Binding Arbitration…Doesn’t Add Up

Let me get this straight.  The state has a “cap” or limit on how much municipalities can increase their annual budget every year—four percent.  The goal is to keep costs down and try to limit the increase in property taxes.  This makes perfect sense, except there is a huge catch that until now has not been seriously addressed.  The catch is that New Jersey also has a history of using what is called “binding arbitration” when it comes to municipal contracts for police and firemen. 


What does that mean?  It’s pretty simple.  If a municipality offers cops and firemen a two percent salary increase, but the unions are asking for seven percent, clearly they are not coming to an agreement any time soon.  Once the inevitable stalemate occurs, a third party, or arbitrator, is brought in.  Someone whose decision is in fact “binding.”  I’m not against the concept in theory.  But in practice, here is what’s happening.  Arbitrators have historically assumed that raises for public employees are a given, which is a flawed assumption since so many who don’t work in government not only haven’t gotten raises, but have taken pay cuts given these extremely difficult economic times. 


This isn’t even a question of how much cops, firemen or other public employees are worth.  In my opinion, cops and firemen should be paid more.  In fact, to put their lives on the line, I couldn’t even imagine what an appropriate salary would really be.  Simply put, in some ways you can’t pay them enough.


I feel the same way about teachers, who do so much for our kids in public schools.  Again, in a lot of cases, particularly with the best teachers, you can’t pay them enough. However, there are some hard fiscal realities that must be faced and our history of binding arbitration in New Jersey has failed to deal effectively with those realities.


Go back to my original example where a municipality offers two percent and the union asks for seven.  Say the arbitrator comes in and says the number is five percent.  That’s it.  The cops and firemen get a five percent increase.  Again, it is not about whether they are worth it or not, it is a question of what impact this has on other municipal services, not to mention possibly laying off other employees and raising property taxes.  How can the state mandate that municipal costs only go up four percent a year, but an arbitrator—whose decision is binding—rules that a five percent salary increase will be granted.  It doesn’t add up and sometimes the difference is a lot bigger than one percent. 


Governor Chris Christie and some members of the legislature are attempting to deal with the issue of binding arbitration for the first time in a serious way.  That is a good thing.  Predictably and understandably, the public employee unions are incensed over this effort.  They think it is changing the rules in the middle of the game; that it is unfair.  But times have changed, resources are scarce, the money is just not there and further, over the past decade or so, public sector salaries have risen steadily while private sector salaries have remained flat or decreased.  What this means is that the old argument that government doesn’t pay as much as business, doesn’t hold true any more.  In some cases, government actually pays more. 


Again, I’m not saying the government pays its employees too much; it’s just that raises and benefits, granted through binding arbitration, are often not in sync with the current fiscal realities.  State officials can’t score cheap political points by saying they are limiting or “capping” municipal budget hikes by four percent per year if the current tradition of binding arbitration stays in place. 


I’m not calling for the scrapping of binding arbitration, but big time changes need to be made.  The economic realities demand it.  Responsible budgeting demands it.  Voters may not demand change in binding arbitration, because they don’t totally understand it, but there is no way property taxes and municipal costs will ever get under control if we don’t deal directly with the flaws inherent in binding arbitration.  It’s not a magic bullet, and it won’t solve all of our fiscal woes, but it is definitely a step in the right direction.  Binding Arbitration…Doesn’t Add Up