September 23, 2010
LEAGUE OF MUNICIPALITIES URGES ACTION ON ARBITRATION REFORM
Back in July, following the passage of the new 2 percent property tax levy cap, Rumson Borough was one of the first towns to receive an arbitrator’s award. The award calls for 3.5, 3.5 and 3.25-percent pay increases retroactive to when the union’s contract expired at the end of 2006. For 2010, officers would get increases of 3 percent, and 2.75-percent next year.
At the time, Mayor John Ekdahl stated that the award created a “privileged class” of employees. And the governing body appealed the award to the Public Employment Relations Commission (PERC).
Then last week, in accord with an 86-page arbitrator’s report, the Borough of Belmar learned that it will have to pay its police officers a 15 percent increase over a five-year period that dates back to 2008, despite the 2 percent cap.
"This equates to a 3 percent increase per year, not withstanding the 2 percent cap we now have to meet," said Mayor Kenneth Pringle, who is on record supporting the cap. "I saw it as a way to force municipalities to share services."
"I don't know what we are going to do," Mayor Pringle continued. "We can no longer afford to maintain the size of our Police Department."
It has now been seven weeks since the Governor signed the new 2% levy cap into law. The League had asked the Governor and the Legislature to delay action on the cap until after they had agreed on management reforms and mandates relief items that would make that cap workable. Our request was ignored. As we feared, there is a danger that inertia has set in. Agreement on management reforms and mandates relief has NOT been reached.
Now is the time for progress. Going forward, the situation can only improve IF serious reforms are enacted and unfunded mandates are relieved or repealed. Attention to the Binding Interest Arbitration mandate should top the list of State priorities for meaningful property tax relief.
* * *
For further information contact: William G. Dressel, Jr., Executive Director at (609)695-3481, extension 122 or 609-915-9072.
Binding Arbitration – Impact on Property Taxes
- The primary driver of local government costs has been the inexorable increase in employee salaries.
- Over the past 30 years, the salaries of police and paid fire personnel have risen faster than all others, though other personnel have also seen higher than CPI increases in salary rates, just at a slightly lower rate.
- This has occurred primarily as the result of the 1977 legislation mandating binding interest arbitration to settle contractual disputes.
- Initially, binding interest arbitration was conducted under a terminal procedure that had as its method of resolution a default decision making mechanism for arbitrators known as last best offer.
- In this method, each party provides the arbitrator with a final offer. Each proposal is presented in two parts: a package of economic items and a package is the non-economic items. The arbitrator was required to choose either the employer’s or the collective negotiations unit’s economic package in total. The arbitrator then decides non-economic proposals of either party on an item by item basis.
- In 1996, the Legislature reformed binding interest arbitration and the terminal procedure default impasse resolution procedure changed to conventional arbitration.
- In this method, arbitrator’s decision may be the position of either party, or some point the arbitrator deems appropriate given the testimony and facts presented, on each economic and non-economic issue. In addition to the default impasse resolution procedure, in 1996, the Legislature introduced a series of additional “reforms” into the process. Some of these included:
- the use of 8 statutory criteria that must be addressed by the arbitrators;
- Inclusion of Criteria #5, “the lawful authority of the employer,” which required recognition of the appropriations cap by the arbitrator as one of the required criteria to be addressed;
- Required annual training for an elite corps of arbitrators who would be assigned these cases.
- The requirement that the arbitrator separately determine whether the “total net annual economic change” for each year of the contract is reasonable under these criteria.
- The parties were to choose arbitrators by lot to reduce the concentration of cases among a small number of arbitrators. However, the law permitted the parties to mutually agree on an arbitrator, which has become the common practice.
- These “reforms” have seemed to do little to “level the playing field.” The reasons for this are varied and depend upon individual decisions and communities.
- From 1993-1996 there were 139 awards issued with an average salary increase ranging from 5.65% to 4.24%. During this same period there were 201 reported voluntary settlements ranging from average salary increases of 5.56% to 4.19%.
- From 1997-2000 there were 127 awards issued with an average salary increase ranging from 3.63% to 3.64%. During this same period there were 209 reported voluntary settlements with salary increases ranging from 3.95% to 3.87%.
- From 2001-2009 there were 154 awards issued with an average salary increase of 3.75%. During this same period there were 425 reported voluntary settlements with and average salary increase ranging from 3.91% to 3.6%.
- During the first six months of 2010, there were 5 awards issued with an average salary increase of 2.43%. During this same period, there were 23 reported voluntary settlements with an average salary increase of 2.8%.
- The average number of awards issued annually from 1997-2007 (22) is lower than the number of awards (74) issued each year from 1978-1995, and also lower than the average number (39) issued annually from 1993 through 1995,