Healthcare Exemption Good News for Local Governments

With costs of healthcare rising, state lawmakers say they won’t count against 2 percent tax cap

Many local officials are breathing a collective sigh of relief after state lawmakers and the Christie administration retained an exemption for rising healthcare costs in the 2 percent cap on municipal budgets.

The day after Gov. Chris Christie signed a new law establishing a 2 percent cap on municipal budgets, a consultant to the New Jersey State Health Benefits Commission recommended that 360 local governments pay healthcare insurance premiums in 2011 that are 11.7 percent higher, a slight drop from last year’s jump of 16 percent, but still a big increase for towns and cities to absorb.

“While the costs won’t count against the cap, they still represent expenses beyond the control of mayors,” said William Dressel, executive director of the New Jersey State League of Municipalities. “True tax reform is not here until municipalities have the means to control mandated costs.”

The recommended increases suggested by Aon Consulting reflect rising healthcare costs across the nation, which the consultant said is trending upward by about 10 percent, and mandated benefit enhancements at both the state and federal levels.

The commission is expected to adopt the recommendations at its meeting next week, along with a 6.9 percent increase in premiums for employees and retirees in the state health insurance program.

The budget cap issue dominated much of the debate between the executive and legislative branches of government this spring as the Governor sought to rein in property taxes by imposing a constitutional amendment imposing a 2.5 percent budget cap with exceptions only for debt payments. The exemption for healthcare costs was part of a compromise Christie reached with Senate President Stephen Sweeney (D-Gloucester) earlier this month and later accepted by the Assembly.

The law replaces an existing 4 percent budget cap, but one with more exceptions. Under the new law to take effect Jan. 1, 2011, debt payments, natural disasters and pension costs, as well as healthcare expenses, will be exempted.

The total healthcare costs for the towns, which cover 64,000 employees and retirees, amounted to $869 million, according to Susan Marsh of Aon, up from the $814 million it cost the previous year.

The projected 2011 costs for the state group are $1.8 billion for 143,000 employees and retirees in the system, Marsh said.

Dressel said the increase in healthcare costs underscored the need to give local officials the tools they require to harness spending — including reforms to civil service and binding arbitration; an overhaul of New Jersey’s affordable housing laws; and relief from state mandates. Christie has proposed a toolkit of more than 30 measures aimed at addressing those issues, but they have yet to be taken up by the legislature.