New Jersey lawmakers should overhaul laws concerning the use of tax dollars earmarked for needy firefighters and their families, according to the state comptroller. His recommendations came after he found lax oversight and the possible misuse of funds — while the groups that distribute the money have accumulated a surplus of almost $245 million.
State Comptroller Philip James Degnan on Tuesday released an investigative report on the administration of benefit funds by the New Jersey State Firemen’s Association and the state’s 538 Local Relief Associations. A 2 percent tax on fire insurance policies written by out-of-state insurers on New Jersey properties generates about $30 million a year, which is split about 50-50 between the state association and the separately incorporated local associations to pay burial costs and give financial assistance to firefighters who demonstrate a need.
But the money earmarked for the NJSFA and LRAs has gone largely unused for decades, with the organizations sitting on some $245 million. Since 1994, when lawmakers held hearings on what was then a large $90 million surplus and instituted some reforms meant to ensure the money was used to help firefighters in need, the associations have accumulated an additional $155 million in unspent funds. At the time, the NJSFA had asserted that its fund would start to decline after four years and be depleted in 12 years, which would have been 2006.
Problems persist for almost 25 years
“Nearly a quarter-century after those legislative hearings, very little has changed and our investigators found many of the same issues from 1994 continue to exist,” Degnan said. “The Legislature must consider the fundamental issue of how to best use the accumulated funds to most effectively assist New Jersey’s 37,000 firefighters while continuing to ensure existing benefits are paid.”
According to the report, the “share of total assets spent on local relief payments is consistent, but miniscule relative to the funds on hand.” It also found that the local associations collectively “spent more on administrative and convention expenses than they spent on relief payments for the years reviewed,” which were 2013 through mid-2017. In 2016 alone, the LRAs got $16 million in taxes and spent $10 million, leaving a $6 million surplus.
At the same time, the comptroller found a “lack of adequate oversight and internal controls” by the state association over the locals and “questionable instances” of relief awards.
“The accumulation of substantial money, combined with a lack of appropriate oversight, has resulted in waste, and could lead to fraud or theft,” the report warns.
Not trained for the task at hand
It contends that the NJSFA does not perform mandatory training of LRA officers charged with reviewing and approving relief applications — local officers disagree on the definition of “need” — and conducts “perfunctory” field audits. Those have contributed to a “great disparity among the LRAs with regard to the issuance of relief.”
Among the questionable assistance payments cited by the report:
The report also found that applicants for relief were listing such expenses as a wholesale-club membership, hair and nail services, home security system, bottled water, and AAA membership. While all applicants are supposed to include documentation for itemized expenses, fewer than 10 percent of the applications reviewed by the comptroller’s office contained complete supporting documents.
A complaint alleging a Bergen County local association was giving relief payments to members who did not have a hardship prompted the comptroller’s examination. Those allegations were not substantiated, but the comptroller expanded its examination to other LRAs throughout the state.
New Jersey had 730 fire departments with 37,683 active members as of last March. More than eight of 10 firefighters were volunteers, with the rest paid. Membership in the NJSFA is not automatic: Firefighters must apply. The association has more than 56,000 members, both active and retired.
The Legislature created the state and local associations in 1885 to fund “the relief, support or burial” of indigent firemen and their families. Since then, there has been little change in the types of expenses that the insurance-tax funds can finance and only lawmakers can amend the rules. Neighboring states allow for a wider use of these funds to support local fire departments. Degnan said New Jersey’s law should change.
“We are recommending that the existing law be significantly revised so some of the available funds can be spent on education, ongoing training, and upgraded equipment to increase personal safety as firefighters perform their mission of protecting the public,” he said. “Volunteer fire departments in particular would benefit from this funding source.”
Easing the burden on volunteer departments
Specifically, the report states that if departments were allowed to use some of the tax funds for essential firefighting purposes, it would help ease the financial woes of volunteer departments, which often conduct fundraising drives to pay for necessities.
In addition to essential equipment, the report suggests that departments should also be allowed to use the funds for training, education for members and their families, and to offset municipal contributions to the tax-deferred income-benefit programs known as LOSAPs (length-of-service award programs) that some towns provide. Burial and relief assistance should be top priorities, with money going to other purposes only after ensuring that the financial help is available.
The report also urges legislators to consider whether to replace the NJSFA as the agency that oversees the disbursement of the tax funds. If so, lawmakers should consider requiring mandatory, independent audits and other assurances that the funds are being spent appropriately.
It suggests that lawmakers consider a more equitable system for distributing the tax funds. Currently, a local association gets roughly half the amount that people living within its borders pay in taxes to out-of-state insurers. LRAs in larger and wealthier communities tend to get more money than those in smaller, poorer municipalities.
Finally, it suggests requiring that paid fire departments use part of their tax proceeds to offset municipal contributions toward the Police and Fire Retirement System. That happens in Pennsylvania and other places. The report notes, “These contributions could help to ensure the pension system’s solvency for future retirees.”
More audits recommended
The report also made three recommendations to improve the NJSFA’s oversight, including conducting more frequent and more robust audits of the local associations; mandatory training for all new LRA officers regarding relief applications and awards; and a written policy requiring any local officer who applies for relief must recuse himself from the application process.
The president of the NJSFA did return a request for comment.
According to the report, the state association has made a number of changes to the application process since the beginning of the year, after being contacted by the comptroller’s office. These include updating and amending its application for local relief; the report states that these changes “may remedy some of the concerns.”
In a response in the report, the NJSFA stated that it disagrees that the funds are underutilized, stating that it is necessary to keep the funds safe for those firefighters and their families who need assistance. It “posited that the potential impact of an event similar to the September 11 terror attacks” would devastate the association and LRAs financially. It also stated that local associations in communities impacted by superstorm Sandy were asked to “provide relief to firefighter families in need,” though the report adds that the NJSFA gave “no evidentiary support” for that statement.
The comptroller and his staff are part of an independent state office that conducts audits and investigations of government agencies throughout New Jersey. Its mission includes enhancing the efficiency and transparency of government and ensuring that public funds are spent effectively and efficiently.