Statement of James Anzaldi
Mayor, City of Clifton and Member, Executive Board of the NJ League of Municipalities,
Before the Joint Legislative Committee on
Public Employee Benefits Reform
Tuesday, September 19, 2006
5:00 p.m.
Clifton, New Jersey

Good evening.

My name is James Anzaldi, Mayor of the City of Clifton and Member of the Executive Board of the NJ League of Municipalities.

On behalf of our residents, I welcome this special joint committee to Clifton and many thanks for allowing me the opportunity to address this committee on public employee benefits reform.

We congratulate this joint committee on its fact finding mission and we hope the final results will lead to a realization of true and meaningful Property Tax Reform for the residents of our state.

Most of the prior hearings before this committee focused on the pension system as it relates to state employees. We welcome this examination of the pension system as it relates to local programs for PERS and PFRS.

Across the State, municipalities are facing many budgetary challenges. One such item is escalating pension and health benefits costs. These costs result from state mandated benefit enhancements for PFRS, arbitration awards and expensive medical benefits. Such create funding problems which drive up local government property tax levies.

The 2005 report issued by the Governor's Benefits Review Task Force contained partial recommendations for reform of the state system. There were commonalities of some elements among the state and local benefits structures but major distinct differences. The League issued its COPE (Correction of Pension Errors) report presenting the local perspective. We again report several recommendations to reform and lower property taxes.

• The most costly system confronting local government is PFRS and of the more than $650,000,000 billed by the Division of Pensions to local governments which is due on April 1, 2007, more than 65% of said billing represents local government payment to fund the Police and Fireman System for the forthcoming year. This is significant because while the cost is 65% of the $650,000,000, the individuals covered by police and fire represent only 14% of the total local government workforce of more than 297,000 employees. The local employers' cost for PFRS is also at risk because of legislative mandates. Chapter 108 Public Laws of 2003 will significantly increase the local government costs once funding for PFRS reaches 100%. The impact of that legislation would be devastating on property tax payers. Therefore, the first action to be taken by the legislature is to rescind Chapter 108 Public Laws of 2003 before it has any impact or individual employees are affected by the change.
  
  
• We would request the legislature stop mandating enhanced benefits to the pension system at the cost of the local property taxpayer. A mandate which has affected the pension system and costs associated therewith on a significant basis is that of binding arbitration. Local employers must have relief from the binding arbitration provisions and said relief will result in lower property tax payments.
  
  
• Newspapers, the Governor's Pension and Benefit Task Force, and the League's COPE Report all have recognized problems associated with "gaming" the system. Such must be eliminated in order to help the property taxpayer. Pensions should be based upon "credible salaries" as defined by N.J.A.C. 17:4-4.1(a)2vi found under item #10 in the COPE Report. Gaming the system also results from part time employment serving as full time credit. Part time positions that work less than 1,820 hours (35 hours a week x 52 weeks) should receive prorated pension credits based upon the 1,820 hours. The current system permits those who work part time for 20 or 25 years to receive full time credit for their part time work and then at the end of their career take a full time job upon which their pension would be based. Corrective action taken immediately will result in taxpayer savings.
  
  
• Assets held for future retirees in the pension system should be utilized to maximize their return on investment. Currently, members of pfrs are permitted to receive below market mortgages at the cost of the property taxpayer as a method of subsidizing their pay and housing expense. TPAF and PERS employees are permitted to receive below market loans at 4% at the expense of the local property taxpayer. Both the funding of mortgages through PFRS and the low interest loans through TPAF and PERS should be eliminated immediately. The State Investment Council is charged with a responsibility to handle the investments in a responsible manner as they serve as fiduciary for funds. By arbitrarily permitting below market loans, the legislature has undercut the solvency of the system. This practice should end.
  
  
• The enrollment threshold for TPAF is $500 on an annual basis and the enrollment threshold for PERS is $1,500 on an annual basis. These enrollment threshold levels are out of step with today's values. The Governor's Task Force suggested a threshold of $5,000. The League believes that level is inadequate. The level should be based upon the concept that full time work equals full time pension and part time work equals part time pension credits. The unrealistic low threshold should be changed or eliminated.
  
  
• Professional service contracts should be treated as professional service contracts and not run through the payroll in an arbitrary fashion so as to provide pension credits for well connected individuals. If a professional is to serve a municipality and be listed as an employee for purposes of pension, then it must be mandatory that the principal named as the professional also is the responsible person performing the work. This would eliminate a well connected politician being listed as the person receiving pension credits while having junior associates perform the work for the reporting districts. This in essence constitutes a no-show job for the professional receiving pension credits.
  
  
• The State should no longer permit early retirement initiatives (ERIS) which have proven to be very expensive to the taxpayer and of no material results or savings. ERIS may be something to consider when an industry is constricting its workforce and size. that definition or set of circumstances does not and has not applied to state, county or local governments and therefore, ERIS as structured have simply been gifts to various individuals at the expense of the taxpaying public. This form of gimmick should be eliminated in the future.
  
  
• Every publication, report and actuarial analysis has recognized the reality associated with changing demographics. People are living longer and the costs associated with providing Pensions and Health Benefits have become protractive. Part of the cost realized by the pension bill is the change in demographics. therefore, the legislature should begin to change prospectively the following:
  
  

  o	The age which one may collect a pension and this should be across the board for PFRS, PERS, TPAF and all other systems.
  o	Special retirement provisions should be modified to recognize the longevity of life and eliminate the early retirement regardless of age.
  o	Normal retirement as part of the defined benefit system should be based upon age 65 instead of age 60. By making this change prospectively for all who are non tenured employees, it will affect immediately 20% of the workforce and permit those individuals to plan appropriately. Action taken immediately will have significant impact on the actuarial valuation and will result in immediate savings to the property taxpayers. Such a concept is not without recognizing that every local government and state government worker is eligible to participate in a Deferred Compensation Program offered under Internal Revenue Code Section 457. If employees know in advance their defined benefit pension will change with regards to age and years of service, then they can plan appropriately for personal retirement through utilization of the defined Benefit System under Section 457.

  
  
• The Division of Pensions and Benefits should be strengthened with regards to the role they play when evaluating salary changes during the final years of employment. The Division has recognized situations where individuals who are well connected have gamed the system, but without the appropriate administrative procedures they are unable to stop the abuse. Increase clarification and responsibility should be given to the Division of Pensions in this regard.
  
  
• Based upon current statistics released by the division, approximately 53% of local employers cooperate and utilize the State Health Benefit System to provide medical, dental, and drug benefits for their employees. While the State Health Benefit System has been well run, the state has limited negotiable options to them and has restricted local governments. The ability to negotiate additional copays, beneficiary coverage or sharing of expense, identifying what constitutes a full time employee. The other measures which would significantly result in savings have been precluded from local governments by state mandate. Local employers should have every opportunity to negotiate with arm's length ability just as certain tools have been made available to the state.
  
  
• The area of disability requirement requires significant work and must be redefined. The current workforce and the results of constriction in the private sector have shifted a number of older employees into government positions as a form of second careers. But those shifts, while providing valid workers for a limited period of time, have also exposed local government and state government to abuse of the disability retirement provisions. In fact, it is well recognized that many people game the system through disability retirement at the expense of local property taxpayers. The disability retirement system needs to be addressed immediately recognizing the increased longevity that has resulted from demographics and healthcare.

Thank you for the time you provided. The League, through its Staff and Affiliates, has produced a number of documents which can be of assistance as the Committee seeks to lower property tax payments.

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