For nearly a decade, local-government officials trying to keep New Jersey property-tax increases in check have had the security of knowing they could limit raises for police officers and non-volunteer firefighters to just 2 percent, even if contract disputes went to binding arbitration.
That’s because a 2 percent cap on interest-arbitration awards was enacted by state law in 2010, when local governments were seeing their revenues plummet in the wake of the Great Recession and the ensuing real-estate collapse.
But the law that established the limit on those awards also included a sunset provision, and after being renewed once before, the cap is now set to expire at the end of this year unless lawmakers again take action to extend it.
How the arbitration cap works: Police officers and professional firefighters are, by law, not allowed to strike in New Jersey when they cannot reach new contract agreements with their local-government employers. Instead, their unions and the government officials are offered the option of entering into binding interest arbitration when they reach a point of impasse.
If they go through the interest-arbitration process, the size of an annual salary increase is decided by an arbitrator. But since the cap went into effect in 2011, the state law has prevented arbitrators from awarding any increases that are worth more than 2 percent.
The other 2 percent cap: The limit on interest-arbitration awards is often confused with the state’s broader 2 percent cap on local property-tax hikes, which also went into effect in 2011. Both caps were key elements of Gov. Chris Christie’s signature, first-term “toolkit” initiative that was aimed at addressing local property-tax increases that were averaging as much as 7 percent at the time.
But the two caps are separate as a matter of law, and importantly, they do not operate on the same timeline. While the limit on interest-arbitration awards is set to expire on December 31, 2017, the broader cap on property tax levy hikes is a permanent cap, with no sunset date.
Has the arbitration cap been effective? Local-government officials have credited the arbitration cap with being an effective tool that has helped ease the challenge of limiting salaries, which are one of the costliest line items in most municipal budgets. The latest annual report from a task force that was set up to analyze the impact of the arbitration cap indicated that average annual raises awarded through the arbitration process have been reduced from nearly 5 percent before the cap was put in place to just under 2 percent since it was enacted.
Increases in the average New Jersey property-tax bill have also shrunk to just over 2 percent — bills averaged $8,549 last year — compared with the average increase of 4.1 percent that was measured in 2010. Yet New Jersey residents overall have only been experiencing annual income increases of just over 1 percent since the recession began in late 2007, according to data from The Pew Charitable Trusts.
Meanwhile, according to federal Bureau of Labor Statistics data, the annual mean wage for patrol officers in New Jersey in 2016 was $87,490, with the figure rising to $128,000 for supervisors and detectives. For professional firefighters in New Jersey, the annual mean wage for 2016 was $81,730 — $117,290 for supervisors.
Why the arbitration cap is expiring: The limit was first established as the result of a bipartisan compromise between Christie, a Republican, and the Democrats who control the state Legislature. To reach agreement on the issue, the cap on the interest-arbitration awards was initially set up to be temporary, with a sunset date of April 2014. Christie and lawmakers were unable to strike a deal to renew the cap in time to beat the initial sunset date, and it was allowed to expire. But a new compromise was forged in June 2014, and the cap was put back in place, with a new sunset date set for the end of 2017. The renewal was also set to be retroactive to April 2014.
What happens next: With the cap’s next sunset date now just a few months away, local government officials are warning they could be forced to cut services in the new year if the limit on the arbitration awards is allowed to expire even as the permanent cap on property tax increases stays firmly in place. And while Republicans in the state Assembly have introduced a bill that would make the arbitration cap permanent, it has yet to be advanced by the majority Democrats. Instead, Democrats have said they prefer to wait to see what recommendations are made by the task force in its next major report, which is due to be released on the same date that the cap is set to expire.
Adding to the political drama is this year’s gubernatorial election, which pits Republican Kim Guadagno against Democrat Phil Murphy in the contest to replace the term-limited Christie. Guadagno, who has served as Christie’s lieutenant governor throughout his tenure in the State House, supports an extension of the arbitration cap and has urged lawmakers to take action before Election Day. But Murphy, a retired Goldman Sachs executive who served as a U.S. ambassador under President Barack Obama, has not said definitively what he would do if the cap is not renewed before he would take office in January 2018.
It’s also possible that lawmakers could reach another compromise with Christie and extend the cap in the lame-duck session that will follow the November election, when all 120 legislative seats will also be on the ballot. If such a deal came in the final days of Christie’s tenure, the extension could also be enacted retroactively, as it was in 2014.