CALCULATION OF THE 2% CAP

All Public Safety Law Enforcement Unions in New Jersey must have a solid understanding of the methodology in which the New Jersey Public Employment Relations Commission (“PERC”) has interpreted how the 2% cap is to be evaluated and adhered to by an interest arbitrator. To this end, PERC has issued two decisions clarifying the same: In the Matter of Borough of New Milford and PBA Local 83 and In the Matter of Borough of Ramsey and Ramsey PBA Local 155.  At the current time, the New Milford decision is the seminal authority in delineating how an interest arbitrator must determine and/or apply the 2% cap.  In New Milford, the Borough argued that the interest arbitration award exceeded the 2% cap when all the economic factors contained in the award were included and accounted for.  Alternatively, the PBA responded that the Borough’s calculations ignored the savings it [the Borough] had realized from the retirement of several officers.

In addressing this inquiry, PERC ruled as follows:

Since an arbitrator, under the new law, is required to project costs for the entirety of the duration of the award, calculation of purported savings resulting from anticipated retirements, and for that matter costs added costs due to replacement by hiring new staff or promoting existing staff are all too speculative to be calculated at the time of the award.  The Commission believes that the better model to achieve compliance with [the 2% cap] is to utilize the scattergram demonstrating the placement on the guide of all of the employees in the bargaining unit as of the end of year preceding the initiation of the new contract, and to simply move those employees forward through the newly awarded salary scales and longevity entitlements.  Thus, both reductions in costs resulting from retirements or otherwise, as well as any increases in costs stemming from promotions or additional new hires would not effect the costing out of the award required by the new amendments…

PERC clarified its holding later in the opinion in stating:

We note that the cap on salary awards in the new legislation does not provide for the PBA to be credited with savings that the Borough receives from retirements or any other legislation that may reduce the employer’s costs.  It is an affirmative calculation based on the total 2011 base salary costs regardless of any changes in 2012.  Likewise, the PBA will not be debited for any increased costs the employer assumes for promotions or other costs associated with maintaining its workforce.

The Ramsey case reaffirmed the holding in New Milford.  In the Ramsey case, the PBA likewise contended that the arbitrator should have taken into account the retirement of a Lieutenant and two promotions in projecting salary costs.  Relying on the New Milford decision, PERC stated the following:

In New Milford, we determined that reductions in costs resulting from retirements or otherwise, or increases in costs stemming from promotions or additional new hires, should not affect the costing out of the award.  N.J.S.A. 34:13A-16.7(b) speaks only to establishing a baseline for the aggregate amount expended by the public employer on base salary items for the twelve months immediately preceding the expiration of the collective negotiations agreement subject to arbitration.  The statute does not provide for a majority representative to be credited with savings that a public employer receives from any reduction in costs, nor does it provide for the majority representative to be debited for any increased costs the public employer assumes for promotions or other costs associated with maintaining its workforce.

It must be noted that PERC’s interpretation of how the 2% cap is to be calculated has not been reviewed by the New Jersey Superior Court, Appellate Division.

The New Milford and Ramsey cases delineate how the 2% cap is to be applied by an interest arbitrator or, for our purposes, how the same must be evaluated and/or calculated. Essentially, a baseline amount expended by the public employer on base salary items for the twelve months immediately preceding the expiration of the collective bargaining agreement between a Public Safety Union and a governmental entity must be established. In short, this “baseline” amount will be the total amount expended by the governmental entity on Union members for “base salary” items in the last year of the expired collective negotiations agreement.

Starting with this number, all Union members employed by the governmental entity on the last day of the expired agreement can be evaluated by simply “moving those employees through the guide” irrespective as to whether a certain officer retired and/or if new hires were made since that time. In short, PERC has provided this simplified model because it deemed that the evaluation of employee “breakage” is too speculative. Thereafter, it must be determined how much cost to the governmental entity is incurred when these members receive their next increment on the salary guide. After determining the cost of step movement, one must determine how much that increased cost counts towards the 2% cap and then determine what is left, if anything, to apply to an across-the-board pay increase.

While this methodology may appear to be esoteric and confusing, it is the current state of the law at this time and thus, must be followed.