On certification to Superior Court, Chancery Division.
For affirmance -- Justices Mountain, Pashman, Clifford and Schreiber and Judge Halpern. For reversal -- None. The opinion of the court was delivered by Pashman, J.
[80 NJ Page 274] This case presents for review important issues concerning the interrelationship of the Local Government Cap Law, N.J.S.A. 40A:4-45.1 et seq., and the compulsory interest arbitration provisions of the Employer-Employee Relations Act, N.J.S.A. 34:13A-14 et seq. First, we must decide whether costs incurred to implement compulsory arbitral awards need be taken into account by municipalities when determining whether their final budgetary appropriations have exceeded the limits imposed by the Cap Law. Second, we must delineate the standards to which
an arbitrator shall adhere when rendering a compulsory award. Finally, we must determine whether the particular award here at issue should be enforced.
Plaintiff New Jersey State Policemen's Benevolent Association, Local 29 (PBA) is the majority representative of the police officers employed by defendant Town of Irvington. In November of 1977, the parties commenced negotiations concerning the terms of a successor contract to replace their soon-to-expire 1977 collective agreement. Negotiations having reached an impasse, on December 28, 1977 the Public Employment Relations Commission (PERC) invoked the compulsory interest arbitration provisions of the Employer-Employee Relations Act, N.J.S.A. 34:13A-14 et seq., and appointed an arbitrator to resolve the dispute.
N.J.S.A. 34:13A-16 mandates that in the event a municipality and the majority representative of its police employees are unable to reach a voluntary agreement, the matter must be submitted to an arbitrator who will then select the terms that will be incorporated in the parties' collective agreement. The parties are free to select one of a number of types of arbitration in order to resolve their dispute. See N.J.S.A. 34:13A-16(c)(1)-(6). In the present case, the parties agreed to submit the matter to "final offer" interest arbitration. N.J.S.A. 34:13A-16(c)(6).
Final offer arbitration does not allow the arbitrator to make any award which he feels is most reasonable under the circumstances. Rather, each party puts forth its final offer as to all outstanding economic and non-economic issues. The economic demands are treated as a single package. The arbitrator must choose to incorporate in the collective agreement either the entire package proposed by the employer or that put forth by the employee representative. He cannot render a compromise award. See N.J.S.A. 34:13A-16(c)(6).
A similar constraint is placed upon the arbitrator's decision relating to non-economic issues. Unlike the economic proposals,
however, non-economic matters are treated separately rather than as a package. As to each such matter, the arbitrator must choose either the final offer put forth by the employer or that proposed by the employee representative. N.J.S.A. 34:13A-16(c)(6).
In the present case, the PBA's final economic package consisted of the following: (a) a $1,000 per year salary hike for all police officers effective January 1, 1978; (b) a $100 increase in patrolmen's annual clothing allowances; (c) a credit of one extra day of compensatory time for each officer; (d) one additional paid holiday per year; and (e) an increase of $200 in the annual allowances received by patrolmen assigned to the Detective Bureau. Its non-economic proposals included (a) additional time-off with pay in the event of a death in the family; (b) a clause in the collective agreement specifying the current level of insurance coverage provided by the Town; (c) a grant of two days off per week to the PBA president in order to conduct PBA business; (d) the Town's furnishing of a marked police vehicle for officers wishing to attend the funerals of fellow policemen slain in the line of duty; and (e) a provision that patrolmen be allowed to exchange their tours of duty with other officers should they deem this necessary for "personal reasons."
The Town's final offer consisted of a single economic item -- that the salaries of all patrolmen be increased by 5% effective July 1, 1978. (This raise would amount to a $745 per year salary increment for "top step" officers -- i.e., those who had served more than three years on the force.) All other proposals put forth by the PBA -- whether economic or non-economic -- were rejected.
At the hearing before the arbitrator, the vast majority of the evidence tendered related to the reasonableness of the parties' economic packages. The PBA presented exhibits relating to increases in the Consumer Price Index since 1969 in order to demonstrate that past pay hikes granted patrolmen had not kept pace with the rate of inflation. It also attempted to show that the present salary schedule and
clothing allowances of Irvington police officers were low in comparison to the benefits granted patrolmen in other Essex County communities. Finally, the PBA presented data demonstrating that the cost of implementing its economic package -- estimated at $177,000 -- could be defrayed by the Town without undue difficulty.
The Town contended that due to the Legislature's enactment in 1976 of the so-called Local Government Cap Law, N.J.S.A. 40A:4-45.1 et seq., it could not afford to grant patrolmen more than a 5% pay hike effective July 1. In order to comply with the Cap Law, Irvington's total budgetary appropriations in 1978 could not, with certain exceptions, exceed its 1977 overall appropriations by more than 5%. See N.J.S.A. 40A:4-45.2. For 1978 budget purposes, this 5% increment amounted to $536,332.
According to Vincent Foti, Irvington's Controller, $525,000 of this $536,332 allowable increment had already been "eaten up" by actions taken by the municipality prior to 1978. In 1977, the Town had agreed to grant each of its 600 employees a $1,750 salary raise effective July 1, 1977. Half of this salary increase -- $875 per employee -- would be paid in the first six months of 1978 and hence had to be accommodated within the 1978 Cap figure. Foti further testified that the Town's utility and insurance rates had increased substantially in 1978 -- increases which also had to be reflected in the final appropriations figure which was subject to the Cap Law's 5% ceiling.
Not wishing to deprive its employees of any raise during the 1978 calendar year, in preparing its 1978 budget the Town drastically reduced its expenditures in many areas. All departmental requests for additional personnel or overtime were eliminated. No new appropriations were made for purchases of equipment, employee training programs, summer employees, street paving, and the maintenance and repair of equipment, parks and municipal buildings. Expenditures for cultural and recreational programs, library upkeep, and public works projects were substantially curtailed.
As a result of these cutbacks, the Town estimated that $285,000 was available to fund salary increases for all of its 600 employees. The Town therefore offered a 5% across the board pay hike effective July 1. In this way, only half of the 5% increase would have to be accommodated within its 1978 Cap figure. The Municipal Employees Association -- the majority representative of the Town's blue and white collar workers -- accepted this proposal. The PBA did not.
The Town presented evidence demonstrating that if the PBA's package were accepted, it would be forced to lay off many essential personnel in order to stay within the limits mandated by the Cap Law. These layoffs, according to the Town's witnesses, would lessen the manpower of departments already being run by "skeletal crews" and hence be extremely detrimental to the citizens of Irvington.
Finally, the Town maintained that past salary raises granted its patrolmen had kept pace with the rate of inflation. It also emphasized that salary increases received by police officers had always had an effective date of July 1 rather than January 1, and that during the first six months of 1978, its employees would be receiving, for the first time, $875 of the $1,750 raise implemented on July 1, 1977.
On October 9, 1978, the arbitrator issued his opinion. See N.J.S.A. 34:13A-16(f)(5). He estimated that the cost of implementing the Town's proposal would be approximately $46,200 in calendar year 1978, while the cost of the PBA's package would approach $150,000. He then concluded that the PBA's economic proposals were "more fair and reasonable" than those put forth by the Town and ruled that the PBA's package should be incorporated in the parties' 1978 collective agreement. As to the non-economic issues, the arbitrator rejected each of the PBA's demands except that relating to the specification of insurance coverage in the contract.
One week later, on October 16, 1978, the PBA filed a complaint in Superior Court seeking confirmation of the award. See N.J.S.A. 34:13A-19. The Town, named as
defendant, moved that the award be vacated on the ground that it was manifestly unreasonable given the evidence that had been adduced at the arbitration hearing. See N.J.S.A. 34:13A-16(f)(5); cf. Division 540 v. Mercer County Improvement Auth., 76 N.J. 245 (1978). The Town also sought a declaratory judgment that, regardless of the award's validity, the costs incurred in order to implement the arbitrator's decision constituted "[e]xpenditures mandated after the effective date of [the Cap Law] pursuant to State * * * law," see N.J.S.A. 40A:4-45.3(g), and hence were not expenditures which need be considered by the municipality in determining whether its 1978 final appropriations exceeded the 5% ceiling established by the Cap Law.
Due to the arbitrator's failure to specify in detail the reasoning underlying the award, the trial judge concluded that he could not meaningfully determine whether the arbitrator had complied with the standards set forth in N.J.S.A. 34:13A-16. He therefore remanded the cause to the arbitrator with instructions to more fully explicate the basis of his decision.
Pursuant to the judge's instructions, on December 5, 1978, the arbitrator issued a second opinion. In this opinion he both "reaffirmed" his earlier decision and set forth his reasons for so doing. In his view, the Town's offer of a 5% pay hike effective July 1 -- in effect, amounting to only a 2 1/2% salary raise during calendar year 1978 -- was "not merely low, it [was] unreasonable" given the rate of inflation, the salaries received by police officers in other Essex County municipalities, and the number of pay hikes that had been accorded Irvington patrolmen in past years. He then noted that the cost of the PBA's economic package would be approximately $150,000 while the increase in final appropriations over the Town's 1977 expenditures allowed by the Cap Law was $536,332 -- a substantially higher figure. Although acknowledging that the Town had already drawn up its final budget and that only $46,200 had been appropriated for increased police costs, the arbitrator felt that the Town
could modify its budget or take other measures in order to implement the PBA's economic package without causing undue difficulties to the Town's inhabitants.
On December 28, 1978, the trial judge concluded that the arbitrator's decision was not "arbitrary or capricious" and confirmed the award. The judge also ruled that the costs to be incurred in implementing that award would have to be accommodated within the limits specified by the Cap Law. On January 10, 1979, the Town filed a notice of appeal to the Appellate Division. While the matter was pending unheard before the appellate judges, we directly certified the case to this Court on our own motion.
Before addressing the merits of the parties' contentions, it is necessary to sketch briefly both the mechanics and underlying purposes of the Local Government Cap Law, N.J.S.A. 40A:4-45.1 et seq. In 1976, the State Legislature enacted the New Jersey Gross Income Tax Act, N.J.S.A. 54A:1-1 et seq., in order to provide a method for the funding of public schools consistent with this Court's mandate in Robinson v. Cahill, 70 N.J. 155 (1976). Passage of that law, however, was conditioned upon the enactment of what has popularly been labelled an "income tax package." See L. 1976, c. 47, § 27(c). Included within this "package" were the State Cap Law, N.J.S.A. 52:9H-5 et seq. (L. 1976, c. 67, amended L. 1977, c. 22) and the Local Government Cap Law, N.J.S.A. 40A:4-45.1 et seq. (L. 1976, c. 68, amended L. 1977, c. 10, amended L. 1978, c. 155) -- statutes which limit, respectively, spending by or the tax levies of State, county, and municipal governments. By adopting this package, the Legislature sought to assure the public that the new income tax act would primarily restructure the method of taxation rather than increase dramatically the overall sums that citizens would have to expend in order to finance the workings of government. See N.J.S.A.
40A:4-45.1; New Jersey State Policemen's Benevolent Ass'n, Local 16 v. City of East Orange, 164 N.J. Super. 436, 449 (Ch. Div. 1978).
In enacting the Local Government Cap Law, the Legislature declared it to be
the policy of the [State] that the spiraling costs of local government must be controlled to protect the homeowners of the State and enable them to maintain their homesteads.
The Legislature also recognized, ...