Today, the Supreme Court of New Jersey heard oral argument in this important case. The procedural history of the case is discussed here. The argument ran from just after 10 A.M. until 1:10 P.M., with just a short break in about the middle. Here are some highlights, though by no means a “blow by blow.”
The State’s opening statement argued that the allocation of scarce resources among competing needs is at the heart of the political process. Difficult decisions must be made, and must be made annually, not by the dictates of a particular Legislature or a court. Plaintiffs’ view runs afoul of several provisions of the New Jersey Constitution. In particular, the Appropriations Clause and the Veto Clause vest in the elected branches powers that cannot be divested by subsequent Legislatures or the courts. Plaintiffs’ view would place a fiscal stranglehold on the state in perpetuity, and would wrongly make the judicial branch a full partner in the policy decision as to whether there are sufficient funds to pay into pension funds. As a practical matter, plaintiffs’ position would allow the Legislature to dictate to subsequent Legislatures by labeling legislation a “contractual obligation.” Finally, the State argued, despite the economy, billions of dollars have been put into the pension fund, so no one is walking away from funding pensions.
Chief Justice Rabner began the questioning of the State by pointing to language of Chapter 78, the statute at issue, that referred to a contractual right. He asked what else the Legislature could have done to create a contract. The State’s answer was that no matter what language was used, the Legislature cannot contain a contractual obligation, at least not one that is not subject to appropriation. Whether a contractual obligation would arise in some case after money is appropriated is not before the Court. There is no contractual right here. The Chief Justice asked if the “contractual” language in Chapter 78 was “aspirational only.” The State said that it was.
Justice Albin, who throughout the argument appeared to be the most likely vote for plaintiffs, noted that the very proponents of this legislation had now come to the Court and asked that the legislation be declared unconstitutional, an unprecedented circumstance. He noted, as had the Chief Justice, that the statutory language says it created a contractual right. He asked if that was unconstitutional, and the State responded that i was to the extent it creates a legally binding right to a fixed amount every year.
Judges Fernandez-Vina and Cuff each asked, in somewhat different forms, whether the legislation was really a conditional agreement, assuming there are the revenues to support it. The State responded that this was the essence of its position. Justice Solomon too asked whether a contract was not formed until an appropriation was made, an idea that the State said might depend on the particular facts.
Justice Patterson then elicited a telling admission. She asked whether the evidence was that the Legislature and the Governor intended to create a contract when they passed Chapter 78. After first saying that intent was irrelevant, and being pressed again by Justice Patterson, the State conceded that “it would seem” from the use of the language of the statute that a contract was intended.
Justice Albin pretty much summed up his position by asking whether it was the State’s position that if the pension fund were to run dry because each Legislature decided not to fund it, ultimately the State has no obligation to pay public workers their pension? When the State responded that that scenario was not legally or practically before the Court, Justice Albin persisted, asking if that were the “logical endgame.” The State said that no one in the State is walking away from their obligation. The State also added that, in connection with the 1947 Constitution, unions sought a provision to guarantee payment of pensions, but the Framers rejected it. Justice Albin asked whether, in the final analysis, it was the State’s position that no one could enforce the obligation of the State to pay into the pension fund. The State agreed that no one could do so.
Justice LaVecchia asked why in this fiscal year was all “contract debt” paid, but not the pension contribution was not made. She observed that the State pays its contract debt because it fears the consequences in the marketplace. Why doesn’t that same fear result in similar treatment of this form of financial obligations? The State reiterated that decisions as to which things to fund or not fund are at the heart of the political process. They implicate fiscal, business policy concerns. In the exercise of that discretion, the State determined that failure to pay contract debt would have “Draconian consequences for the state as a whole,” while not making this payment wouldn’t affect the stability of the pension system.
Justice LaVecchia then analogized to the Abbott line of cases in the school funding context. There, as here, a formula was not being followed, as here. When she asked whether the State contended that the administration has the power to disregard the formula, the State said “Yes.” The Legislature is always free to disregard what went before. They can do “experimentation” with “what’s going to work.”
Justice Fernandez-Vina asked whether the State’s contribution to the pension fund and the requirement of Chapter 78 that employees pay more themselves were linked, or were consideration for each other. That issue, which goes to the severability of parts of Chapter 78 from each other, was also raised by the Chief Justice. The State said that the Legislature could have done this regardless.
There was much discussion of the Contracts Clause of the United States Constitution, under which contracts cannot be impaired unless there’s a reasonable and necessary justification. Justice Solomon, among others, asked what the test for that was, and how it could be applied as a practical matter.
After just over an hour, with all seven members of the Court having posed questions to the State, it was plaintiffs’ turn. They asserted that there was a contractual right that was impaired without justification. Neither of the two constitutional clauses defeat plaintiffs. Those clauses were designed to put State’s fiscal house in order, and so was this bipartisan legislation, which were intended to accomplish the purposes of those two clauses. There is no doubt that these funds will go bankrupt in the 2020’s if these contributions aren’t made. Chapter 78 was enacted specifically enacted to forestall that result.
Justice LaVecchia, joined by others, was incredulous at the idea that plaintiffs were arguing that every Legislature, into the indefinite future, was obligated by Chapter 78 to put a fixed amount into the pension. She asked why that is not a long-term obligation that is interdicted by the Debt Limitations Clause. Plaintiffs responded that that clause was designed to prevent states from borrowing huge sums and then defaulting, as happened early in the nineteenth century. But Justice LaVecchia said that the clause goes far beyond that, and she noted that even leases require appropriations to become binding. Plaintiffs responded that this was a unique case, very different from contracts created by parties such as landlords.
Justice Patterson asked whether, if plaintiffs win, and “all is not perfect fiscally in a few years,” whether the Court would have to analyze the competing budget considerations and decide what level of funding would be appropriate? When plaintiffs said “Yes,” Justice Patterson asked whether that would be an appropriate role for a court? Again, plaintiffs said “yes,” citing United States Supreme Court Contract Clause authority. Justice Patterson, probing further, asked whether there would effectively be budget presentations to a trial court, and then to an appellate court, and how that could be squared with the separation of powers. Plaintiffs emphasized that the courts have an important role in enforcing rights, citing the Abbott “thorough and efficient” education cases.” Unpersuaded by that, Justice Patterson noted that in almost two dozen Abbott cases, there has never been any evaluation of budget priorities and any decision about what is necessary in a given fiscal year.
Judge Cuff and the Chief Justice asked what the test is for a court to decide what is appropriate for evaluating a budget submitted by the Governor and passed by the Legislature. Justice Albin chimed in to say that the test is “is it reasonable and necessary?” Plaintiffs observed that Chapter 78 was designed to precisely to avoid the “doomsday scenario” of the funds going bankrupt and the court having to deal with that.
The Chief Justice and Justice LaVecchia led those who asked whether the Legislature can ever reduce payments for current employees without violating the Contract Clause? Plaintiffs said that the Legislature has the ability to change when an employee can retire, and that there are any number of other actions that can be taken. Even the State, plaintiffs argued, have said that pension payments by employees could be increased. But when Justice LaVecchia pressed plaintiffs as to whether they contended that subsequent Legislatures cannot change the State’s pension contributions, plaintiffs said “yes,” though they then clarified that the State could change the contributions if it is reasonable under the circumstances, in response to the Chief Justice’s hypothetical about a $5 billion payment that could not be funded.
There was then much colloquy about whether the Contract Clause is overridden by the Debt Limitations Clause, or vice versa. Justice Patterson encapsulated the State’s view on what the effect would be if plaintiffs prevailed. “it’s budgeting all over again” before the Court. “How can it not be?”
There was, of course, much more in the three hours of argument. In the end, plaintiffs may have Justice Albin’s vote. The other members of the Court had tough questions of both sides, and some of the Justices seemed more clearly to be leaning toward the State’s view. It may be that the Court will find an impairment of contract, though it also may well be that, despite that, the Court will find that not making the current year’s payment need not be made. There are many ways that the Court could go.