Six New Jersey cities that have suffered chronic financial distress will share $127.5 million in grants from the state's Local Finance Board: Jersey City, Paterson, Camden, Union City, Asbury Park, and Bridgeton. All six have endured years of financial problems brought on by declining tax bases and relentlessly-rising expenditures, especially from their retiree liabilities. Newark and Harrison have also applied for the aid but without a decision so far.
The state aid program was amended this year to require that applying cities to submit detailed information explaining why they need the money. This information provides unusually honest insights into what the local officials believe is driving their budget their distress. In its application, Union City cited rapidly-increasing costs for employee health care and for fire and police pensions. Jersey City also cited fire and police pensions as the single largest contributor to their financial distress, along with salary increases for current police and firefighters as well as payments on debt. Union City noted that property taxes would have to rise by as much as a third without the state aid, and even with the aid they will still have to rise sharply.
The plight of these New Jersey cities highlights the outsized impact that public safety salaries and pensions are having on the finances of struggling cities. Of all categories of public employees, police and firefighters tend to have the most lucrative retirement benefits, in some cases being able to retire at full pensions after just 20 years of service and with substantial health care benefits to cover them for the 10 - 12 years before they become eligible for Medicare. Moreover, many current public safety employees continue to benefit from pay escalations agreed to before the full fiscal impact of the recession hit.
The exceptionalism that many cities apply toward their police and fire unions is becoming more unsustainable with each passing round of budget cuts. As in New Jersey, California cities have also been burdened by police and fire contracts that are often substantially more lucrative than the agreements for other unionized city employees. In some cities, wages, benefits and payments to the pension plans of public safety employees totals nearly 80 percent of cities' labor costs.
So far, local officials of both parties have often (but not always) spared police and firefighters from major furloughs, layoffs and salary freezes. In Wisconsin, for example, police and firefighters are explicitly excluded from the new state law that sharply limits collective bargaining rights for public employees. However, 2011 may be the year when police and fire employees finally face the pressures that had previously befallen only teachers and other workers.
Steve Steckler, Editor