In a surprise move of the New Jersey Supreme Court this morning, the court overruled a lower court decision that required Governor Chris Christie to fully fund deposits to the state pension funds, previously cut by the Governor in his annual budget. Last year, the Governor cut $1.5 billion in funding for pensions from his proposed budget, causing state labor unions to sue for restitution. The unions argued that the Governor was compelled to provide the funding as part of a negotiated settlement with the unions in 2011.
Today's decision reverses the lower court action, with the State Supreme Court ruling that the Debt Limitation Clause of the State Constitution does not recognize or support a multi-year binding commitment to fund public employee pensions, as so argued by the unions and upheld by the lower court. While this ruling may give the state some interim budget relief, it's pension funding obligations remain daunting.
In 2014, the State provided just under $700 million in cash contributions to its employee pension fund. An additional $2.8 billion was spent on employee health care benefits. The total of roughly $3.5 billion represents more than 10% of state budgeted expenses for the year. Despite this significant investment in shoring up its benefit plans, the state will still underfund its statutory annual funding obligations by nearly $3 billion.
To fully fund its requirement, just to keep pace with current accrued pension costs - and with no effort to catch up on prior underfunding - would require $6.5 billion. The state now faces a $90 billion shortfall in its employee benefits funding - $37 billion in pension costs and $53 billion in unfunded health benefits - three times the size of the state budget.