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Labor Relations News and Views

Interest Arbitration
and $100,000 Salaries

Gerald Dorf, Esq.
By Gerald L. Dorf, Esq..
League Labor Relations Counsel
2008 by Dorf & Dorf, P.C.

In 1977, the New Jersey Employer-Employee Relations Act (which had been adopted in 1968) was amended to provide for interest arbitration as a statutorily imposed terminal step in the collective bargaining process for police and fire personnel as defined by the Act. Subsequently, the Police and Fire Interest Arbitration Reform Act (L.1995, c.425) was signed into law by Governor Christine Todd Whitman and became effective on January 10, 1996. More recently, the New Jersey State Legislature, on April 3, 2007, approved Assembly No. 1, which added a ninth factor to the previous eight to be considered by an arbitrator in rendering a decision in interest arbitration cases. Thus, we now have three of the nine factors (factors 1, 5 and 9) all dealing with referencing in one way or another, the Cap Law.

Despite the Cap Law limitations of generally 2.5 percent for most municipalities (which can be increased to 3.5 percent by an act of the Governing Body), arbitrators continue to award salary increases in police and fire interest arbitration that average 3.77 percent from January 1, 2007 through December 31, 2007. In addition, for the same time period, average salary increases of 3.97 percent have been reported by the Public Employment Relations Commission (PERC) of voluntary settlements (i.e., cases submitted to interest arbitration which were settled generally with the aid of the arbitrator). It would appear that public sector employers anticipating arbitrator awards of nearly 4 percent have, in these instances, “voluntarily settled” for in excess of the reported awards to avoid interest arbitration.

It has been well established that interest arbitration awards and so-called voluntary settlements during the interest arbitration process drive other settlement with unions in the public sector. These salaries constitute the lion’s share of public employer costs (being a labor intensive industry) which in turn drive the municipal budget and taxation. Is there no way to stop this apparently runaway train?

Municipalities have been urged, in a letter from League Executive Director William G. Dressel, Jr., to act with one voice to convince the Legislature and the Governor of the strong connection between current binding arbitration awards and practices and the property tax burden on New Jersey residents.

The reported across-the-board wage increases do not tell the whole story. To illustrate, you will note below two examples, one an urban community and the other a suburban community. The numbers have been rounded slightly downward for ease of computation and illustration.

First, the urban community. With a starting police salary of $30,000, there is a maximum of $76,000 in year 10. This represents a $46,000 increase over 10 years, or more than 150 percent, for an average in excess of 15 percent per year.

In the suburban community, we have a starting salary of $33,000, which reaches a maximum of $90,000 in the 7th year, for an increase of $57,000, or a 172 percent increase, which is more than 24 percent per year.

But wait, it gets better. Or I should say, worse. The top salaries noted of $76,000 and $90,000 respectively, will be increasing during the working career of the police officer, so that in the case of the urban community with the 10 year guide, and assuming continuing interest arbitration awards of 4 percent, that guide will have increased to $112,000 at the top step. In the case of the suburban community with the 7 step guide, such guide will have increased (assuming 4 percent interest arbitration awards) to $118,000.

In the case of the suburban community, assuming 4 percent interest arbitration awards continue, the top step patrolman will be over $100,000 by 2010.

Roll-up Costs In addition to the salary increases noted, there are so-called “roll-up costs” to the employer, among them longevity. Nearly all police and fire agreements contain longevity provisions (a few have been rolled into base pay) and those longevity provisions most often are expressed in percentages rather than flat dollar amounts. The difference being that percentages automatically increase the cost to the employer as salaries go up. So, for example, if a $90,000 patrolman receives a 4 percent across-the-board wage increase – or $3,600, and is at a 6 percent longevity level, the cost to the employer will be an additional $216. Often, longevity is provided while the employee is still moving through the salary guide and has not reached top step. That is, the employee receives both step increases, across-the-board increases and in addition, a longevity payment generally commencing after five years of employment.

Furthermore, some agreements provide for so-called senior officer pay, whereby a police officer with a certain number of years of service, receives a pay increase to a higher level (beyond the patrolman salary guide) aside from the longevity pay. Presumably, this senior officer pay is to make up for the step increases to which the officer is no longer entitled, having reached the top step of a guide.

Other roll-up costs (when a salary goes up) include pension payments and the cost of any paid time off such as vacations, holidays, personal days, sick days, bereavement leave, etc.

All of the foregoing seem to have little or no persuasive impact upon arbitrators, who apparently view these “ancillary costs” as being the same for all public employers. Thus, if Municipality A grants a particular increase in salary or related salary cost, somehow, Municipality B is required to do the same. Such reasoning does not take into account the literal actual costs for both municipalities, which is obscured or not noted, either in the arbitrator’s award or in the summary “Salary Increase Analysis” published by PERC.

What Is Needed The Cap Law requirements embodied in the three factors of the Interest Arbitration Law are not enough. The statute needs to be amended to provide for a limitation on awards and that limitation should be a cap on a department salary line basis at best, or at worst, a department basis. This will prevent arbitration awards from requiring a municipality to short-change non-police and fire departments to fund higher increases for police and fire employees. The department salary line basis would appear to be the best solution, rather than the department basis, since it would not require the employer to forego or eliminate other department expenditures within the police or fire department in order to fund the wage increase.

Conclusion While we cannot fault police and fire unions from seeking further increases in wages and fringe benefits for the employees they represent, we have come a long way from underpaid police and fire personnel in this state and a balance must be restored. There is certainly no shortage of applicants for police and fire positions within the state and appropriate legislation changes need to be made to provide for reasonable compensation for police and fire employees, whose increases generally drive those achieved by other employees, while not imposing upon the taxpayer extraordinary, unreasonable increases.

Gerald L. Dorf, Principal of Dorf & Dorf, P.C., has been Labor Relations Counsel to the League and Director of the League’s Labor Relations Advisory Service for more than 30 years. The service is provided via telephone to management officials of member municipalities and is conducted by Mr. Dorf and his office. The firm, located in Rahway, represents private and public sector management in labor and employment law matters and related litigation.

 

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