In the interest of disclosure, I should note that I am doing some private consulting for Citizen Finance Advisory Task Force, a Princeton Boro “group of concerned citizens and other taxpayers” which seeks to “create taxpayer relief through reduced spending and enhanced revenue”.
Earlier this year, I wrote this paper which examines the compensation of borough employees relative to public sector workers in other states and comparable private sector workers in New Jersey. More recently, I helped the group assess what savings could be obtained by negotiating wage freezes, reductions in annual raises, higher employee contribution to health care, and reduction of other benefits with boro unions, including two police officer unions. I am currently working with them to organize the information in the Boro budget and present it in a format which ordinary citizens can use.
I take no money from any third party for anything I write on Blue Jersey, and what I write reflects my own opinion and my opinion only.
A few weeks ago, I discussed the role binding arbitration has played in driving up police salaries and benefits and consequently local property taxes. Since then, editorial and op-ed pieces in New Jersey newspapers have added to the chorus of voices calling for arbitration reform, which is the number one priority of the state League of Municipalities. In his budget address earlier this month, Christie called for reform to binding arbitration. This could be a step in the right direction, but only if these words are followed with action.
I’ll believe Christie is serious about arbitration reform when I see him offer a serious proposal for reform. There are currently two bills in the legislature, Assemblyman Gordon Johnson’s A996 and Senator Gerald Cardinale’s S1789, that would substantially reform interest arbitration. Neither has attracted much attention in the media or been placed on the calendar for a hearing in a legislative committee. Based on the governor’s recent rhetoric, binding arbitration reform seems to be relatively low on the priority list for the adminsitration. So far, Christie has demonstrated an unwillingness to use the same tough talk with public safety unions that he wields against teachers unions. A couple weeks ago, he called for the teachers and other school employees to accept a wage freeze, something which he has not asked of other local employees, including the nation’s best-paid police officers.
I limited my discussion in the last piece to binding arbitration and its effect of driving New Jersey police officers’ salaries out of balance with police salaries in other states and the salaries of other public employees in New Jersey. But binding arbitration isn’t the only reason police officers cost so much to employ. Below the fold, I will show how lucrative police pensions have played a major role in driving up the cost of municipal government.
The Police and Fire Retirement System (PFRS), which serves nearly all of the state’s local police officers as well as local firefighters and state and county level law enforcement officers, is by far the most generous of the three major state pension systems (the other two being TPAF-Teachers Pension and Annuity Fund, which serves school employees, and PERS-Public Employee Retirement System, which serves most other public employees). Any PFRS members can retire at 25 years of service with a full annual pension of 65% of the employee’s final compensation, which includes longevity and sometimes even holiday pay, as well as bonuses for level of education. PERS and TPAF employees must serve 36 years before they can receive an annual pension of 65% of final average salary. While PERS and TPAF calculate final compensation based on the last three years of an employee’s career, PFRS uses only the final year. Law enforcement officers often enjoy pension-boosting promotions late in their careers which are not as readily available to teachers and many other public sector employees.
The most glaring discrepancy between PFRS and the other two pension systems is the lucrative early retirement PFRS members can enjoy. Once a PFRS member has attained 25 years of service, he or she can retire at any time to a pension of between 65% and 70% of final compensation, regardless of age. By comparison, PERS and TPAF members with at least 25 years of service who retire before their 55th birthday must choose between collecting a reduced pension or not drawing any pension money until they turn 60. Many police officers retire in their early 50s with substantial pensions, and some of these officers seek employment in the private sector. In 2003, Princeton Boro Police Chief Charles Davall retired with 25 years of service to take a job as Deputy Director of Princeton University Department of Public Safety. His salary from Princeton University supplements his $84,000 annual PFRS pension.
Police also contribute relatively little to their pensions plans. While PFRS members are required to pay 8.5% of salary into the PFRS system (compared to just 5.5% for PERS and TPAF members) employee contributions represent only a small percentage of PFRS revenues. While TPAF and PERS members contributions amounted to 46% of their respective funds’ revenues in 2008, only 26% of PFRS revenues came from member contributions. While PFRS members make up less than 1/3 of municipal employees in New Jersey, police and firefighter pensions consume about 3/5 of local government appropriations to state-run pension funds. The employer contribution rate to PFRS (25.88% of salary) is nearly three times greater than the employer contribution rate to PERS (8.95%).
Binding arbitration has contributed to the rising costs of police pensions by consistently boosting the wages and longevity pay on which those pensions are based, and arbitration reform will help slow the growth in the cost of police pensions. But police pensions will still be far more lucrative than those of teachers and other public employees. It seems that pension reform could also be on the table this session; there is talk of moving all new hires that would be eligible for PERS into a new defined contribution plan. Any such legislation that does not reduce police pensions would serve only to increase gap between how we pay police and how we pay everyone else in New Jersey.