Burgos v. New Jersey

The State’s public pension systems were defined-benefit plans, which guaranteed participants a calculable amount of benefits payable upon retirement based on the participant’s salary and time spent in the pension system. In 2011, with the enactment of L. 2011, c. 78 (Chapter 78), the Legislature added language explicitly declaring that each member of the State’s pension systems "shall have a contractual right to the annual required contribution amount" and the failure of the State to make the required contribution "shall be deemed to be an impairment of the contractual right." A separate statutory provision, enacted earlier, required the State to increase its annually required contribution (ARC) beginning with fiscal year 2012 (FY12) over the course of seven years at increments of 1/7 of the ARC per year, until the contribution covered the full ARC. The State made the required contributions in FY12 and FY13, and the Appropriations Act signed into law for FY14 included the required contributions of 3/7 of the ARC. In February 2014, the Governor released the FY15 proposed budget, which also included funding to satisfy the State’s required payment (i.e., 4/7 of the ARC). On May 20, 2014, the Governor issued Executive Order 156, which reduced the State payments into the pension systems for FY14, explaining that the reduction was due to a severe and unanticipated revenue shortfall. Instead of paying the required 3/7 of the ARC contribution, which totaled $1.582 billion, the State made a total contribution of $696 million for FY14. The next day, citing new information that placed the State’s projected revenue at less than previous projections, the State Treasurer announced that the proposed budget for FY15 was being revised to reduce the amount that would be contributed to pension systems. The revised FY15 budget thus advanced would include a total contribution of $681 million, reflecting $1.57 billion less than what was required. Plaintiffs brought this action because the prior Fiscal Year (FY) 2014 and current FY 2015 Appropriations Acts did not provide sufficient funding to meet the amounts called for under Chapter 78’s payment schedule. Plaintiffs argued that Chapter 78 created an enforceable contract that was entitled to constitutional protection against impairment. The trial court issued a detailed and comprehensive opinion that granted summary judgment to plaintiffs on their impairment-of-contract claims and denied defendants’ motion to dismiss. The court accepted the argument that Chapter 78 created a contract and that the State’s failure to appropriate the full value of ARC in the FY15 Appropriations Act substantially impaired plaintiffs’ rights under the contract. In so finding, the court rejected arguments that Chapter 78 was unenforceable as violative of the Debt Limitation Clause, the Appropriations Clause, and the gubernatorial line-item veto power. The court did not order a specific appropriation, but rather determined to give the other branches an opportunity to act in accordance with the court’s decree. The Supreme Court reversed, finding that Chapter 78 did not create a legally enforceable contract that was entitled to constitutional protection. The Debt Limitation Clause of the State Constitution interdicted the creation, in this manner, of a legally binding enforceable contract compelling multi-year financial payments in the sizable amounts called for by the statute. View "Burgos v. New Jersey" on Justia Law