Statement by Jim Anzaldi, Mayor of Clifton and President of the New Jersey State League of Municipalities
Presented to the Senate State Government, Wagering, Tourism and Historic Preservation Committee, on Interest Arbitration Reforms S-2310
October 14, 2010
As you know, there is great public interest and media attention regarding public employee benefits, public sector collective negotiations, and binding interest arbitration for Police and Fire. The League has long supported reforms in these areas. We thank Senator Doherty for taking the lead on this and for introducing S-2310. We applaud you for taking this issue on and we strongly support the notion of a cap or limits on what a municipality can agree to and what arbitrators can award, especially in light of the 2% tax levy cap.
In 1996, the Interest Arbitration statute was amended to require consideration of the "total net annual economic changes for all years of the contract". However, arbitrators do not calculate this nor, do they require advocates to provide them the calculation.
In 2005, the League’s Arbitration Reform Committee suggested a number of Legislative reforms to the Interest Arbitration Process. Among the changes proposed by the Reform Committee were that: (1) the Arbitrator may not award salary increases in excess of the expenditure cap (N.J.S.A. 40A:4-45 et seq.); (2) the Arbitrator’s Award may provide for salary increases limited to the budget cap imposed by the State of New Jersey and/or any lawful adjustment adopted by the public employer; and (3) the Arbitrator’s award may provide for salary increases limited to the percentage established by the State or the lawful adjustment adopted by the public employer, as may be appropriate, on a department line basis.
In 2007, as part of the Legislature’s Property Tax Reform legislation the Interest Arbitration statute was amended to add a new ninth factor (4% Tax Levy Cap). To date, the new ninth factor has had little or no impact on the Arbitrator’s Awards. Currently, only 4 of the 9 statutory factors in Interest Arbitration address the employer’s fiscal situation. For example, the Arbitrator must consider and analyze the interests and welfare of public; the lawful authority of the employer (including cap law limitations); the financial impact on the governing unit, its residents and taxpayers; and the statutory restrictions imposed upon the employer including the Tax Levy Cap. Arbitrators are not engaging in a detailed analysis of these criteria. Yet, Arbitrators still put too much weight on a single factor-comparability.
The current binding arbitration process has resulted in reported salary schedule increases averaging nearly 4 percent per year. Only in the last six months have those average salary increases been reduced.
And those figures don’t represent the full cost. Salary steps based on years of service — which can amount to as much as $15,000 per officer — often are not considered by the interest arbitrator as a cost to the employer. As a result, a 4 percent increase to the salary schedule can cost an employer upwards of 10 percent, depending on the way the contract is structured.
Awards like this to police and fire personnel can put pressure on the governing body to give similar increases to other public employees. On the other hand, it can also result in layoffs or furloughs of other government workers to pay for the police and fire contract awards.
New Jersey taxpayers pay the highest median property tax in the country and New Jersey police officers and firefighters are among the highest paid in the country. This is no coincidence. Binding interest arbitration is the primary reason for this never-ending rise in the cost of government.
I am joined today by my colleagues Ken Pringle, Mayor of Belmar, John Ekdahl Mayor of Rumson and Eldridge Hawkins, Mayor of Orange as well as the League’s Labor Attorney Brian Kronick who will provide detail examples on how arbitration awards have deeply impacted their budget.
Back in July, following the passage of the new 2 percent property tax levy cap, Rumson was one of the first towns to receive an Arbitrators 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. Mayor John Ekdahl stated that the award created a “privileged class” of employees.
Then several weeks ago, in accord with an 86-page arbiter'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. Mayor Pringle has stated he does not know what they are going to do and that they can no longer afford to maintain the size of their Police Department."
Personnel and related costs account for the majority of municipal spending, and have increased at faster rates than all other local government costs. Interest Arbitration should be reformed to provide that the cost of living and the employer’s ability to pay should be given greater weight. The total costs of the Arbitrator’s Award, including steps and cost of living (COLA) increases should not exceed the cost of living. Arbitrators must be required to evaluate and analyze the total cost of the salaries and benefits, including step increases, and must provide a detailed line item analysis and explanation of the costs in the award. Arbitrators must also evaluate and analyze the overall compensation received by the bargaining unit, including vacations, longevity, holidays, excused leave, medical and pension benefits. Lastly, the process of selecting Arbitrators and the length of time the Arbitration process takes needs to be reviewed.
The New Jersey League of Municipalities encourages the governor and Legislature to make binding interest arbitration reform the hammer in the cost control tool kit.