State government started the year by not renewing the 2 percent cap on contract arbitration awards to police and fire unions. That had saved $530 million in county and municipal property taxes from 2010 to 2015, according to a task force report last year.
Local governments strongly supported extending the arbitration cap, noting they are under a 2 percent cap on property tax increases and arbitration awards above that would have to be paid by cutting spending elsewhere.
The State League of Municipalities, the N.J. Conference of Mayors and the N.J. Association of Counties said they “maintain the utmost respect and admiration” for law enforcement, and fire officials and they remain very well compensated. Federal data show the average wage for a New Jersey patrol officer in 2016 was $87,490 and for a supervisor or detective $128,000. For paid firefighters, the average was $81,730, with supervisors getting $117,290.
Then in February, the state Department of Community Affairs showed that even without a return to arbitration awards far higher than inflation, the average property tax paid in New Jersey had hit a record $8,690 in 2017 — still the highest in the nation. The 1.6 percent increase would have been greater if Atlantic City casinos hadn’t quit paying property taxes in favor of payments in lieu of taxes.
Now state Democrats are pushing a bill in the Legislature that would give police and fire unions control over the pension system that mainly towns and counties fund for their members. The League of Municipalities says the bill is being moved quickly and could clear the state Senate and Assembly as soon as today.
The bill would transfer control of the police and fire pension board from the state Division of Pensions and Benefits to a board of trustees dominated by union members. It also would explicitly allow the board to reinstate cost-of-living adjustments to benefits that had been suspended to control costs.
But if the union members can get one other trustee’s vote, they’ll also be able to enhance member benefits and require towns and counties to pay more into the system.
Municipal and county governments already will pay $913 million into the police and fire pension system this year, nearly three-quarters of its funding. And since the pension is a defined-benefit plan, local governments will be on the hook if union-managed investments underperform or pension benefits are raised.
This combination of arbitration awards with no limits and the possibility of unions increasing pension benefits and costs creates the potential for a financial disaster for local governments and their taxpayers. The end of the arbitration cap alone was considered by ratings agencies Moody’s and Fitch to be a credit negative for local governments.
The Legislature instead should heed the advice of the League of Municipalities and give oversight of the pension to a trustee board with an equal number of labor and local government representatives, along with one independent member.
Better still would be the league’s alternate recommendation: Change the pension system from one based on defined benefits to one based on defined contributions. Under that system, which is the norm in the private sector, the public employee unions could have control of the pension fund but would be responsible for how their actions affect their members.
But if elected officials give the unions control while leaving taxpayers on the hook for the unions’ actions, it will be a disservice to the citizens who elected them.