Joint Statement from the League and the Association of Counties

For Immediate Release: January 5, 2018

(Trenton) Yesterday, Moody’s Investors Services, in a document titled, “Sunset of arbitration cap is credit negative for local governments” indicated that the expiration and failure to renew the 2% cap on interest arbitration awards is credit negative for New Jersey’s counties and municipalities.     This report echoed similar concerns raised by Fitch Ratings last week in its release “Expiration of Public Safety Arbitration Cap Could Pressure New Jersey Local Finances.”

While neither agency downgraded any credit rating for any local government, the implications of the Legislature’s failure to renew this cap are clear:

Moody’s:

Given that salary costs are among the largest of municipal expenditures, the cost implications are obvious and considerable.”

The effect of this is, in most cases, unlikely to be rapid, but ultimately, the loss of the arbitration cap is likely to cause the sector’s credit quality to deteriorate. “

Although the cap has expired, it may not be finished.   Numerous local governments and local government advocacy groups support the arbitration cap.   It is possible that the new governor and New Jersey state Legislature will revisit the matter.  Until and unless that occurs, there will be a potentially dangerous mismatch between revenue and expenditures.”

Fitch:

“…the arbitration cap is beneficial to local government credit quality as it helps to align revenue and spending measures and supports structural balance in the context of statutory caps on property tax growth.”

 “…bargaining groups may become more emboldened to pursue arbitration as opposed to voluntary settlement if the arbitration cap expires.    Arbitration awards were significantly higher prior to the cap, ranging from 2.50% to 5.65% from 1993-2010, according to a report of the New Jersey Public Employment Relations Commission (PERC.)”

 “…elimination of the arbitration cap could force local governments to reduce governmental services and/or rely on one-time resources to accommodate higher wage expenses.”

The New Jersey League of Municipalities (NJLM) and the New Jersey Association of Counties (NJAC) fully support the immediate reinstatement of the cap and further we call for the interest arbitration cap to be permanently linked to the 2% property tax levy cap.      We are joined by a coalition of other government groups, including the New Jersey Conference of Mayors and a long list of business groups.     Please click here for more on this coalition.  

“Moody’s and Fitch only confirm our concerns.    We have argued, backed by the facts and evidence in the numerous reports of the Interest Arbitration Task Force, that the expiration of the cap would have a serious, negative financial impact on local governments and our taxpayers. The cap has worked to contain tax increases and saved taxpayer dollars.    It should be immediately reinstated and made permanent.  There is no bigger issues faced by the State Legislature and the incoming Governor,” commented Gloucester County Freeholder and NJAC President Heather Simmons.

“The bipartisan concerns raised by local officials across the entire State are further validated by Fitch and now Moody’s.   The 2% cap on binding interest arbitration awards has proven to be a vital tool for containing property tax increases.   The failure to renew the cap will impact local services, property taxes, and now the credit worthiness of our local governments.    This is unacceptable and the renewal of the interest arbitration should be the first and top priority in the State Capital, said East Rutherford Mayor and NJLM President James Cassella.

For nearly a decade, the 2% cap on binding interest arbitration awards has kept public safety employee salaries and wages under control simply because parties have been closer to reaching an agreement from the onset of negotiations.  Moreover, the 2% cap on binding interest arbitration awards has established clear parameters for negotiating reasonable successor contracts that preserve the collective bargaining process and take into consideration the separate 2% tax levy cap on overall local government spending.  And the 2%cap on binding interest arbitration awards has not negatively impacted public safety services or recruitment. Failure to permanently extend the 2% cap on binding interest arbitration awards will inequitably alter the collective bargaining process in favor of labor at the expense of taxpayers.   In addition to raising taxes, county and municipal governments across the State will need to consider imposing employee furloughs; privatizing services; freezing salaries for non-affiliated employees; and, reducing or eliminating non-mandated services such as transportation for the aged and disabled, meals on wheels, mental health and addiction services, and more.

Contact:

Michael Cerra, Asst. Executive Director, NJLM, mcerra@njslom.org, 609-695-3481 x120.

John G. Donnadio, Executive Director, NJAC, 609-394-3467

 

 

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