Jacobson’s Decision

Mercer County Superior Court Assignment Judge Mary C. Jacobson’s decision in Burgos ran to 129 pages (including 40 pages on the history of the Debt Limitation Clause) and is well worth reading in its entirety but if you want highlights:

BURGOS V. NJ 2/23/15
PAGE 6-7
The Appellate Division, interpreting that language, found that there was a contractual right under the pension laws for public employees to receive pension benefits in retirement, but no contractual right to State funding to support the actuarial soundness of the teachers’ pension system. Ibid. After that decision was issued, the Legislature enacted Chapter 78, which amended the pensions statutes to include the unprecedented language at the center of the current dispute that cloaks the State’s obligation to address the actuarial soundness of the pension system in constitutional protections.  Now, for the first time, Chapter 78 expressly provides that members of the public pension systems “shall have a contractual right to the annual required contribution amount being made by the member’s employer or by any other public entity.” N.J.S.A. 43:3C-9.5(c)(2); see also Berg, supra, 436 N.J. Super. at 240 (describing these events). The statute also specifically provides that, “The amount of the State’s annually required contributions shall be included in all annual appropriations acts as a dedicated line item.” N.J.S.A. 43:3C-9.5(c)(1).

PAGE 11-12
Moreover, the Legislature further emphasized the necessity of making the annual payments by deliberately modifying the provision of the statute that had reserved the right of the State to change the retirement systems by adding that, “The rights reserved to the State in this subsection shall not diminish the contractual rights of employees” created by Chapter 78. N.J.S.A.   43:3C-9.5(e). The clear intent of this language was to insulate the State contributions into the pension funds from the vicissitudes of the political process that had placed the integrity of the funds in significant jeopardy in the past. Indeed, the Governor himself characterized this pension legislation as constituting “historic reforms” that “bring to an end years of broken promises and fiscal mismanagement by securing the long-term solvency of the pension and benefit systems.” Press Release, New Jersey Leads the Way with Landmark Bipartisan Pension and Health Benefits Reform (June 23, 2011), http://www.state.nj.us/governor/ news/news/552011/approved/20110623d.html.

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Vested participants who became members of the systems before May 21, 2010, obtain a “non-forfeitable right” to receive benefits when they earn five years of service credit in the retirement system. N.J.S.A. 43:3C-9.5(b).

PAGE 32
The implication in both Spina and NJEA, however, is that the Legislature could create such a contractual right if it used unmistakable language demonstrating its intent. Moreover, shortly after the NJEA decision was issued and in obvious response to it, the Legislature enacted Chapter 78, which expressly states that members of the public pension systems “shall have a contractual right to the annual required contribution amount being made by the member’s employer or by any other public entity.” N.J.S.A. 43:3C-9.5(c)(2). This recent statutory amendment has thus superseded the contrary holding by the Appellate Division in NJEA, supra, 412 N.J. Super. at 205, and the earlier decision of the New Jersey Supreme Court in Spina, supra, 41 N.J. at 400.

PAGE 43
Rather, this historical gloss suggests that the framers intended for the [Debt Limitation] Clause to ensure that the Legislature engage in the ultimate form of fiscal responsibility: that the State make good on its prior commitments before taking on new ones.

PAGE 99-100
Having concluded that neither the Debt Limitation Clause nor the Appropriations Clause bars the contractual right contained in Chapter 78, and that the statute’s contractual right also does not impinge upon the Governor’s constitutional veto power, the court will now consider whether the State’s failure to make the full ARC payment to the pension funds for FY 2015 constitutes a substantial impairment of plaintiffs’ constitutionally-protected contract rights.

PAGE 106-7
The State also claims that the health of the pension system has not been negatively affected by the Governor’s decision not to make the State’s full payment for FY 2015. Defendants’ assertions on this point are based largely on the certification of John D. Megariotis, Deputy Director of Finance, Division of Pensions and Benefits. Mr. Megariotis certifies that if the State returns to its regular annual payment schedule including the full ARC payments in the future, then the deferral of the 4/7ths UAAL payment this year “will not materially impact the health or stability of the pension system.” Megariotis Cert., Def. App., at 518. Defendants’ argument about the health of the fund is premised on the assumption that the State will return to its full payment schedule in FY 2016. Unsurprisingly, the Governor does not make any promises that the budget for FY 2016 will include a full payment for the pension systems. The court is unwilling to rely on what has now become a succession of empty promises.

PAGE 117
Based on the evidence before the court, at best, the State executive defendants’ justification for FY 2015 appears to be that they have no responsibility to explore funding options for the UAAL with the Legislature in an effort to effectuate a compromise. In addition to the testimony of Mr. Sidamon-Eristoff and the Governor’s veto message, the State provides certifications from Mr. Sidamon-Eristoff; Ms. Charlene Holzbaur, Director of the Office of Management and Budget within the Department of the Treasury; Mr. Roger Cohen, Director of the Office of Revenue and Economic Analysis and Assistant Treasurer; and Mr. John D. Megariotis, Deputy Director of Finance, Division of Pensions and Benefits. None of the certifications give evidence that alternative courses of action that would allow increased payments to the UAAL were carefully considered. And none of the certifications propose any funding mechanism that could provide appreciably more money for the ARC than the normal cost for FY2015.

PAGE 123-4
Finally, defendants argue that if the court orders that plaintiffs have a contractual right to pension payments, the court should give future effect to its holding to avoid disrupting the FY 2015 budget at a time eight months into the fiscal year. v. McGreevey, 180 N.J., 590, 599 (2004), in which the Court invalidated the FY 2005 Budget Act because it relied on bond sales in order to balance income with the year’s expenditures. Holding that bond debt cannot be considered income for the purposes of the Appropriations Clause, the Court applied its ruling prospectively to avoid the disruption that would inevitably result from “significant revisions to, if not a complete overhaul of, the current fiscal year’s budget.” Ibid. However, Lance can be distinguished because the Court in that case was not faced with an action alleging an impairment of a constitutional right.

PAGE 126-7
Although the end of the fiscal year is just over four months away, it is conceivable that there may be revenue available between now and the end of the fiscal year, when the pension fund payments are due, that could be directed to the UAAL. The State will not know for certain whether this year’s tax revenues will exceed what was estimated in the FY 2015 Appropriations Act for a few more months. If revenues do exceed what was anticipated in the Appropriations Act, those funds may be available to increase contributions to the pension funds. The court cannot allow the State to simply turn its back on its obligations to New Jersey’s public employees–especially in light of the fact that the State’s failure to make its full payment constitutes a substantial blow to the solvency of the pension funds in violation of plaintiffs’ constitutional rights, and due to the fact that the terms of the UAAL payments were set forth–and even publicly endorsed–by the Governor himself. In short, the court cannot allow the State to “simply walk away from its financial obligations,” especially when
those obligations were the State’s own creation.

And Finally:
The court acknowledges that plaintiffs are prevailing parties and entitled to counsel fees under N.J.S.A. 43:3C-9.5(c)(2). The court’s order provides dates for submission of plaintiffs’ application for fees by plaintiffs’ attorneys.