MUNICIPAL BUDGET ALERT: Three Recently Enacted Laws that will Affect this Year’s Municipal Budgets

April 12, 2011
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Three Recently Enacted Laws that will Affect this Year’s Municipal Budget

Municipalities are facing tough economic decisions in establishing their Municipal Budget. The New Jersey Legislature enacted three new laws that affect a municipality’s budgets and are as follows: Arbitration Reform Bill, Health Care Contribution Amendment and New Tax Cap Levy.

Arbitration Reform Bill

On January 1, 2011, the Arbitration Reform Bill became effective, which revised the procedure for police and fire contract disputes with public entities in binding arbitration and imposed a new “cap” on certain arbitration awards. This recently enacted bill sets new limits to the interest arbitration process, including a 2% cap on the increase of base salaries for collective bargaining agreements that have expired and entered the interest arbitration process after impasse for the next three (3) years. The Arbitration Reform Bill will take effect immediately, however, the 2% cap on base salary will only affect police and fire department contracts that expire between December 31, 2010 to April 1, 2014 and seek interest arbitration. Collective bargaining ­agreements that expired before December 30, 2010 and subsequently file for interest arbitration will be subject to all amendments except the 2% cap on base salary increases.

Some of the pertinent features of the Arbitration Reform Bill include:

    • Imposes a 2% cap on base salary increases for police and firefighter arbitration awards issued from January 1, 2011 to April 1, 2014; this law is effective on collective bargaining agreements that have expired from January 1, 2010 through April 1, 2014.


    • The 2% cap affects the “Base Salary,” which includes salary increments, longevity, length of service, and other similar compensation as provided in the collective bargaining agreement.


    • The parties may agree or the arbitrator may decide to distribute the aggregate monetary value of the award unequally over the term of the agreement.


    • Health care, pension costs and non-economic issues are exempt from the 2% cap.


    • The Arbitrator’s fee can not exceed $1,000 per day and the total cost of arbitration cannot exceed $7,500 per case.


    • The Arbitrator cannot impose a fee of more than $500 for the cancellation of an arbitration proceeding without good cause.


  • The Arbitrator must provide an opinion and award within 45 days and shall be fined $1,000 for each day the award is late.

Health Care Contributions

According to the new amendment of N.J.S.A. 40A:10-21(b), effective May 21, 2010, public employees will share the cost of health benefits with their public employer. Public employees will provide 1.5% of the employee’s base salary to health care contributions. Specifically, the amendment of N.J.S.A. 40A:10-21(b) requires public employees of the State of New Jersey, municipalities, counties and local school boards to contribute a minimum of 1.5% of base salary toward their own health benefits. The health care contribution amendment is effective on May 21, 2010, or upon expiration of an “applicable collective negotiations agreement.”

Tax Levy Cap of 2%

Recently, the Legislature amended N.J.S.A. 40A:4-45.45(b) effective July 10, 2010, which provides a 2% cap on the tax levy with certain exceptions, including healthcare and pensions. A municipality is limited to raising the tax levy 2% which restricts the amount that the Municipality can raise its overall budget. The Municipality may request approval, through a referendum to voters, to increase the amount to be raised by taxation by more than 2%.

If you would like to discuss this Legal Update, please contact Ramon E. Rivera:

Ramon E. Rivera
Partner, Chair, Labor and Employment Group:
(201) 806-3388  (201) 806-3388 or

This Scarinci Hollenbeck Legal Update has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without ­professional counsel.