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Expiration of Arbitration Cap a “Credit Negative..

Moody’s, the credit rating agency, issued a short report this week warning that the expiration of the 2% arbitration cap for police and fire contracts in New Jersey will impact local municipalities negatively in the coming year. The report said elimination of the cap will lead to a “credit negative” situation for municipal governments.

Expenditures on public safety can be a significant portion of a municipality’s overall budget. The removal of the cap will allow contracts to go to arbitration and the increases that are granted are no longer limited. The League of Municipalities urged its members to pass resolutions in support of the cap’s extension prior to its expiration on December 31.

“If the cap on interest arbitration expires, while the 2% property tax levy cap remains in effect, municipalities will be forced to reduce or eliminate municipal services in order to fund interest arbitration awards,” the League said in a statement supporting the extension.

Municipalities have relied on the cap to help manage rising costs in recent years.

“The temporary 2% cap on police and fire arbitration contract awards has been an effective tool to control increasing salary costs and provide a solution to assist local governments in keeping property taxes down and costs under control,” the League of Municipalities said.

In recent days, it has become a political hot button issue. Gov. Christie blasted the Democratic leadership of the legislature for allowing it to expire. He has also been critical of Gov.-Elect Murphy for not taking a position on the issue.

“It is a shame that Democrats in the Legislature are paralyzed & let the arbitration cap expire,” tweeted Gov. Chris Christie on Thursday. “This will lead to higher property taxes and to negative action from ratings agencies. Governors lead. So let me be clear–we need this cap now. Everyone in leadership should be as clear.”

Murphy, along with Senate President Steve Sweeney and Assembly Speaker Vincent Prieto, were waiting to make a decision upon receiving a final report from the task force examining the cap. However, the task force announced shortly after the new year that they would not be issuing a final report.

So where does this leave the state’s municipalities? Those communities who have police and fire contracts expiring in 2018 do not have a salary cap in place and will be subject to an arbitrator’s decision. If the increases granted are higher than 2%, tough choices will need to be made. This will mean cutting back on road paving and infrastructure improvements, cuts to services provided to residents and forgoing purchases for departments including recreation, emergency services, libraries and more.

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