As reported by nj.com on July 1, 2013, the State of New Jersey revenue collections out paced Governor Christie’s administrations projections for the sixth consecutive month in May, according to state treasury figures, which were released that day. The strong revenue figures received a boost from better than expected income and sales tax collections, which account for more than half of the State’s overall revenue collections. The State’s Chief Economist, Charles Steindel, stated “the report reflects ongoing improvement in economic conditions of State residents,” “income tax collections continue to grow rapidly even after the receipt of large final payments in April.” Overall, income tax collections are up 13% in New Jersey this year and revenues from sales tax is up 3%.
In the past strong revenue collections by the State of New Jersey would be good news for New Jersey Public Employment law enforcement labor unions as it would demonstrate the State’s “ability to pay” when arguing for a pay raise that could be collectively bargained for. The ability to pay is one of the nine (9) criteria cited in the New Jersey Employer/Employee Relations Act that must be taken into consideration by arbitrators in rendering an interest arbitration award. However, in 2010, the New Jersey State Legislature enacted new laws regarding how the interest arbitration processes is to be conducted in the State of New Jersey. The Legislature passed these modifying laws on or about December 13, 2010 and the same became effective on January 1, 2011.
In simple terms, the legislation, which amended various provisions of NJSA 34:13A-16, et. seq., revised the procedure for police and fire contract disputes and imposed a cap on certain interest arbitration awards. According to the statement accompanying the bill, the legislation is supposed to streamline the procedure for resolving contractual impasses between public employers and their police and fire departments and imposes a 2% cap on arbitration awards under certain circumstances. The statue establishing the 2% cap reads as follows:
An arbitrator shall not render any award pursuant to section 3 of P.L.1977, c.85 (C.34:13A-16) which, on an annual basis, increases base salary items by more than 2.0 percent of the aggregate amount expended by the public employer on base salary items for the members of the affected employee organization in the twelve months immediately preceding the expiration of the collective negotiation agreement subject to arbitration. 
Thus, under this statutes provisions, an arbitrator’s award on disputed “base salary” items are subject to a 2% cap, calculated on an annual basis over the term of the collective bargaining agreement governed by the award.
In a recent interest arbitration decision rendered in the Borough of Tenafly and PBA Local 376, Arbitrator Robert Gifford clarified how the 2% was to be applied in conjunction with the other criteria that must be considered in rendering an award. In this case, the PBA proposed a 2% across the board increase of each year of the three (3) years of the contract. In response, the Borough proposed a 0% increases for each year of a five (5) year contract, but agreed to allow movement on the salary guide.
After evaluating the parties respective offers, Arbitrator Gifford determined that the PBA’s offer would provide a 17.35% increase in base salary items over the three (3) years of the contract well in excess of the 6% allowable under the 2% cap. Similarly, Arbitrator Gifford determined that the Borough’s offer, even with a 0% across the board annual increase, would result in a 15.59% pay raise over five (5) years through movement on the salary guide alone. Thus, such an award would again, exceed the 6% allowable increase under the 2% salary cap. Therefore, given that each parties’ offer was in violation of the 2% cap, Arbitrator Gifford determined he could not award either final offer. Quite simply, Arbitrator Gifford reasoned that awarding either offer would be in violation of the applicable law and thus, reversed on appeal.
As such, Arbitrator Gifford eliminated the salary guides that were in effect, inserted additional steps on new salary guides that were created and instituted various longevity and salary freezes in order to comply with the 2% cap. This ruling by Arbitrator Gifford, in essence, nullifies the nine (9) criteria that are to be utilized and considered in rendering an interest arbitration award. Arbitrator Gifford makes in perfectly clear that any and all interest arbitration awards must comply with the 2% cap, no matter the weight that is given to the other criteria mandated under the New Jersey Employer/Employee Relations Act. Therefore, the increase in revenue realized by the State of New Jersey very well may be of no moment in many arbitration cases as a result of the strict reading and interpretation of the 2% cap that has been taken by arbitrators and PERC alike. However, it is important to note that Arbitrator Gifford’s award in The Borough of Tenafly and PBA Local 356 is being appealed by the Local.
 NJSA 34:13A-16.7(b)