pension contribution cuts

Top New Jersey Lawmaker Calls for Tax on Millionaires to Help Fund Pensions

A New Jersey court ruled last month that the state acted illegally in cutting its pension contributions over the last two years.

As a result, the state will need to pay its full contribution in 2015 – which means New Jersey will need to come up with about $1.6 billion that hasn’t yet been budgeted for.

In lawmakers’ search for new streams of revenue, one idea has come to the forefront.

New Jersey Senate President Stephen Sweeney is proposing a tax on millionaires.

The policy would boost the income tax on earnings over $1 million and could raise $600 million in revenue in its first year, but Gov. Chris Christie has historically been opposed to the measure.

Moody’s: New Jersey Pension Ruling A “Credit Negative” For State

A New Jersey Superior Court judge ruled this week that Chris Christie acted outside the law when he cut the state’s pension contributions $2.4 billion over two years.

That means, pending appeal, the state will be making its full contribution in 2015 – a development that hasn’t yet been budgeted for.

So while the ruling was good news for the state’s underfunded pension system, the decision is a “credit negative” for the state itself, according to Moody’s.

From NJ.com:

The flexibility of the state’s pension payment has been “a tool essential” to balancing the budget, Moody’s Investors Service said. Putting limitations on that amounts to a “credit negative.”

“Going forward, making the full pension contribution would incrementally improve the pension funding position, but would significantly increase budget pressure by reducing the state’s ability to fund other programs and potentially challenge the state’s liquidity,” Moody’s said.

[…]

“While it remains unclear whether the payment will be increased in fiscal 2015, a $1.6 billion obligation would comprise nearly 15 percent of the unspent budget,” Moody’s said.

A credit negative assessment doesn’t suggest a rating or outlook change — which could affect New Jersey’s interest rates — is imminent, but rather assesses the impact of a single event, Moody’s said.

Since the full pension payment isn’t budgeted for, lawmakers are worried that “devastating” cuts will have to be made in the current budget.

The situation might have been avoided had the state taken the same approach as Illinois in 2013.

When Illinois passed it’s pension overhaul it didn’t count the savings in the budget — because it knew a legal challenge was imminent.

Photo By Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Judge Hears More Arguments Thursday In Fight Over New Jersey Pension Payment Cuts

A Superior Court judge on Thursday will hear the latest round of arguments in the battle between New Jersey and public-employee unions.

The unions are suing the state after Chris Christie cut the state’s pension contribution by nearly $1.5 billion and used the money to over shortfalls in the general budget.

From NorthJersey.com:

If Judge Mary Jacobson rules against the Christie administration and orders the larger payment to be made, it could force the governor and lawmakers to come up with more than $1.5 billion in revenue midway through the state fiscal year or make new cuts.

The pension system is worth $80 billion and covers roughly 770,000 current and retired employees. But for years, governors, including Christie, have skipped or made only partial contributions into the system, leaving it funded at only 33 percent.

Unions that represent teachers, firefighters, state police and other public employees are arguing that a state law signed by Christie in 2011, which overhauled the pension system, also included a contractual obligation that the larger payment would be made.

Hetty Rosenstein, state director of the Communications Workers of America, one of the unions in the lawsuit, said the language in the 2011 legislation was framed specifically in response to prior court rulings on the pension funding issue.

“I think we’ve made a compelling case,” she said.

Administration attorneys have countered that the governor is required by the state constitution to maintain a balanced budget, giving him the authority to effectively ignore the law that calls for the larger payments if he needs the money to fulfill his constitutional responsibilities.

The pension reform law signed in 2011 mandated that New Jersey contribute a certain amount of money to the pension system each year.

But when the state faced a revenue shortfall of $1 billion in 2014, Christie made the decision to cut the state’s pension payment and use the money to fill the budget shortfall.

Kansas Seeks to Study Pension Privatization

Kansas Gov. Sam Brownback’s team is reportedly exploring options to improve the long-term sustainability of the state’s pension systems.

One option on the table: privatization.

From the Associated Press:

Two top aides to Republican Gov. Sam Brownback proposed Friday that Kansas study privatizing the pension system for teachers and government workers.

Budget Director Shawn Sullivan and Secretary of Administration Jim Clark told a joint legislative committee on pensions that “reform options” for bolstering the public pension system’s long-term health should be examined. Their list included converting pension benefits into annuities managed by a private insurer.

“It’s an idea worth pursuing,” Sullivan said after presenting the proposal to lawmakers.

The committee urged Brownback’s aides to gather more information about private companies’ experiences with such moves and present it once legislators open their next annual session Jan. 12.

[…]

Clark said with converting pension obligations into annuities, a private company assumes the long-term financial risks for a fee, while the state can provide competitive benefits at a lower cost.

At least one lawmaker and one union leader weighed in on the idea. Reported by AP:

Rep. Steve Johnson, an Assaria Republican, said the idea has merit, but, “I am not optimistic that there would be a buyer of that liability at a lower cost.”

And Rebecca Proctor, interim executive director of the largest union for Kansas government employees, said private companies’ need for profits would compete with the pension system’s drive “to generate benefits for employees.”

“Any time you put a profit motive in a state service, it’s a problem,” she said.

Last week, Gov. Brownback proposed cutting the state’s pension payment by $41 million to plug budget holes elsewhere.

Photo credit: “Seal of Kansas” by [[User:Sagredo|. Licensed under Public Domain via Wikimedia Commons

New Jersey Senate Fails to Overturn Christie Veto of Bill Changing State Pension Contribution Schedule; Would Have Made Cutting Payments More Difficult

The New Jersey Senate attempted but ultimately failed on Thursday to override Gov. Christie’s veto of a bill that would have altered the schedule on which the state pays its annual pension payments.

The amended schedule would have made it more difficult for the state to cut its pension contributions in the future. The bill was proposed after Gov. Christie cut the state’s pension payments by over $2 billion to plug revenue shortfalls in the general budget.

From NJ.com:

The bill (S2265) would have required the governor to make pension payments quarterly in July, October, January and April, instead of at the end of the fiscal year in June.

Sen. Robert Gordon (D-Bergen) said that spreading the payments out could have increased the likelihood the state would make its contribution.

Legislators introduced the measure following Christie’s move to balance the budgets ending in June and beginning in July by withholding $2.4 billion from planned pension payments when gross income tax collections came up short.

In his veto of the bill, Christie called it “an improper and unwarranted intrusion upon the longstanding executive prerogative to determine the appropriate timing of payments” so those expenditures line up with tax collection cycles.

“Simply wishing in a law that sufficient funds will be available on specific future dates does not change the fiscal realities of revenue collection during the course of a 12-month year,” he said.

While the bill easily passed in both houses — 36-3 in the Senate and 62-13 in the Assembly — Republicans weren’t expected to go along for the override.

The Democratic-controlled state Legislature has never won a veto override, in part because the Republicans who vote with the Democrats decline to override and risk crossing Christie.

The vote failed 25-12.

Read the bill here.

Photo credit: “New Jersey State House” by Marion Touvel – http://en.wikipedia.org/wiki/Image:New_Jersey_State_House.jpg. Licensed under Public domain via Wikimedia Commons

Pension Funds Sue Chris Christie Over State Contribution Cut

New Jersey’s three largest pension funds filed a lawsuit against New Jersey Gov. Chris Christie on Wednesday for slicing the state’s required pension contribution by $900 million in 2014.

The complaint can be read here.