Contracts, Schmontracts, As Long As I’m President

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The State Attorney General filed a reply brief in the pension payment case that basically came down to viewing “contracts” as trite anachronisms when at one time:
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Below are excerpts from that brief:

Respondents ignore two critical issues fatal to their claim and make three key concessions.  The “contractual right” Respondents seek to enforce was, as a legislative enactment, always subordinate to the Appropriations, Veto, and Debt Limitation Clauses (the “fiscal clauses”) The Legislature cannot, through a statutory enactment, create a contract that restrains the constitutionally enshrined power of future legislators to appropriate funds and of future governors to line-item veto appropriations. Nor can the Legislature create an obligation for payments spanning decades without the consent of the State’s citizens. These basic precepts and limitations on legislative enactments are at the core of our constitutional structure, and Respondents’ arguments cannot change that truth.

By the reasoning of Respondents and the court below, the elected branches can permanently impound substantial portions of every annual budget in the absence of a mandatory constitutional requirement. As more of these statutory “contracts” are created, less of the annual budget will be available for the State to meet other important public needs that broadly support the health, safety, and welfare of all New Jersey residents. Future legislatures will find themselves locked into the spending priorities of their predecessors, leaving unmet the needs of future citizens. Affirming the decision below would place this Court’s imprimatur on a legislative technique for permanently impairing the State’s financial liquidity.

Contrary to Respondents’ claims, the State is not abandoning the pension system. If the Legislature adopts the Governor’s recommended FY16 pension ‘payment, the State will have contributed $4.2 billion to the pension system over the past five years. *

Respondents repeatedly cite depletion dates as impending threats that warrant the evisceration of the fiscal clauses of the Constitution.  Depletion dates are based on changing and debatable actuarial assumptions. The GASB 67 predictions upon which Respondents rely use methods radically different from those statutorily-mandated in this State. **

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* With benefit payouts over that 6 year period having been about $50 billion.  The state IS desperately trying to abandon the pension system.

** Which is the best argument yet that the state has been using dodgy assumptions for decades (that GASB rules now expose) which was the primary cause of the funding problem exacerbated into a disaster by recent willful refusals to put in anything near reasonable contributions to fund contracted benefits.

22 responses to this post.

  1. Posted by Tough Love on April 24, 2015 at 11:59 pm

    While I found Christie’s statement …

    “The GASB 67 predictions upon which Respondents rely use methods radically different from those statutorily-mandated in this State. **”

    objectionable and misleading, as you pointed out in your double asterisk explanation (just below), I disagree with your conclusion that ……. doggy assumptions is the primary cause of the funding problem. It’s not. The primary and “Root Cause” of the funding problem is the granting of these grossly excessive Public Sector pensions in the first place. The doggy assumptions followed that Root Cause in order to make the numbers work (…… for a time).

    ** Which is the best argument yet that the state has been using dodgy assumptions for decades (that GASB rules now expose) which was the primary cause of the funding problem exacerbated into a disaster by recent willful refusals to put in anything near reasonable contributions to fund contracted benefits.

    Reply

  2. Posted by george on April 27, 2015 at 3:35 pm

    Contracts with the government are not the same as contracts between the governed.

    The question in my mind is if Federal courts will rule against the State of NJ and if the State of NJ refused to comply with Federal court rulings what the FedGov response would be.

    8 Reasons We Don’t See More Chapter 9 Bankruptcies
    http://www.law360.com/articles/600041/8-reasons-we-don-t-see-more-chapter-9-bankruptcies

    Reply

    • Posted by BH on April 27, 2015 at 6:32 pm

      This is at the NJ state Supreme Court. It needs to go through this process…. Doubt this will ever see a federal court room……
      What is interesting…. Is if the court does say the employees have a right to funding of the pension…. And the legislature passes a budget with the payment… In full… And he yet again line item vetos… Can the state employees now seek federal legal assistance?

      Reply

      • Posted by Tough Love on April 27, 2015 at 9:03 pm

        Quoting from a recent NJ(dot)com article …

        ” From his attitude at these town halls, Christie look like he would relish a showdown with the court, the unions and the Democrats.

        He’s unlikely to get that showdown. Past courts have punted on past pension-fund showdowns for the reason Carroll cited: No court wishes to issue an order that can’t be enforced. And there is no way Christie could come up with that money by the June 30 deadline.

        But suppose the court were to issue such an order applying to the budget for fiscal 2016, which begins July 1. That’s another hanging curveball, said Carroll.

        Christie could simply point to Senate President Steve Sweeney and Assembly Speaker Vincent Prieto and tell them the ball’s in their court. If the Democrats want to make a couple billion dollars worth of cuts elsewhere in the budget, Christie could sit back and take credit for those budget cuts – always a good thing in Republican circles.

        But if they propose tax hikes, Christie could veto them. Again, Republican primary voters would clap their hands. But what would happen to the court’s order?

        Well, then we get a constitutional crisis, one long overdue in the eyes of the other Mike. Doherty has long been questioning just where the court gets the power to tell the executive branch how to spend state money.”

        Reply

        • Posted by BH on April 27, 2015 at 9:37 pm

          The democtats did propose a budget which required the full pension payment already…. It was there… Fully funded. Christie, using the line item veto, slashed the pension payment. The ball was in their court, they played it… Christie broke a law he championed!! How does that even happen?? Let’s forget for one second there’s an issue with the state pension…. How can he be allowed to break a law he signed?

          Reply

          • Posted by Tough Love on April 27, 2015 at 10:11 pm

            By calling the Law unconstitutional …. which is way it’s in the Court’s hands now.

        • Posted by BH on April 27, 2015 at 9:49 pm

          And, I don’t read it as the courts telling the state how to spend its money. It’s, instead enforcing law. Pay the legally required bills that you promised. Chapter 78 spells out the payments..1/7th at a time. There’s also a clause that states if the state fails to pay, public employees can sue, which is what they are doing.
          My question is… And let’s not take sides and let’s pretend the pension are all funded at 100% and all is equal and fair… We all are happy……
          How can a governor sign a law…. And then break his own law? Have we become so blind as a people to not see when we are being lied to?
          It can’t be one way for politicians and another for the people!!! If I fail to pay my mortgage, car payments, electric bill or landscaper…. Bad things happen. But if our politicians don’t pay…. All is ok????
          So, either he made the law knowing it was illegal…. Which is arrogant and treason.
          Or, he was dumb enough to not know it was legal which is incompatant. Either way….. It’s wrong!!

          Reply

          • Posted by Tough Love on April 27, 2015 at 10:19 pm

            Quoting … “And, I don’t read it as the courts telling the state how to spend its money. It’s, instead enforcing law.”

            Semantics. He’s saying that he doesn’t have the extra $2 Billion for the pension payment because …………. if he WERE to make that payment he has 2 untenable choices… (a) raise taxes to an untenable level, or (b) cut service to an untenable level. And arguably, a Court ordering such payment, is telling the State how to spend it’s money.

            This is going to be REAL interesting as it unfolds. I particularly liked the point made in the NJ(dot)com article where the author stated …. “No court wishes to issue an order that can’t be enforced. “

          • Posted by Tough Love on April 27, 2015 at 10:46 pm

            Quoting …”And let’s not take sides and let’s pretend the pension are all funded at 100% and all is equal and fair… We all are happy……”

            Excuse me …….

            You and I have argued at length over whether the “cause” of NJ’s pension mess is underfunding (your position), or grossly excessive Public Sector pension formulas & provisions (my position being THAT as the ROOT CAUSE).

            My position is based on 2 things. First, that a reasonable goal for Public Sector “Total Compensation” (wages + pensions + benefits), is a level EQUAL to what a comparable job would pay in the Public Sector, and second, that with “wages” near equal in the Public/Private Sectors in NJ, there is no justification for ANY greater Public Sector pensions & benefits, let alone the current structure under which Public Sector pensions & benefits are MULTIPLES GREATER IN VALUE at retirement than those of their Private Sector counterparts.

            One would have to be stupid, blind, illiterate, or simply a liar to not admit that Public Sector pensions & benefits are FAR FAR more generous.

            Even IF NJ’s pensions were 100% funded … and even if under honest accounting treatment, not using the current phoney procedures & assumptions structured to make Public Sector pensions look less costly than they really are …… that would not change the promised pension BENEFIT levels, which would remain in my opinion grossly excessive.

            There is simply no justification for these outsized Public Sector pensions and extraordinarily generous benefits. Even if we could find sufficient money to fund them, there are MANY better ways to spend it …. increased targeted education spending, job training, infrastructure maintenance and improvement, care for the elderly and infirm, REDUCED Taxation, etc ….. than unnecessarily over-compensating our Public Sector workers.

  3. Posted by BH on April 27, 2015 at 10:26 pm

    I predict the superior court agrees with the lower court and says the bill must be paid…. Whether or not this can be enforced and how is the true interesting part.

    Reply

    • Posted by Tough Love on April 27, 2015 at 11:03 pm

      I’m betting on some sort of “negotiated deal” as neither side (Christie or the Courts) want to run the risk of being “all-in” and end up looking like a fool.

      Reply

      • Posted by BH on April 28, 2015 at 8:07 am

        And yet, you won’t simply answer my question above…..

        Reply

        • Posted by Tough Love on April 28, 2015 at 10:58 am

          Which question ?

          Reply

          • Posted by BH on April 28, 2015 at 11:56 am

            Quoting…,”Christie broke a law he championed!! How does that even happen?? Let’s forget for one second there’s an issue with the state pension…. How can he be allowed to break a law he signed?”

          • Posted by Tough Love on April 28, 2015 at 12:29 pm

            BH, I responded to that above. Here is my earlier response:
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            By calling the Law unconstitutional …. which is way it’s in the Court’s hands now.

  4. Posted by BH on April 28, 2015 at 4:25 pm

    TL….. How can he champion a law… Go across the nation saying how he fixed the pension through bipartisan deals and then go and break that same law he signed?
    By saying it’s unconstitutional??? That’s the answer?? That sits ok with you??? You come across as a very knowledgable if jaded person and yet this scanerio is ok with you?? Where does it end if he doesn’t have to follow the very law he created?? Do as I say, not as I do?

    Reply

    • Posted by Tough Love on April 28, 2015 at 6:34 pm

      No it does not sit “OK” with me …….. but while I’d guess when he cut the 2011 deal he thought that the economy would recover MUCH more than it has, and that “AVAILABLE” revenue would be sufficient to meet the 7-year-grade-in to full ARC payments.

      Now let’s not kid ourselves, anyone well versed in pension design and funding (including myself and certainly Mr. Bury) knew at the time that the 2011 “reforms” were FAR to little … but perhaps Christie did not, or perhaps he felt that that deal was the best he was going to get.

      Fast forward to 2014/2015 ….. and NJ’s economy is still in the toilet and we simply do not have the revenue to meet the ARC-funding schedule agreed to in 2011, and it is now even FAR more apparent that the 2011 “reforms” were inadequate and MUCH deeper pension/benefit reductions are needed to get our house in order….. ask Mr. Bury if you don’t believe me.

      I understand that you want your family members to get all that they were “promised”, but:

      (a) they were promised far too much …. MULTIPLES greater than what comparable Private Sector workers get from their employers … and pay a VERY small share of the total cost (you can ask Mr. Bury about that as well).
      (b) we don’t have the revenue to honor those promises (CERTAINLY for continued pension accruals under the same formulas & provisions, and very likely for a material share of PAST service accruals as well).
      (c) It is both Legal and ROUTINE for Private Sector Plans to reduce (or freeze) FUTURE Service pension accruals for current workers. No less is needed now for PUBLIC Sector Plans in NJ.

      Blaming Christie for failing to honor “promises” for which the money to do so does not not (nor will it ever) exit is being unrealistic and a foolish waste of your time.

      Reply

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