TRENTON — After years of winning at the negotiating table, cops and firefighters across New Jersey are losing and walking away these days with much less money.

Since January of 2011 — following a wave of reforms that capped municipal spending and arbitration awards — police and firefighter unions have signed at least 160 new contracts, according to the Public Employment Relations Commission.

The average annual wage increase for those contracts was around 1.86 percent, the lowest bump in at least two decades, PERC records show. The drop is happening in all contracts, whether negotiated or awarded by an arbitrator, and suggests a seismic shift in police and fire negotiations.

The new data are the latest piece of evidence that the joint efforts of Gov. Chris Christie and Democratic leaders in Trenton to rein in public employee benefits and municipal spending are yielding results.

“We all know that the key and reasonable complaints of many in New Jersey is property taxes, and one of the key drivers was arbitration awards that were in the 3 and 4 percent range,” a Christie spokesman said. “Reasonable salaries are important to police and fire personnel, but the indisputable result was runaway increases that were not sustainable, particularly when we entered a period of recession.”

In 2010, Christie and Democratic lawmakers who control the Legislature enacted a 2 percent cap on local tax growth. But they said the levy cap would be impossible to manage if arbitrators awarded new contracts to police and fire unions — the biggest expense in many towns — that included salary increases above 2 percent.

So, Christie and lawmakers took the dramatic step of capping arbitration awards at 2 percent, too, the only state in the nation to enact such a restriction. They also dramatically sped up the arbitration process and required arbitrators to consider the full compensation package, such as longevity pay and step increases — not just salaries — as counting toward the cap.

But critics of the arbitration cap say it’s a heavy-handed overcorrection that has tilted the scales so heavily in favor of towns that collective bargaining is all but dead.

No town would offer more than a 2 percent raise knowing unions can’t get a higher raise from an arbitrator, critics argue.

Cops and firefighters, unlike other public employees, are forbidden from striking because of their role in protecting the public. In exchange, they can arbitrate disputes over wages, health benefits and work rules.

When deciding salary increases, arbitrators are required to consider nine criteria, including cost-of-living adjustments and pay in comparable towns.

But critics say those historical standards have been all but rendered moot by the cap.

"What difference does cost of living make or comparables make when all that matters is the 2 percent cap?" union attorney Richard Loccke said. "This is not negotiations. It's a formula."

Loccke, who has worked with many unions in the state, said contract increases were already on the decline because of the municipal caps.

“Absent this act, the numbers would have gone down anyway,” Loccke said. “We have caps on appropriations and municipal levies, so the hard cap on arbitration awards is like killing a mosquito with a hand grenade.”

Applying new rules

In 2011, 34 police and fire negotiations went to arbitration, but none was forced to comply with the new arbitration cap because of a “grandfathering” clause.

The average hike of those awards was 2.05 percent, much lower than previous years, PERC records show.

Hanover Township was among those places where the new rules didn’t apply.

The 25-person police force was seeking a 3.5 percent retroactive increase. The township countered with an average 2 percent increase, arguing that any more would eat into the $288,108 in new funds it could raise under the state’s tax levy cap.

The arbitrator sided with the township and awarded the union an average increase of 2.35 percent over the lifetime of the contract.

Cap obligations

“The PBA’s proposal of 3.5 percent increases to base salary cannot be awarded,” the arbitrator Gretchen Boone ruled. “It places little, if any, consideration on the township’s declining ratables, declining revenues and the township’s obligation to meet all of its cost obligations under the tax levy cap.”

The arbitration caps are set to expire in April unless the Legislature extends them, setting up one of the first legislative battles of the year. A task force was created to evaluate the caps, and its most comprehensive report is expected to be issued next month.

Christie wants to extend them, but his opponent, state Sen. Barbara Buono (D-Middlesex), who supported the 2010 reform, is taking a wait-and-see approach.

“Sen. Buono believes that the only responsible way to address this issue is to review the findings of the interest arbitration task force, evaluate revenues and sit down with stakeholders,” Buono spokesman David Turner said. “Then, as governor, she will weigh in after analyzing their final report.”

On Buono’s approach, Christie spokesman Michael Drewniak said, “Well, that’s courageous, isn’t it?”

Assemblyman Declan O’Scanlon (R-Monmouth), one of the most vocal supporters of the cap, said any lawmaker who doesn’t support its extension “needs to go back to remedial math.”

“You can’t have a levy cap without an arbitration award cap. It’s completely contradictory,” O’Scanlon said. “You can’t say we are going to cap the amount you can raise to pay your bills and then let an arbitrator hand out higher awards on your biggest budget line item.”

O’Scanlon also said the real power of the reform law is that it requires arbitrators to consider the full compensation package. He said historical records of salary increases are misleading because they fail to take into account other perks like longevity pay and step increases.

Those factors were central to the dispute between the New Milford police union and township. The case was the first to go before the appeal board of the PERC and significantly shaped future decisions.

After failing to reach an agreement on a new contract, the 32-member police union filed for arbitration in January of 2012. The union sought a four-year contract with annual increases of 2.75 percent, and the town countered with a three-year contract with no increases in the first two years and a 2 percent bump in the final year.

The arbitrator eventually awarded the police union a three-year contract, with a 1 percent increase in the first year and bumps of 2 percent and 2.5 percent in the remaining years, but the town appealed the award, saying it violated the new cap.

Siding with the town

The appeals board sided with the town and vacated the decision. The board ruled the arbitrator failed to calculate the future costs of longevity pay, clothing allowances and other perks that are also subject to the 2 percent cap, a stark reversal of previous practices.

Take a town that pays its police department $1 million in salaries and other benefits, including step increases and longevity pay. Under the cap law, an arbitrator can’t award the union more than a 2 percent, or $20,000, increase on average for each contract year.

That $20,000 increase can be divided among salary increases, step increases and longevity pay. So if five officers are expected to hit a benchmark based on their length of time with the department and get a $4,000 bump in longevity pay — for a total cost of $20,000 — that leaves no money for raises for anyone else.

After tense negotiations failed, the Atlantic City firefighters union filed for arbitration in May of 2012.

The union accused the city of seeking vengeance for highly publicized retirement payouts by offering members no salary increases and rolling back other benefits. For its part, the union wanted a three-year deal with a 4 percent salary hike the first year and 2 percent each year after.

Adhering to the cap

In the end, the only thing that mattered was the 2 percent cap. The arbitrator kept in place longevity and step increases at a cost of about $1 million over the three-year deal and awarded a 1.2 percent salary increase in the first year and nothing in the remaining two years.

The arbitrator, Michael Pecklers, said he heard the unions’ concerns about revenge but said he must adhere to the cap.

“The New Jersey Legislature has enacted the current statute, and Gov. Christie has made the reduction of perceived exorbitant public sector benefits with concomitant tax savings passed along to residents the cornerstone of his administration,” Pecklers wrote. “As such, any interest arbitrator who ignores this imperative without supporting the award with substantial credible evidence exposes himself to a collateral attack upon appeal.”

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