A-3414/S-1964 – The Alternative to S-5

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A3414, PFRS, S1964, S5

On February 16, Assemblyman Thomson, who is a pension actuary by trade, introduced legislation proposing alternatives to the legislation (S-5) that transfers management of Police and Fire Retirement System (PFRS) to labor dominated Board of Trustees.    Likewise, Senator Declan O’Scanlon has introduced an identical Senate companion.   A-3414 and S-1964 would transfer the management of the PFRS to a 15 member Board of Trustees.

While A-3414/S-1964 include many of the same elements of S-5 (see blog post) there are the following differences, which the League believes improves elements of S-5.

• A-3414 creates balanced representation on the Board of Trustees. It increases PFRS Board of Trustees representation to 15 members as follows:
  • 7 Labor representatives
    • 2 police officers
      • 1 appointed by PBA President
      • 1 appointed by FOP President
    • 2 firefighters
      • 1 appointed by FMBA President
      • 1 appointed by PPFA President
    • 1 active police officer elected from active members of the system
    • 1 active firefighter elected from the active members of the system
    • 1 retiree elected from the retiree members of the system
  • 7 Management representatives
    • 4 appointed by the Governor from recommendations of the League and the Association of Counties who are either elected or employed as administrator or chief financial officer in municipal or county government
    • 1 appointed by the Governor who holds a management or supervisory position of the Executive Branch
    • 1 direct appointment from the League
    • 1 direct appointment from the Association of Counties
  • 1 Taxpayer
    • Appointed by Governor
    • Cannot be a
      • member retiree,
      • beneficiary,
      • state or local elected official,
      • officer of a county,
      • state labor organization, union or affiliate that represents public employees

• Increases the required number of Trustees that must be present for the Board to take action. Requires 8 trustees to be present for a quorum.
• Requires a supermajority to assure accountability for benefit enhancements before reaching secure financial footing. Until the fund has reached the target fund ratio of 80%,  9 affirmative votes will be required to:
  • Enhance or reduce member benefits, including COLA
  • Approve any increase or decrease in employer or employee contribution rates, other than those recommended by the actuary.
• Increases assurances of financial stability. Prohibits the implementation of a Board decision if, according to a written actuary report, the direct or indirect result of the decision will be that the fund ratio of that part falls below the target fund ratio (80%) in any valuation period during the 5 years following the implementation.
• Assures property taxpayers will not be left making up for decisions on contribution rates. Changes to members’ contribution rate cannot be implemented if the direct or indirect result of the adjustment will be that the fund ratio of the part falls below 80% during the 5 years following implementation.
• Assures reasonable benchmarks are used to evaluate the fund. Every 3 years, the Director of the Division of Investments shall compare the investment rate of return of PFRS with the investment rate of return attained by the Division on behalf of the other pensions.
• If the Director determines that PFRS has yielded a lower rate of return than the State during the preceding 3 years, then the Board must increase the employer and employee contribution rates.
• The increase is by an amount necessary to contribute to the retirement fund, within 2 years, the difference between the 2 rates of returns.
• The increase shall be by the amount necessary for each to generate 50% of the amount required.
• Requires the PFRS Board of Trustees to set the same regular interest rates as the State Treasurer for PERS, TPAF, JRS, & SPRS.

A-3414 and S-1964 include many of the safeguards that the League has advocated for S-5.    Both bills await committee hearings.

Contacts:

• Michael F. Cerra, Assistant Executive Director, mcerra@njslom.org or 609-695-3481 x120.
• Lori Buckelew, Senior Legislative Analyst, lbuckelew@njslom.org, 609-695-3481 x112.

 

Shared Service Bill, S1

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Civil Service, S1

Senate President Sweeney’s shared services bill, S-1, was approved by the Senate Budget Committee on February 15, 2018, and awaits consideration by the full Senate.  While the League appreciates the civil service and shared service reforms, the League opposes S-1 due to its taxpayer voting penalty provision.

Civil service and shared service reforms

S-1 would permit the parties of a shared service agreement to request the relaxation of Civil Service law and regulations, including, but not limited to:

• Selection and appointment
• Require non-Civil Service employees prior to the execution agreement/contract to become Civil Service for the purpose of creating a uniform pool
  • From which the new agreement/contract shall hire employees
  • Until employee pool is exhausted
  • Provides employees so designated with Civil Service rights

Determination of those employees, if any, which shall be transferred to the providing town, retained by the recipient town, or terminated for reasons of economy or efficiency is a management decision, but the providing municipality has the final decision. However, these employment decisions are subject to existing collective bargaining agreements with the affected local units, as it pertains to such employment decisions.  The parties must use mediation to settle any disputes and, if that is unsuccessful, then binding arbitration.

Any employee with a permanent Civil Service title who is terminated for reasons of economy or efficiency at any time by either local unit is placed on a Special reemployment list for any civil service employer within the county. The employee will be removed from the list if that employee has declined a reemployment opportunity in a position that involves the same, or substantially similar, job duties as the employee’s previous job; the same title and series as the previous job; and the location of the new job is within a 25 mile radius of the previous employment.

If the providing town is Civil Service but the receiving town is non-Civil Service and the towns desire that some or all employees of the recipient town are transferred to the providing local unit, the Civil Service Commission shall vest those employees in appropriate titles, seniority, and civil service tenure with the providing local unit, based on the duties of the position, information provided by the recipient unit, and the recommendations of the providing town. When the non-Civil Service employee is transferred and given a Civil Service job title due to a shared service agreement/contract, upon termination of said agreement/contract, that employee remains subject to Civil Service.

If the providing town is non-Civil Service but the receiving town is Civil Service and some or all employees of the receiving town are transferred to the providing town, any Civil Service rules incorporated by reference into a collective bargaining agreement applicable to the receiving town employees shall continue to apply to the transferred employees, until the expiration of the collective negotiation agreement.

Employees who are being laid off for reasons of the economy due to the implementation of a shared service agreement/contract must be provided a layoff notice at least 45 days prior to the layoff date, unless a collective bargaining agreement, employee contract, or personnel policy set forth a different notice requirement. A Civil Service employee has the right to appeal the good faith of such layoff notice, within 20 days of the final layoff notice.

S-1 also creates a new layoff process, if one of the towns in the agreement is Civil Service, for implementation of shared service agreement.  The “stratified layoff process” is designed to allow employees within a given employee band (executive, managerial or non-managerial) to invoke seniority in the event of layoffs, but to prohibit employees assigned from one band from invoking seniority rights over an employee assigned to another band.  Within an employee band, employees shall retain and be entitled to exercise all seniority and layoff rights that they have under Civil Service law and regulations, as well as collective bargaining agreements.  The municipality must assign current employees to one of three employee bands (1) executive, which is a job title with managerial responsibilities equivalent to a Division Director or higher in State service; (2) managerial, which is a job title with managerial responsibilities equivalent to Assistant Director or Bureau Chief in State service and that supervises second level supervisors; or non-managerial, which are job titles that are not in the managerial or executive bands.  When the application is submitted to Civil Service, a copy must also be sent to the collective bargaining representatives, who have 15 days to submit additional information to the Civil Service Commission for consideration.

S-1 also repeals:

• • N.J.S.A. 40A:65-8, which preserves the seniority, tenure, and pension rights of every full-time law enforcement officer in a shared service agreement for law enforcement services.

   

  • N.J.S.A. 40A:65-17, which preserves the seniority, tenure, and pension rights of every full-time law enforcement officers in a joint contract for the joint operation of law enforcement services.

   

  • N.J.S.A. 40A:65-19, which requires joint meeting plans to include an employment reconciliation plan.

   

  • N.J.S.A. 26:3A2-16, which requires in a Civil Service municipality that for Department of Health shared service agreements the full-time local health employees must to be transferred to another local health agency with the same job responsibilities and salary.

   

  • N.J.S.A. 26:3A2-17, which requires in a non-Civil Service municipality that for Department of Health shared service agreements the full-time local health employees with two or more years of service, must to be transferred to another local health agency with the same job responsibilities and salary. 
  • N.J.S.A. 26:3A2-18, which requires part-time local board of health employees with two or more years of service, to be placed on a preferential reemployment list for two years after employment is terminated for a shared service agreement.

   

S-1 also removes the requirement that municipal consolidations should be within the same county and legislative district.

LUARCC Process

S-1 expands the “Local Unit Alignment, Reorganization and Consolidation Commission” (LUARCC) to undertake studies to examine the sharing of services between specific municipalities or between municipalities and other public entities as well as consolidation.  In addition, LUARCC is required to develop criteria to serve as the basis for:

• Recommending the consolidation of specific municipalities; and
• Merger of specific existing autonomous agencies into the parent municipal or county government; and
• For recommending the sharing of services between municipalities or between municipalities and other public entities, including but not limited to counties, fire districts, school districts and regional school districts.

Please note that a local unit may request LUARCC to undertake a study to examine the local unit’s potential for consolidation or sharing of service.  A county may also request LUARCC to undertake a study to examine the local unit’s potential for providing specific shared service to constituent municipalities. However, no county shall be included in study that could potentially serve as a basis of recommendation subject to CMPTRA aid penalty, unless the study is agreed to by the municipal governing body by resolution.

LUARCC will first focus its studies on local units that neither participate in a shared service agreement nor have undertaken independent shared service studies or negotiations before it studies any local units that participate in shared services. Only after “affirmatively” demonstrating that it has already studied all municipalities in the State that are not engaged in shared services can LUARCC impose a CMPTRA aid penalty in a municipality with an existing shared service agreement.

LUARCC will be required to conduct at least five (5) on-site consultation sessions in each local unit with the governing bodies and affected officials of each local unit for sharing of services. In addition, they must hold at least one public hearing on consolidation recommendations and two public hearings in each municipality for a shared service recommendation.

Each consolidation or shared service proposal must:

• detail the current delivery service being considered for the shared service proposal, including personnel, equipment, and cost;
• detail the cost, including personnel and equipment, for the proposed shared service;
• include an estimate of the total net savings that will result from implementation of the proposed consolidation or sharing of service;
• provide options for delivery of the shared services and an explanation of why those options are not optimum;
• include a transcript of the public hearings; and
• include any other pertinent information

LUARCC must provide written notice of recommendations, including any economic analysis and documentation supporting the recommendation, to the governing body of each local unit.  Any LUARCC economic analysis must be submitted to the State Treasurer for review of the accuracy of the analysis, prior to releasing a recommendation.  At the same time, the economic analysis shall be submitted to the affected municipalities and other public entities. Within 30 days from LUARCC’s submission, a local unit must either certify the recommendations or provide written objections along with supporting documentation to the State Treasurer.  The State Treasurer has 90 days to either certify the recommendations or object to LUARCC’s findings.  LUARCC must work with the State Treasurer in satisfying the objections, prior to resubmitting a recommendation for review and certification.

A local unit may appeal the total net savings estimate contained in LUARCC’s proposal to the DCA Commissioner within 30 days of receipt of the LUARCC report.  The DCA Commissioner has 15 business days to review the analysis and the challenge in order to determine whether the analysis should be adjusted.  The DCA Commissioner may extend the review time for the appeal, if a hearing is deemed necessary.

If the LUARCC’s study finds that there could be savings in a shared service, thereby resulting in a taxpayer CMPTRA Aid penalty, then the recommended model:

• must be projected to be capable of maintaining the same level of service or improving the services provided by the participating municipalities; and
• must project either a meaningful savings or a slowed rate of growth of costs to result over a reasonable period of time.

If a local unit receives a recommendation for sharing of services from LUARCC along with the State Treasurer’s certification, the local unit must approve the recommendation within 14 months of the date of the notice or be subject to the CMPTRA penalty. An approved shared service proposal must be implemented within 28 months following LUARCC’s recommendation.

The local unit may adopt a resolution or ordinance to approve a recommendation or submit it to the voters at the next general election. S-1 provides the language for a local unit to use if they wish to submit a public question.

Taxpayer Penalty

Regardless of the outcome of the vote on the public question, if a municipality does not approve LUARCC’s recommendation within 14 months or does not make a good faith attempt within 28 months to enter into and implement the recommendations, the State shall annually reduce the total amount of CMPTRA  allocated to that local unit by the total net savings estimated in LUARCC’s proposal.  The CMPTRA penalty only applies to shared service recommendations and not consolidation recommendations.

No municipality will be subject to a CMPTRA reduction if it approved a recommendation for sharing of services and the failure to implement the recommendation was due to action or inaction of the governing body or voters of another local unit.

The League continues to oppose any proposal which would, on the one hand, allow the voters to express their will; but on the other hand, inform those voters that they will be penalized if their will does not comport with that of a majority of the appointed members of LUARCC.  To us, this is a fundamental position, respecting our voters and the concept of self-determination.

Though we oppose the bill, we thank the Senate President for involving local officials in the development of this legislation, for listening to our concerns and accepting some of our recommendations.  We remain committed to working with the sponsors and other interested stakeholders to address our remaining concerns with the legislation.

Contact:

Lori Buckelew, Senior Legislative Analyst, lbuckelew@njslom.org, 609-695-3481 x112.

 

 

League and NJAC Support New Legislation on Interest Arbitration Cap

MEDIA ADVISORY

February 9, 2018

League and NJAC Support New Legislation on Interest Arbitration Cap

Yesterday, Senator Declan O’Scanlon introduced S-1558, and Assemblywomen Betty Lou DeCroce and Holly Schepisi introduced the Assembly companion, A-3378. These bills will permanently extend the common-sense limit on interest arbitration awards and provide immediate tax relief. They will also enact other reforms recommended in the September 2017 Report, made on behalf of the Governor’s appointees to the Interest Arbitration Task Force.

The New Jersey League of Municipalities and the New Jersey Association of Counties both strongly support this essential response to the January 1 expiration of the 2% cap on interest arbitration awards.The 2% cap on binding interest arbitration awards, first enacted in 2010 and extended for an additional three years in 2014, empowers municipalities and counties  across the State to effectively control public safety employment salaries and personnel costs.  In general, local governments dedicate the majority of their overall annual operating budgets to employee salaries, wages, health benefits, and other related costs.  In addition to these considerable expenses, local governments face a 2% property tax levy cap, which is permanent.   The expiration of the interest arbitration cap, combined with the permanent 2% levy cap, creates an untenable position.   Failure to permanently extend the 2% cap on binding interest arbitration awards will allow arbitrators to once again award generous contracts that will force municipal and county governments, throughout the State, to further reduce or even eliminate essential services, critical personnel, and long-overdue infrastructure improvement projects.

It’s not just the League and NJAC raising these concerns.    In recent weeks, all three rating agencies, Fitch, Moody’s and Standard and Poor’s, have issued analysis, citing their concerns about the possible impact of excessive salary awards on municipal budgets, and about the impact on their respective credit ratings.

At a December press conference, a large coalition of business advocates and local government organizations expressed their support for the extension of the 2% cap, including:

 

Chamber of Commerce, Southern New Jersey

Commerce and Industry Association of New Jersey

Government Finance Officers Association of New Jersey

International Council of Shopping Centers, NJ Chapter

NAIOP New Jersey

New Jersey Association of Counties

New Jersey Association of County Finance Officers

New Jersey Builders Association

New Jersey Business & Industry Association

New Jersey Chamber of Commerce

New Jersey Conference of Mayors

New Jersey League of Municipalities

New Jersey Municipal Management Association

New Jersey Realtors

New Jersey Urban Mayors Association

Southern New Jersey Freeholders Association

 

League Executive Director Michael J. Darcy stated:

“A recent editorial correctly described the extension of the interest arbitration a ‘no brainer.’   That is reflective of the overwhelming and bipartisan consensus among local leaders at the municipal and the county level, business interests and newspaper editorial boards across the state that the reinstatement of the 2% interest arbitration cap is in the best interests of the State’s property taxpayers.    We thank Senator O’Scanlon and Assembly Representatives DeCroce and Schepisi, for sponsoring this critical legislation.  Further, we call on the Governor and Legislative Leaders to support this initiative and for its quick passage.”

NJAC Executive Director John Donnadio stated:

“We all have the utmost respect and admiration for the police, firefighters, correction officers, and sheriff officers who put their lives on the line every day to protect the communities in which they serve.   But we must recognize that our State, local governments, and property taxpayers are struggling to make ends meet.  The 2% cap has proven to be an effective tool for controlling cost without impacting the recruitment, retention or response of our public safety officials.  Property taxes are the number one concern of our taxpayers, so we call on the Governor and the Legislature to make the extension of the IA cap a top and immediate priority.”

Contacts:

John Donnadio, Executive Director, NJAC, (609)-394-3467

Michael F. Cerra, Assistant Executive Director, NJLM, 609-695-3481 x120

Swift Moving Legislation Will Transfer Management of PFRS to Labor Dominate Board of Trustees

Senate President Sweeney and Senator Kean sponsor S-5, which transfers the management of Police and Fire Retirement System (PFRS) to a Board of Trustees of PFRS.  This legislation would disproportionately shift control of the PFRS, from balanced labor-management control, to a union-dominated (7-5) decision-making structure.   The bill has been released by the Senate Budget and Appropriations Committee and can be scheduled for a final vote in the Senate at the next voting session.      An Assembly companion will likely be introduced shortly.

The League, joined by our partners with the NJ Conference of Mayors and the NJ Association of Counties,  adamantly opposes this legislation.

Funded entirely by property taxpayer dollars, municipal and county governments will spend an estimated $913.0 million in 2018 to subsidize the Police and Firemen’s Retirement System (PFRS), while PFRS members will contribute approximately $334.0 million to the defined benefit plan.  In other words, property taxpayers will finance over 73.0% of PFRS in 2018, while PFRS members will pay 27.0%.

In its current form, the bill will allow public safety union members and retirees to enhance their own benefits; while forcing their public employers, and New Jersey taxpayers to assume a disproportionate amount of the risk.

The legislation gives the labor-management board, at its discretion, and at such time and in such a manner as it determines the ability to:

• Enhance any benefit set forth in N.J.S.A. 43:16A-1 et seq.; and
• Modify any such benefit as an alternative to an increase in the member contribution rate; and
• Reinstate, when appropriate, such reduced benefit to the statutory level without an additional contribution by the member.

The legislation would allow the PFRS to enhance member benefits without meeting the 80% target fund ratio. The target fund ratio is a measure put in place to ensure the financial stability of the State’s pension systems prior to enhancing member benefits and something that is required by the State’s other pension systems.

PFRS is not like a 401K. Rather, it is a defined benefit program in which the employers are responsible for any shortfall in funding.   Employees’ contribution rates are fixed at 10% of their salary while the employers’ contribution rates are based on the funds needs and performance based on actuarial reports. Currently, that requires local employers to contribute 27.35% of the employees’ salary.  As a result any shortfall due to a downtown in the economy, mismanagement of fund assets, or any enhancement in benefits ordered by the labor-controlled board, will be borne by property taxpayers.

The League, along with the New Jersey Association of Counties, opposes the bill for the reasons outlined above.  We have requested the following taxpayer-friendly changes that will serve to protect the long-term health and viability of PERS as well as establish critical safeguards that require the new Board of Trustees to manage valuable property taxpayers’ dollars in an effective and efficient manner:

• Create a 15-member PFRS Board of Trustees comprised of an equal number of labor and management representatives with 1 independent member;
• Authorize the League and Association of Counties to make direct management appointments to the new Board of Trustees as is the case for the labor representatives;
• Prohibit the new Board of Trustees from enhancing member benefits until the system achieves a target funded ratio of 80% as required under current law;
• Require a supermajority vote of the full membership of the new Board of Trustees to enhance members benefits, and only after the system achieves a target funded ratio of 80%; and
• Establish a mandatory retirement age.

The League and Association of Counties further suggest that if the Legislature and Governor fail to amend the measure accordingly, then PFRS must be changed to a defined contribution plan where employees make greater contributions and assume a greater risk of loss as is the case with 401(k) investments.

Given the inaction on extending the 2% cap on binding interest arbitration awards, the sunsetting of employee health benefit controls implemented under Chapter 78, the restricting of SALT deductions on federal income taxes, and the long-term ramifications of enacting this legislation without the recommended safeguards, municipal and county leaders fear they are facing a perfect storm of uncontrollable property tax growth and substantial service cuts.

 Contacts:

• Michael F. Cerra, Assistant Executive Director, mcerra@njslom.org or 609-695-3481 x120
• Lori Buckelew, Senior Legislative Analyst, lbuckelew@njslom.org, 609-695-3481 x112

Minority Report from the BDAC

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BDAC

Last week, the Federal Communication Commission’s (“FCC”), Broadband Deployment Advisory Committee (“BDAC”) held two meetings where many of the BDAC’s recommendations were formally adopted.  (To see the BDAC’s full report please click here.) For those who are unaware, the BDAC was recently created by the FCC and tasked with examining current barriers to broadband deployment.  The BDAC was to then provide the FCC with recommendations on how to best overcome these barriers, with the ultimate goal being to expand affordable and reliable access to broadband services.

As predicted, many of these recommendations are grounded in the misguided notion that state and local governments present the primary barrier to broadband deployment. Based on that erroneous assumption, the BDAC recommends federal preemption of local control.  An underlying question, of course, is whether or not the FCC has been granted legal authority to preempt local control in regards to broadband deployment.  The BDAC, however, did not address the threshold issue of FCC authority but instead pressed on, continuing to operate under the assumption of authority.  This error could ultimately prove the BDAC’s work to be fruitless, and this would only serve to delay progress towards the shared goal of bridging the digital divide.

Why this essential threshold issue was ignored is likely the same reason why preemption was an overarching theme of nearly every recommendation – membership of the BDAC is made up, nearly exclusively, of broadband service providers and telecommunications representatives.

From its inception, the BDAC lacked sufficient local government representation.  Instead, the FCC stacked the BDAC’s membership with industry insiders, giving very little voice to the concerns of local government.  Lack of input from all effected stakeholders caused the goal of the BDAC to shift.  Rather than being consensus-driven solutions, the recommendations that have come out of the BDAC can more aptly be described as an industry wish list.

Reacting to the steamrolling of local concerns, San Jose, CA. Mayor, Sam Liccardo, one of the few municipal representatives on the BDAC, submitted a “Minority Report.”  The Minority Report examines the threshold question of the FCC authority to preempt local control, as well as its authority to set rates for use of local rights of way.  The Minority Report also exams solutions to bridging the digital divide.  Solutions not premised on the idea that state and local control are the only barriers to deployment, instead, taking a more holistic approach and examining the actions of all stakeholders.

We hope that the FCC takes the Minority Report into consideration when driving policy and rulemaking decisions.  Bridging the digital divide is an important goal for all involved, as it means a better quality of life for all residents.  Any proposed solutions, however, must be fully examined from an unbiased viewpoint.  Something the BDAC’s report and recommendations fail to do.

Contact: Frank Marshall, Esq., League Staff Attorney, FMarshall@njslom.org or 609-695-3481 x.137.