal year “would be found to violate the constitutional proscription against impairment of the obligation of contracts,” the opinion says.

The OLS had earlier opined that Christie could not invoke a ‘state of emergency’ to cut pensions concluding in their August, 2013 opinion:

the Legislature enacted the Disaster Control Act to authorize the Governor to act to protect the public health, safety and welfare during an emergency.  In order to legitimately exercise that authority the Governor must be addressing a “war emergency” resulting from enemy attack, or a “disaster” which is an unusual event resulting from natural or unnatural causes that threatens the public health, safety, or resources and which cannot be handled at the municipal level.

Let’s examine those requirements in this case where the “disaster” consists of not being able to afford to pay for promised public pensions because of faulty fiscal management.  By point:

  1. Is it resulting from natural or unnatural causes? YES – is this more legal prolixity since natural or unnatural causes pretty much covers all causes though not being a lawyer I may be missing something the lawyers are seeing (besides hourly fees)?
  2. Does it threaten the public health, safety, or resources? YES – having that word ‘resources’ in there again appears to make it all-inclusive.
  3. Can it not be handled at the municipal level? YES – Again based primarily on my experiences with Union County government – what can?
  4. Is it an unusual event: Sadly, NO

 

 

 

 

 

21 responses to this post.

  1. Posted by Anonymous on June 8, 2014 at 6:48 pm

    Governor used any excuse which suits him, however those excuses oppose one another. For instance, he says there is no need to make full pension payments because the pension system isnt in dire straits yet according to actuaries. Courts uphold this saying as long as state can pay those entitled to pensions there is no need to make payments into the pension system. Christie then says he doesnt have to make payments in a state of emergency. Funny it would seem that is when he would need to make the payments since now the state would not be able to pay those entitled to their pension check. Confusing? It is meant to be!

    Reply

    • That part actually makes some sense. The state of emergency is not that they don’t have the money to make pension payments (that comes in about 5 years when all the money is gone, even the employees’ own contributions) and need to default on pension payouts. That’s not yet the case. They still have $76.76 million in the fund (or they did as of 12/31/13 and that number has suspiciously not been updated possibly to avoid adjusting alternative investments down) so they can still pay pensions. The emergency is that they don’t have enough money to finish out the fiscal year and no other place to cut or come up with it so they need to take it out of the pension payment which basically means that the plan goes pay-go a couple of months sooner.

      Then we get to the confusing part. In order to keep from getting to zero assets sometime soon the governor is taking preemptive action by reducing benefits now (taking away COLAs for the moment) which would seem to be the criminal part of this deal.

      The reduction in the payment amount isn’t that big a deal since the governor apparently has an option: telling the actuaries to give him another number (80-year amortization of unfunded; 15% interest, etc.) but that would mean redoing the 7/1/12 valuation reports in a couple of weeks though I’m sure they could do it, for the right fee.

      Reply

  2. Posted by LGreene on June 9, 2014 at 12:17 am

    Solution seems simple. Detroit spun off its art collection for a contribution of 500MM. Surely NJ has some assets that it can privatize andspin off like Detroit. Also LACLippers just sold for 2B. Certainly NJ has a stadium, set of teams, or something that it can sell to worthy hedge fund managers that live in NJ?

    Reply

    • Posted by Tough Love on June 9, 2014 at 8:26 am

      NJ’s assets (just like like NYC’s Central Park) belong to ALL of it’s citizens to use and enjoy. Little different than cash, none of which should be used to fund excessive pensions & benefits granted Public Sector workers via self-interested horse-trading between the Public Sector Unions and our taxpayer-betraying elected officials.

      It’s time to end the charade that the impossible (full payment of these absurdly generous, unnecessary, unjust, unaffordable, pension & benefit promises) is possible.

      Reply

      • Posted by bpaterson on June 11, 2014 at 10:10 am

        so maybe they can sell the assets and lease them back for the people’s use?

        Reply

        • Posted by LGreene on June 11, 2014 at 4:06 pm

          There are lots of ways to raise the cash to pay for benefits while also restructuring benefits . The first step is to stop the madness and just making accusations . Detroit offers an interesting blueprint to restructure and refinance. Getting new monies into the system will help pay for benefits, and restructuring will help to reduce the costs.

          Reply

      • Posted by LGreene on June 11, 2014 at 3:49 pm

        It seems that you are assuming that ALL assets of the State are like Central Park etc. I would think that there are art collections ( many universities have these) and other assets (land, etc. ) that the State DOES own and can spinoff or finance etc. If Detroit could do it, then certainly the Great State of NJ can do it.

        The Sale leaseback idea is another idea that can be explored. … This should be done along with pension restructuring and reform..Whether your characterizations are accurate or not, Money will have to come from somewhere ( hopefully other than taxpayers) . There is not enough restructuring to make up for the years of underfunding , regardless of the accuracy or inaccuracy of your characterization.

        Reply

  3. Posted by Anonymous on June 9, 2014 at 6:53 am

    TL too inebriated to respond. Admitted recently that she drinks to much at times.

    Reply

  4. Precisely. Since it’s really about the 2011 budget, rather than make draconian cuts this is the moment to negotiate the transition to a 401k system. Part of that is a reduction in force with replacements hired with 401k plans.

    Reply

    • Posted by Tough Love on June 9, 2014 at 10:06 am

      Pension changes only for NEW hires will have VERY minimal financial impact until those new workers begin to retire 20+ years hence. We’ll never make it. NJ’s pension fund assets will hit ZERO within 5 years (per Mr. Bury in THIS blog post) and continued full pension payments under pay-as-you-go will likely require an $8-$10 BILLION tax increase.

      BOTH from a fairness standpoint (due to the unaffordable cost of the current grossly excessive promises negotiated with elected officials BOUGHT-OFF with Public Sector Union campaign contributions and election support) and the sustainability of these absurdly generous pensions, pension changes, AT A MINIMUM, must include AT LEAST a 50% reduction in the pension accrual rate for the FUTURE service of all CURRENT (yes CURRENT) workers.

      Of course, better yet would be (as you suggested for new workers), a hard freeze of the current DB Plans for all current workers (i.e., ZERO future growth), replacing them for future service with a 401K-style DC Plan with a modest Taxpayer “match” comparable to the 3% of pay that Private Sector workers typically get …. plus, for Public Sector workers not in Social Security, an additional 6.2% of pay (similar to the 6.2% of pay that Private Sector employers contribute into SS on their worker’s behalf).

      Public Sector workers rarely earn less in “cash pay” than their Private Sector counterparts, and their “Total Compensation” (cash pay + pensions +benefits) should be EQUAL TO, but NOT greater than their Private Sector counterparts.

      Reply

      • Briefly & recognizing political reality, pension reform framework IMO should include
        New hires 401k now
        Current workers – transition in a few years to 401k
        Pension payments – 1) absolute cap
        2) limiting formula for those with rapid increases.

        Cola – modified formula starting @ age 65

        Reply

        • Posted by Tough Love on June 9, 2014 at 1:12 pm

          Probably less than 1% of Private Sector Pension Plans get ANY annual COLA increases. With Public Sector workers RARELY funding more than 10-20% of the total cost of their promised pensions (INCLUDING the investment earnings on those contributions), and with the Taxpayers responsible for the 80-90% balance, why should taxpayers pay for COLAs for Public Sector worker pensions?

          Are they deserving of a better deal than those that pay their way?

          Reply

          • Posted by LGreene on June 11, 2014 at 3:52 pm

            Do you have any data or studies that supports these ideas on private sector COLAs’? or your statement on 10-20% INCLUDING the investment earnings?

      • Posted by LGreene on June 11, 2014 at 4:08 pm

        Where does it say that assets will run out in 5 years? Does this assume that the state and employees make ZERO contributions? 5 years seems like a short time horizon.

        Reply

  5. Posted by MJ on June 9, 2014 at 7:20 pm

    Why can’t the governor just order 10% cuts across the board and tell each and every department to “make due” Cut funding to schools and towns and tell them to “make due” without raising taxes. Ordinarily, I would not be opposed to small tax increases but we in NJ are being strangled to death with taxes. Kick all double dippers off the pension gravy train and get rid of all “retirees” who are still working double and triple jobs. Require the welfare queens and disability cheats to pay back some of their tax payer freebies and up retirement age to 65 asap for ALL current workers. No grandfatheirng nonsense. Oh and all those who move out of NJ so that their pensions won’t be taxed, find a way to tax it and put the revenue back into the fund.

    Reply

    • Posted by Tough Love on June 9, 2014 at 8:28 pm

      !0% across the Board cuts would REQUIRE many many staff cuts. While that is quite routine in the Private Sector when financial circumstances dictate, Governments everywhere are loath to cut staff ………. which is also why “mergers” among Gov’t entities are so difficult.

      Just like in the Private Sector, when Public Sector employers can afford fewer than those currently employed, we need to terminate the excess with contractually agreed upon severance pay …………… and NOT exacerbate out financial problems with very costly early retirement giveaways.

      Your best suggestion … “up retirement age to 65 asap for ALL current workers” ….. but let me add, with full actuarial reduction to pension payouts of 5%-6% PER YEAR for each year that you begin to collect your pension earlier than age 65. That would be a good start to ending the decades-long financial “mugging” of Private Sector taxpayers.

      Reply

  6. Posted by Dave S on June 9, 2014 at 9:51 pm

    The governor, legislature and unions, along with various others have to agree on something pretty much by the end of month. There are no perfect solutions and none that will make any of the players happy – but it is still a moment to hopefully address the structural budget problems in a meaningful way.

    Reply

  7. Posted by fouls123 on December 3, 2014 at 6:25 pm

    Obviously, taxes in the state are not high enough to meet obligations. Raise taxes and meet the obligations.

    Reply

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