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

New Jersey

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.

More from NJ Spotlight:

Senate President Stephen Sweeney (D-Gloucester) said [a millionaire’s tax] would help the state make “a good-faith effort” while giving public-worker unions an incentive to cooperate with government to make benefits more affordable.

“In my mind that means a millionaires tax, it really does,” Sweeney said in an interview with NJ Spotlight.

Though a bill hasn’t been crafted yet, he envisions something similar to the legislation lawmakers sent Christie last year that would have temporarily upped the income-tax rate on earnings over $1 million from 8.97 percent to 10.75 percent.

[…]

According to the Tax Foundation, a Washington, D.C.-based organization that tracks state tax policies, New Jersey’s 8.97 percent top-end income tax rate is the sixth-highest in the country, behind California, 13.3 percent; Hawaii, 11 percent; Oregon, 9.9 percent; Minnesota, 9.85 percent; and Iowa, 8.98 percent.

[…]

The New Jersey Office of Legislative Services, the nonpartisan research wing of the state Legislature, said last year when it analyzed Sweeney’s proposal that boosting the top-end rate on earnings over $1 million would generate an estimated $580 million to $615 million in the first year.

Another concern Christie raised last week was that increasing the tax rate on millionaires could send more of them packing to states that already offer lower income tax rates, or levy no income tax at all.

That’s because the top 1 percent of tax filers typically cover roughly 40 percent of the total income tax haul for New Jersey, according to Department of Treasury figures…

It’s likely that the majority of New Jersey residents would be supportive of a millionaire’s tax. In a 2014 poll by Monmouth University’s Polling Institute, 66 percent of residents said they supported a tax on high earners, with revenue going toward pension contributions.

 

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13 Unions to Sue New Jersey Over Reduced Pension Payments

Chris Christie

A judge ruled late last month that New Jersey Gov. Chris Christie acted outside the law when he cut state pension contributions by around $2 billion through FY 2015.

But the state will appeal the decision, and the full payments weren’t included in Christie’s recent budget proposal.

As a result, more than a dozen unions said this week that they will sue the state to force it to make its full contributions to the pension system.

From NJ.com:

More than a dozen unions today announced they plan to sue Gov. Chris Christie to force him to increase next year’s payment into the public worker pension system.

[…]

This lawsuit could be expected to mirror a suit filed last summer and decided just last week that argued those payments were contractually protected and Christie broke the law he signed when he slashed them.

“This governor’s continuing disregard for his own pension funding law leaves us no choice but to go back to court to resume this fight in court on behalf of hundreds of thousands of public-sector workers who make their full pension contributions and depend on the modest income they earn in retirement,” New Jersey State AFL-CIO President Charles Wowkanech said in a statement.

Christie would have to find an additional $1.7 billion in his $33.8 billion proposed budget to make the full $3 billion pension payment unions are demanding.

The lawsuit will specifically call for the state to make the full pension payment in 2015.

The state cut its 2014 payment as well, but successfully argued that the cut was the result of a fiscal emergency, and was therefore legal.

 

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

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

Chris Christie

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

New Jersey Lawmakers Warn of “Devastating” Budget Cuts in Wake of Court Pension Decision

New Jersey

A New Jersey Superior Court judge ruled this week that the state acted illegally when it cut its contribution to the state pension system in 2014.

If the state’s appeal of the ruling fails, it will have to come up with an additional $1.57 billion in 2015 in order to make its full payment to the pension system.

That money isn’t yet budgeted for – which means lawmakers will soon need to rearrange some items in the general budget to make space.

Lawmakers reacted this week to that steep price tag, warning of cuts that would come as a result. From NJ.com:

“The impact on programs at the end of the year would be devastating,” state Assembly Majority Leader Lou Greenwald (D-Camden) said. “The reality is we have to either make draconian cuts and make the payment…”

[…]

Assemblyman John Wisniewski (D-Middlesex) said Christie created the problem with his “duplicitous assessment of how to handle our pension obligations,” which included touting his 2011 overhaul of the pension system and telling workers that it saved their pensions, and then arguing in court that his own law was unconstitutional.

“He has an obligation to come up with a solution, since he is the one who came up with a solution that put us in this predicament in the first place,” said Wisniewski,

Assembly Minority Leader Jon Bramnick (R-Union), however, said it’s up to the Legislature to figure out what to cut now.

“All budgets are prepared by the Legislature,” he said. “So the court is saying to the Legislature you have to put this much money in the pension fund. So I’m assuming the governor will ask the legislature to come up with the program cuts that would be needed to find $1.6 billion.”

While the Legislature must pass budgets, it’s Christie who first proposes them.

Assemblyman Jay Webber (R-Morris), a member of the budget committee, said the payment Judge Jacobson ordered is about 5 percent of the budget.

“We have to be able to find it. And I think the other thing it emphasizes is we need a new round of reforms to our pension system,” Webber said. “We need to change those promises for new employees and employees who are far enough out from retirement that they can plan their retirements accordingly.”

The lawmaker reactions came before details emerged about Christie’s new pension reform proposals.

The savings realized through the proposals, if enacted, could make the cutting process easier for lawmakers.

 

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 – http://commons.wikimedia.org/wiki/File:New_Jersey_State_House.jpg#mediaviewer/File:New_Jersey_State_House.jpg

Christie Budget Will Contain Pension Cuts; Full Payment Not Yet Figured In Despite Court Ruling

Chris_Christie_at_townhall

New Jersey Gov. Chris Christie will give his budget address on Tuesday afternoon, and details are already leaking about what it will contain.

The governor’s office says that the budget will contain numerous pension proposals, including some that cut benefits for public workers.

Christie will also announce that he will begin negotiating pension changes with the state’s largest teachers union, the New Jersey Education Association.

One thing the budget won’t contain: the state’s full actuarially required contribution to the pension system. The budget calls for a $1.3 billion payment to the system, which is the largest in state history.

But the payment was supposed to be closer to $3 billion. Christie cut the payment last year by nearly $1.5 billion; a judge ruled yesterday that New Jersey must pay the full contribution, but the state is appealing the ruling.

More from the Associated Press:

New Jersey Gov. Chris Christie will propose a new round of major pension and health benefit cuts for public employees as he delivers his budget address Tuesday, a day after a judge ordered his administration to restore $1.57 billion in delayed payments to the state’s pension system.

Christie will dedicate his annual budget address to outlining the danger of the state’s spiraling pension and benefits costs and propose a series of changes based on a long-delayed study commission’s findings, according to guidance provided by the governor’s office.

Christie, who is considering a run for president in 2016, will also announce that the New Jersey Education Association — the state’s largest teachers union and long one of his main political foils — has signed onto a “road map” for further reforms. He’ll call on state lawmakers to join with him.

[…]

Christie is expected to propose a $1.3 billion payment into the pension system in fiscal year 2016 — a number his office is touting as the largest in history but which still doesn’t come close to the $2.25 billion that the earlier deal called for this year. Christie had been on board with the higher figure before cutting it back amid a surprise state revenue shortfall. The full payment for fiscal 2016 under the old agreement would have been around $3 billion.

New Jersey has the fourth largest pension liability in the country.

 

Photo by Bob Jagendorf from Manalapan, NJ, USA (NJ Governor Chris Christie) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Court: New Jersey Must Make Full Contribution to Pension System

gavel

A New Jersey Superior Court judge on Monday ruled that Gov. Chris Christie acted outside the law when he cut state pension contributions by more than $2 billion through fiscal year 2015.

Through FY 2015, the state’s scheduled pension contribution was $3.85 billion; but in an effort to divert funds to the general budget, Christie cut the pension payment down to $1.38 billion.

Unions sued him shortly after, alleging a breach of contract.

A judge now says Christie must make the full payments.

The full payments, however, are not included in Christie’s budget proposal. That’s because the state is appealing the ruling.

More from Reuters:

Superior Court Judge Mary Jacobson said New Jersey could not renege on its obligations to teachers, firefighters and police who sued the governor and state legislature, which is controlled by Democrats.

“The court cannot allow the State to ‘simply walk away from its financial obligations,’ especially when those obligations were the State’s own creation,” Jacobson wrote.

While New Jersey’s projected budget shortfall was “staggering,” the statute failed to adequately explain why the cuts were reasonable, the court said.

Christie spokesman Michael Drewniak said the governor would appeal.

“The Governor will continue to work on a practical solution to New Jersey’s pension and health benefits problems while he appeals this decision to a higher court where we are confident the judgment of New Jersey’s elected officials will be vindicated,” Drewniak said in a statement.

Damon Silvers, director of policy and special counsel for the AFL-CIO union, which was one of the plaintiffs, said the decision “reinforces what should be black letter law, pension promises by government to the people who work for government are real contractual obligations that must be honored and must be funded.”

Under new GASB accounting rules, New Jersey’s pension system is 44 percent funded.

 

Photo by Joe Gratz via Flickr CC License

New Jersey Lawyers: 2011 Pension Reforms Invalid, State Doesn’t Have to Contribute to Pension System

New Jersey

New Jersey’s lawyers argued in court yesterday that Chris Christie was acting legally when he cut the state’s pension contribution last year by over $1 billion.

They argued that it didn’t matter that the state’s 2011 pension law – signed by Christie – mandated full pension payments from the state, because that law is unconstitutional.

More on the arguments from NJ.com:

A lawyer for the state argued today that Gov. Chris Christie cannot be forced to make full pension payments because the 2011 law committing him to fully fund the state system in exchange for union concessions was unconstitutional.

Interrupting the assistant attorney general, Superior Court Judge Mary Jacobson said the state’s case suggest that 2011 promise was “a hollow commitment.”

“You’re saying it should have been known at the time that it was a false promise,” Jacobson asked. “You’re saying that from the get-go, this statute, the requirement to make these contributions was void.”

[…]

Attorneys for the state said that the contract was unlawful from the start because the state cannot be obligated to any spending unless it’s approved by the voters — barriers imposed through the debt limitation clause and appropriations act.

Much of today’s arguments centered on whether the 2011 law conflicts with those restrictions.

The contract would interfere with the Legislature’s discretion over how the state spends its money, lawyers for the state said, and the state can’t be obligated to debt unless it’s approved by the voters.

Jacobson was skeptical of the state’s arguments that the appropriations act and debt limitations clause would trump the contracts clause, which appears in both the state and federal constitutions.

But, the state countered, the appropriation and debt limitation measures apply to the formation of contracts, while the contract clause applies to the enforcement of contracts.

In 2014, Christie cut a total of $2.4 billion in state payments to the pension system and used the money to cover revenue shortfalls elsewhere in the budget.

 

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

New Jersey State House

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.

 

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Pension Funding May Be First Fight of 2015 for New Jersey Lawmakers

Chris Christie

At some point in 2015, pension reform will become a hot topic in the New Jersey Legislature. The only question is when the battle will heat up.

From the looks of things, the fight over pension reform could begin sooner than later.

From New Jersey 101.5:

Funding New Jersey’s public employees’ pension system could be the first major fight in 2015 and it will likely pit long-time allies against one another. Gov. Chris Christie is calling for new reform, but state Sen. President Steve Sweeney (D-West Deptford) has drawn a line in the sand and said he will support further reform.

“He (Christie) has to fund it. We actually did the things that were necessary to fix it. He needs to fund the pension fund,” Sweeney said. “No matter what changes you make to a pension system, if you don’t meet the financial needs of it at the same time – no fix will work.”

The law required the state to contribute $1.6 billion into the pension system last fiscal year, but Christie paid in only $696 million. He signed an executive order to enable the lesser payment. The payment for this fiscal year was to be $2.25 billion, but the governor said he’ll contribute $681 million.

The governor must make the full $2.25 billion payment this year, according to Sweeney, who acknowledged it will be difficult.

“It’s going to put a lot of pressure on the budget, but we knew it. The big picture here is the lack of growth in the economy and he’s been the governor for five years now so he can’t point fingers at others,” Sweeney said.

[…]

Last fall, Christie began making his case for pension reform. He said it is an important, long-term project.

“It’s something that we can’t ignore because it will first crowd out any other type of investments the state wants to make in important projects around the state, and it will then ultimately bankrupt the state,” Christie said.

Gov. Christie has made it clear that reforms would likely mean further benefit cuts.

Sweeney, on the other hand, is pushing for a funding solution that involves more state money going to the pension system.

 

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

New Jersey State House

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.

 

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