On appeal from the New Jersey Public Employment Relations Commission, Docket No. IA-2009-065.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Graves, Espinosa and Guadagno.
The opinion of the court was delivered by ESPINOSA, J.A.D.
For more than a decade, the State of New Jersey has responded to the
dire financial circumstances of appellant, City of Camden (the City),
by providing "extraordinary payments of State aid[.]" N.J.S.A.
52:27BBB-2(i). The amount of State aid has, however, declined in
recent years. When the collective bargaining agreement (CBA) between
the City and defendant International Association of Fire Fighters,
Local 788 (the Union or IAFF) expired on December 31, 2008, the
parties engaged in compulsory interest arbitration pursuant to the
Police and Fire Public Interest Arbitration Reform Act (the Compulsory
Interest Arbitration Act), N.J.S.A. 34:13A-14 to -21.*fn1
The resulting arbitration award provided for salary increases
for the firefighters which, it is undisputed, the City cannot pay from
its own tax base. Stated briefly, the arbitrator's means of
accommodating that obstacle was to call the State of New Jersey a
"fourth party" to the arbitration and conclude that the State is
required to pay the shortfall. The City appeals from a final
decision of the Public Employee Relations Commission (PERC) that
affirmed the award. For the reasons that follow, we reverse PERC's
decision to affirm the award, vacate the award and further hold that
the matter should proceed before a different arbitrator on remand.
In 2005, the City entered into a CBA with IAFF that expired December 31, 2008. When the parties entered into the CBA, the City's fiscal distress was already the subject of legislative action.
Two years earlier, the Legislature enacted the Municipal Rehabilitation and Economic Recovery Act (MRERA), N.J.S.A. 52:27BBB-1 to -65, having found that "certain municipalities" were "[e]conomically impoverished," and in a "continuing state of fiscal distress[.]" N.J.S.A. 52:27BBB-2(a), (b). The Legislature observed that conditions in "those municipalities . . . [have] necessitated the maintenance of large police and fire departments, at enormous taxpayer cost in municipalities without a sound tax base[,]" N.J.S.A. 52:27BBB-2(b), and further, that "the ratable base in these municipalities has declined steadily during the 1990's[.]" N.J.S.A. 52:27BBB-2(f). As a result, "[t]hese municipalities have experienced a substantial budget deficit for many years which has only been addressed through extraordinary payments of State aid[.]" N.J.S.A. 52:27BBB-2(i).
The Legislature declared:
In light of the dire needs faced by such municipalities and the lack of progress in addressing those needs either governmentally or through private sector initiative, and given the successful interventions on the part of other states in analogous circumstances, it is incumbent upon the State to take exceptional measures, on an interim basis, to rectify certain governance issues faced by such municipalities and to strategically invest those sums of money necessary in order to assure the long-term financial viability of these municipalities.
To be a qualified municipality under MRERA at the time, "the municipality already [had to] be subject to the supervision of a financial review board and the State Local Finance Board pursuant to other statutory schemes . . . [and] the municipality [had to] be relying on state funding for at least fifty-five percent of its 'total budget.'" Camden City Bd. of Educ. v. McGreevey, 369 N.J. Super. 592, 598 (App. Div. 2004) (citing N.J.S.A. 52:27BBB-3). As of 2007, Camden was the only municipality in the State in which MRERA had been implemented. N.J.S.A. 52:27BBB-2.2(b); see Senate Community and Urban Affairs Committee, Statement to S.3006 (June 21, 2007).
As part of the implementation of MRERA, the Governor appointed a "chief operating officer" (COO) for Camden for a five-year "rehabilitation term" to reorganize municipal governance and finances in conjunction with the mayor and the municipality's governing body. N.J.S.A. 52:27BBB-7 to -30; McGreevey, supra, 369 N.J. Super. at 597-98. In the fourth year of the rehabilitation term, the COO prepared a report, as required by N.J.S.A. 52:27BBB-8(a), in which he recommended an extension of the rehabilitation term. N.J.S.A. 52:27BBB-7(c).
The Legislature agreed, finding a ten-year rehabilitation term "more realistic" for the effectuation of necessary government reform. N.J.S.A. 52:27BBB-2.2(d). It amended the statute to extend the term of the COO to ten years upon such a recommendation, provided the extension was approved by the Commissioner of Community Affairs. N.J.S.A. 52:27BBB-7(c)(1); see also L. 2007, c. 176, § 3, effective September 16, 2007.
Thus, when the CBA expired on December 31, 2008, the City's initial five-year rehabilitation term had been extended to ten years just one year earlier. Negotiations for a successor agreement failed and, in March 2009, the Union filed a petition for interest arbitration pursuant to the Compulsory Interest Arbitration Act.
In April 2009, an interest arbitrator was appointed by PERC.*fn2 As the arbitrator acknowledged in his subsequent Opinion and Award, he was designated "to render an Award regarding the terms and conditions of a successor Collective Bargaining Agreement . . . after consideration of the statutory criteria of N.J.S.A. 4:13A-16(g)(1) through (9)."
The arbitrator was also authorized to assist the parties in reaching a settlement through mediation. After his appointment, the parties participated in mediation sessions in 2009. At the parties' first meeting, the Union offered to accept a contract similar to that reached with the City's police officers, which was described as a one-year agreement with a 4% wage increase. The City rejected this offer.
In January 2010, the Legislature amended MRERA to return control of the City to the municipality. N.J.S.A. 52:27BBB-6(b)(1)-(8), -27(a), -63(b). Although the mayor assumed the powers of the COO, her authority continued to be limited by MRERA and subject to the veto power of the Commissioner of the Department of Community Affairs. N.J.S.A. 52:27BBB-23(a)(2).
The first scheduled evidentiary hearing was conducted on March 9, 2010. The Union submitted eighty exhibits but presented no testimony.
The parties continued efforts to come to an agreement. On May 18, 2010, the City submitted a proposal that called for a three and one-half year term, to end with the fiscal year, in which the employees would receive no raises. In addition, the employees would be required to take one furlough day per month; increase their contributions to health insurance and co-pays; and agree to other provisions. On May 24, 2010, the parties agreed that each would submit an economic proposal to the arbitrator who would then issue a non-binding recommendation for settlement. In the event that either party did not agree with the proposed settlement, the interest arbitration proceeding would resume.
On November 17, 2010, the arbitrator issued a Proposed Settlement of Economic Issues, which included wage increases of
2.5% for calendar year beginning January 1, 2009; 2.0% for calendar year beginning January 1, 2010; 2.0% for calendar year beginning January 1, 2011; and 2.0% for calendar year beginning January 1, 2012. The Union accepted the recommendation but the City rejected the recommendation on the ground that it was unable to fund the proposed settlement.
On January 18, 2011, the City implemented a Layoff Plan it had filed with the Civil Service Commission in November 2010. Among the City employees laid off were a substantial number of police officers and approximately one-third of the firefighters.*fn3
The Union requested the completion of the arbitration.
The final arbitration hearing was conducted on April 18, 2011.*fn4 The City presented the testimony of Glynn Jones, the City's Director of Finance, and Michael Nadol, Managing Director of Public Financial Management, a national public financial consulting firm.
Jones testified that for fiscal year 2010, the City's total budget was $185 million, $125 million of which came from State-controlled aid. Local taxes levied by the City accounted for $20.6 million of the budget, approximately 89% of which was collected. Jones testified that the City no longer received "special municipal aid or extraordinary aid or capital City aid" from the State. The only State-controlled aid available was "transitional aid," for which the City had to apply each year. Jones stated further that from fiscal year 2010 to fiscal year 2011, the total amount of all forms of aid from the State decreased, and noted a newspaper report that the Governor announced he was reducing the State aid pool from $750 million to approximately $250 million.
Jones also described the difficulty in raising additional revenue by increasing property taxes. He stated the City had no choice regarding an increase. Fifty-two percent of the City's real estate is tax exempt. Even assuming 100% collection, the 3% increase permitted under MRERA would yield less than $700,000, and the City needed to find a way to obtain an exception to the cap. Jones testified that the actual cost of the police and fire pension obligations was $12 million for 2010, $17.7 million for fiscal year 2011, and was projected to be $19.3 million for 2012.
Jones explained how the City's financial problems had led to substantial layoffs of municipal employees, including public safety employees. Describing the pension obligation as "the main problem," Jones said that, as a result of the amount required to be paid, the City submitted an amended aid request and increased its levy "to the max." With personnel costs accounting for "over 70 percent" of the City's budget, Jones said "the only choice [the City] had" was to impose layoffs. Jones testified that over one-third of the City workforce had been laid off, including one hundred sixty-eight police officers and sixty-seven firefighters. The City obtained a one-time $2.5 million grant from South Jersey Port, $500,000 of which was used to return fifteen firefighters to duty for the balance of 2011. The City also obtained a Staffing for Adequate Fire and Emergency Response (SAFER) grant of $5.1 million from the Federal Emergency Management Agency (FEMA), which allowed the City to return sixteen firefighters to duty. However, a condition of the SAFER grant was that the City maintain the staffing level it had at the time of application. In the event that the City could not maintain that level, FEMA could cut its funding or require the return of funds to them. The City argued that the financial crisis precluded any increase in firefighter compensation and warned that any increase would force additional firefighter layoffs and possibly trigger FEMA sanctions.
On August 14, 2011, the arbitrator issued his Opinion and Award.*fn5 At the outset, the arbitrator acknowledged the City's "fiscal dilemma" and "the harsh realities of decreased state aid[.]" The arbitrator stated his task was to "objectively balance" that dilemma with "the expectations of its citizens of receiving services and the economic goals of professional fire fighters in maintaining a level of compensation equivalent to their unique, ever-dangerous occupation and service to the City and its residents."
The arbitrator noted that "Camden was (and is) strikingly dependent upon state aid, having received a total of $125,100,682 in state aid for Fiscal Year 2010, including supplemental state aid of $67 million." The City maintained that, despite this aid, it had a deficit for that year of $8 million.
The arbitrator reviewed evidence and acknowledged the parties' arguments pertinent to the nine statutory criteria, N.J.S.A. 34:13A-16(g). In his conclusion, he stated,
There is little question that the huge budget deficit and declining state aid forced the City's action in laying off approximately one-third of its Fire Fighters . . . . But, in leaving the Fire Department with a reduced workforce, the City is, by sheer numbers, less capable of performing firefighting duties and, consequently, less capable of providing the protection of its citizens and structures.
The arbitrator stated his "intention was to recognize the importance of the service provided the City by its Fire Fighters through a minimal wage increase within a reasonable, yet confined, financial boundary." The arbitrator described the evidence regarding the City's financial straits as "both informative and reliable." He cited the good faith efforts of the City to meet the fiscal demands, but considered it futile to impose concessions upon the Union:
[E]ven if this Arbitrator were to consider "freezes" in wages (or zero increases), together with deep reductions in previously negotiated contractual benefits, would the City of Camden be in a stable budgetary position or, more relevant to this interest arbitration, would the City find financial stability if granted nearly 20% reductions or concessions in the Firefighters salary budget? With extensive experience in interest arbitration and the ability to review a record, this Arbitrator is not convinced that any ...