Testimony of William G. Dressel
Executive Director, New Jersey State League of Municipalities
before the Senate Community and Urban Affairs Committee
January 7, 2010
First, I would like to thank Chairman Rice and the members of the Senate Community and Urban Affairs Committee for devoting their attention to this issue, and for allowing me to be here today to express the views of the New Jersey State League of Municipalities.
The recent report of the State of New Jersey Commission of Investigation, titled The Beat Goes On: Waste and Abuse in Local Government Employee Compensation and Benefits, demonstrated what the League of Municipalities has long argued: the State must establish reasonable benefits standards for all government employees.
The League has lobbied for benefit and pension reform for some time. For example, the League has long argued for a statewide cap on sick leave buyouts for local government employees. Currently, sick leave buyouts at retirement for state government employees are capped at $15,000. Both the SCI and the League agree that applying this cap at all levels, including local government, would save the taxpayers a significant amount of money. Some municipalities have been able to negotiate lower caps with some employee unions. A statutory cap would assure similar savings for taxpayers in all municipalities.
In 2006, in response to Governor Codey’s Benefit Review Task Force, the League of Municipalities issued the Correction of Pension Errors (COPE) report. The purpose of this report was to fill in the gaps of the Governor’s Task Force report and to offer workable solutions to the problem of skyrocketing pension and benefit costs. Taken together, the SCI report and the COPE report offer a comprehensive plan to deal with the current crisis.
However, the SCI and the COPE report differ in one important aspect: the focus (or, in the SCI report, the lack of focus) on police and firefighter compensation and benefits. The SCI report makes scattered mention of this issue and the difference between the strict benefit limits of certain local public employees versus the police and fire employees. However, as the COPE report notes, legislative mandates have created different benefits for employees covered by Public Employee Retirement System (PERS) versus employees covered by the Police and Fire Retirement System (PFRS).
Perhaps the most glaring example of this, and the primary catalyst for the continual increase in property taxes, is mandatory binding interest arbitration. Whenever talks between a police or fire union and a town break down over economic issues, the union may bring in a third party arbitrator. The awards the arbitrators have the power to impose routinely exceed the rate of inflation. The effect then ripple though local budgets, as public safety employees in neighboring jurisdictions, and other employees of the same municipality, push for greater wage increases. The ripples then gain in strength as pension liabilities expand. As public employee wage and benefit packages go up, towns often have no choice but to increase property taxes.
These mandates have made PFRS the most expensive local pension system. Any efforts at change must include reform of the compensation and benefits of all local government employees, including police and firefighters. For years now, the League has asked the Governor and Legislature to modify the binding arbitration requirements. We now reemphasize the need for immediate relief from this unfunded mandate.
The League believes that the SCI report, along with the COPE report, represents an excellent guidepost on the path towards repairing public employee compensation, benefits, and pensions. This long process has already begun with the recent reforms to our pension systems: the creation of a Defined Contribution Retirement Plan, increasing the requirements to enroll in the pension system, capping the benefit level of new members, raising employee contributions and increasing the retirement age. Many towns are contractually obligated to provide the current level of compensation and benefits. The United States Constitution prohibits any state from passing a law that would interfere with contractual obligations. Thus, we must all hone in on providing a better future for our children and grandchildren. We look forward to working with state legislators and the executive branch in implementing reasonable reforms that treat public employees fairly while saving taxpayer dollars.