Decade after State Commission of Investigation reported on local-government policies that can increase burden on taxpayers, its new report reveals many of the same problems

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A government-watchdog agency that scrutinizes local-government employment practices is once again calling for widespread reform after finding new examples of high-cost benefits that can exacerbate New Jersey’s property-tax burden.

A report issued on Wednesday by the State Commission of Investigation said many local governments still pay workers significant lump sums when they retire to compensate for accrued sick time — even though that practice was flagged in an agency report 10 years ago.

In some cases, local governments have been forced to issue bonds to cover payments due to retirees, compounding the expense by making taxpayers foot the long-term interest costs.

Meanwhile, the agency also found that some local-government employees have been allowed to “sell-back” unused leave on an annual basis, which allows them to get around rules that are supposed to cap how much can be awarded to employees when they retire. Some governments are also offering bonuses for longevity that end up being tacked onto employees’ annual salaries, which can inflate the pension benefits they earn throughout retirement, the report found. And some places are offering employees paid time off for attending personal events like weddings and bar mitzvahs.

A call for best practices

Among the report’s many recommendations is a call for legislation that would establish standard, best-practices rules at the local-government level to better protect taxpayer interests. The policy of paying compensation for declining government-provided health insurance should also be curtailed, according to the watchdog agency, which scrutinized costly employee-benefit practices in 2009 and 1998.

“It is simply absurd that, more than 20 years after the Commission first sounded the alarm about excessive compensation and questionable perks for public employees, these practices remain the norm in many areas,” the new report said.

Nearly $30 billion is raised annually through property taxes in New Jersey to fund a range of services provided by municipal and county governments and school boards. That is roughly the same amount that the state government collects all told from its two largest revenue sources — income and sales taxes. Despite efforts to find efficiencies through shared-services agreements, New Jersey’s typical annual local property-tax bills are consistently among the highest in the nation, averaging nearly $9,000 statewide in 2018.

The last major effort to control local-government spending occurred about a decade ago when Republican Gov. Chris Christie was in office. As part of that effort, annual increases to local property-tax levies were capped at 2%. Changes were also made to public-worker pension and health benefits, including an increase in employee contributions and in the retirement age for many workers.

Those efforts came on the heels of a report issued by the SCI in late 2009 that first brought attention to costly local-government benefit practices and also included calls for limits on sick leave and any payments received when an employee retires to compensate them for unused days. In response, a new law was passed that limited unused sick-time payouts to $15,000, but only for employees hired after 2010.

A major data-analysis project conducted by NJ Spotlight in 2017 determined that local governments, including school districts, municipalities and counties, were on the hook for nearly $2 billion in payments for unused absences. But reforms proposed in the wake of that project have drawn heavy criticism from public-worker union officials and have failed to be enacted.

Familiar problems

The SCI’s new report highlights several examples in which payouts to retiring workers continue to be a major fiscal challenge, including in Paterson, where the city has had to sell bonds to cover the cost of the payouts, compounding the liability due to payment of interest.

“City officials recently scrapped plans to clean-up a local park and to buy new vehicles for the public works department — projects that could benefit the entire community — in order to foot the bill for retirement payouts,” the report went on to say.

Also flagged by the SCI were examples of towns offering their employees an opportunity to sell back unused sick time on an annual basis rather than letting it accumulate until retirement, where it could be subject to the $15,000 cap. One of those towns is Lodi, where the current police contract allows officers to take up to 15 days of sick leave annually, and according to the report, receive annual cash compensation for unused time. The cost of funding such compensation that was passed along to local taxpayers was more than $800,000 between 2013 and 2018, according to the report.

State law also allows local-government employees to receive compensation for not joining their government’s health care plan, with annual payments that can be worth as much as $5,000. But the cost of paying out such waivers — which are not offered to state-government employees — rose to over $1 million in East Orange between 2015 and 2019, the report indicated. The SCI also highlighted a reform enacted in Scotch Plains after waiver payments were abolished in 2016.

Among the SCI’s many new recommendations is a call for local governments that still offer such health-insurance waivers to take a new look at whether doing so is still fiscally prudent.

“The Commission recommends that local government units that pay bonuses to employees who decline government provided health insurance evaluate their policies to determine whether it still makes economic sense to continue such payments or if it represents an unnecessary expense to local taxpayers,” the report said.

Calculating all pension benefits using base salary only and not additional forms of compensation like longevity pay that some towns offer is also among the commission’s reforms. In some instances, the longevity pay can boost annual compensation by as much 15% to 18% on top of any annual raises, putting more strain on the state’s already underfunded pension funds. According to the Department of Treasury’s latest official state debt report, the total unfunded liability for all state and local pension funds in New Jersey is more than $142 billion.

“While some local governments have cut back or phased out longevity bonuses, this additional compensation continues to boost employee salaries in many municipalities,” the report said. “The Commission recommends that these rules be changed to remove longevity compensation from the salary upon which the pension payment is calculated.”