First it was Wall Street. Then Main Street. Now it’s the state house and citu hall that are feeling the financial crunch. The state budget, now in the hands of a new governor who so far is living up to his campaign promises to slice great hunks off New Jersey’s spending — to the delight of some and horror of others — gets most of the press. But at the municipal level, things are every bit as contentious.
It is an old story — towns have limited money and big obligations. But as the effects of the 2008 economic collapse drag on, otherwise-quiet citizens are railing about what their town governments pay its workers. Disproportionate wages, mandated salary hikes, and lavish pensions to teachers, municipal workers, and, particularly, police are increasingly rankling the feathers of residents who wonder where the economic justice
When Princeton resident Nick Karp first read about a downtown business group determined to help Princeton Borough reduce its costs, he had the time, interest, and expertise to join up. His daughters were getting more independent and his professional time was divided between watching personal investments and earning a degree from Rutgers University’s CPA program. The ad hoc group, the Citizen Finance Advisory Taskforce, also struck Karp as having a constructive focus he was comfortable with. “They were not hammering the borough,” he says. “They wanted to actually contribute their expertise in running their businesses.”
Karp liked the fact that the taskforce seemed to be non-confrontational, despite its interest in keeping tax rates down. “That is certainly a goal, ultimately, but just keeping tax rates down doesn’t do it,” says Karp. “You actually need to control expenses. Otherwise you end up borrowing and creating a bigger problem down the line.”
While Karp seems to have more resources than many Borough residents (he now pays $26,000 a year in property taxes for his house on Boudinot Street in the affluent western section of town), he is nevertheless concerned. “Taxes have gone up 80 percent for the average property owner in the borough from 2000 to 2008 — and those were the good years,” he says. “As far as I can tell, there’s nothing to turn that trend around, and frankly, I don’t want to have to move.”
Karp has thrown himself into his work with the taskforce, and after many conversations with borough administrator Robert Bruschi and borough council members, he believes they are struggling to come up with solutions. But they are working under serious constraints. “They are volunteers, have day jobs, and limited time and expertise, and hiring consultants costs lots of money,” he says, adding that “they are tied down by Lilliputian threads coming from the state, federal, and county level.”
These threads are the collective bargaining agreements, pensions, and other fixed costs that tie the hands of borough officials and give them very little flexibility. Fixed costs, which include debt service, leases, agreements with the township, state-mandated pension costs, and contractually determined healthcare costs, are rising. And so are salaries and the obligatory increases built into labor agreements.
The borough must contend with the provisions of the four separate union contracts that must be negotiated: police dispatchers are represented by the Teamsters; police patrol officers by the New Jersey State Policemen’s Benevolent Association; police lieutenants by the Superior Officers Association; and non-supervisory blue-collar workers by Communication-Workers of America.
As the borough puts together a budget, it is also must contend with state mandates and legislation, explains Bruschi. The first is the reduction of state funding just announced by Governor Chris Christie, whereby state aid to municipalities will be reduced by $450 million this year (Princeton Borough saw its aid reduced by $280,000).
“It will translate into one of two things,” says Bruschi. “It will either further reduce the budget to offset the lack of state aid or it will consider tax increases to offset the reduction. We are evaluating to see the best way to handle it.”
Karp agrees, but with a twist. “With Governor Christie declaring a state of school emergency and in fact shoving a lot of costs down to a lower level, we think it is appropriate for lower levels to come back and say, ‘Free us of the constraints of unfunded mandates so we can behave responsibly, as befits our own communities.’”
Schools are one of Governor Christie’s main targets. Districts statewide, and even colleges, are scrambling to find enough capital to operate in the face of massive cuts in state aid. In response, the neighboring West Windsor-Plainsboro school board made an unprecedented move on March 9 when it renegotiated contracts with its teacher and administrator unions to create savings of more than $1 million in the upcoming budget.
The board plans to achieve this by freezing raises for the 12 weeks following September 1. The move delays union-specified wages, but only until 2011, when teachers will get a 3.38 percent pay increase.
Maintenance workers in the district, however, could be the B-side to this equation. Contending with contracts that offer as many as 70 paid days off, plus bereavement time, the district is considering privatizing custodial services, meaning that custodians will likely lose their jobs.
Another issue at the state level is the cap law, which prohibits municipalities from increasing either their tax rates or overall budget by more than 4 percent. “It gets a little more difficult to do when the state can pass things down for us to do by law or cut our funding,” says Bruschi. “We have to approach it this year as, ‘We are all in this mess together, state and local government,’ and make decisions about services we are going to fund and to what degree we are going to fund them.”
Some ideas that are percolating through the Legislature could have a positive impact on the borough’s future contract negotiations. One would be a law that sets a floor for employee contributions to healthcare benefits. Bruschi notes that wherever the minimum participation standard is set, the savings would be significant.
“From the borough’s perspective, we are looking at a potential to save hundreds of thousands on health premiums,” says Bruschi.
In a report titled “Princeton Borough Employee Benefits Analysis,” available online at www.cfatprinceton.com, the taskforce analyzes the specific budgetary issues contributing to the troubles for borough finances that have resulted in spectacular rises in taxes over the past decade. Between 2000 and 2008 the average real estate tax bill for a borough homeowner rose from $8,114, about 5.2 percent of total household income, to $14,562, between 6.5 and 7.0 percent of total household income. That’s an average increase of 7.5 percent a year.
In the same period the property taxes paid by borough residents moved from 21st to 12th highest in the state among municipalities with at least 500 residents.
The report also explores the reasons that the borough is having such difficulties with its costs. One major issue is the high salaries of municipal employees. The reason they are so high, suggests the taskforce report, rests with the large annual salary increases, ranging from 3.5 to 4.3 percent. This compares to increases of about 2.5 percent for university unions and 2.8 percent for employees nationwide. Over the past decade, the consumer price index has risen an average of about 2.5 percent annually.
Here are some comparisons between borough salaries and those at Princeton University and elsewhere:
All fulltime buildings and grounds employees in the borough make more than $41,800 a year, whereas the university’s maximum salary for a lead building custodian is $41,120.60.
Arborists at the borough’s shade tree commission earn $51,869 a year, which is well into the upper salary range for a senior arborist at the university.
The borough’s supervising mechanic earned $64,656 in 2009, which is near the top of the $43,500 to $67,500 range listed for senior maintenance mechanics at the university.
Borough police earned an average of more than $90,000 in 2009, as compared to an average of $80,000 in the state of New Jersey in 2008 — which already is higher than the pay in most of the rest of the country. Borough police salaries, says the report, are “about what the average college physics professor, psychologist, or electrical engineer makes in New Jersey.”
Karp would like the borough, in future collective bargaining discussions, not to authorize any plan that creates greater divergence between public sector wages and private sector equivalents without open debate.
At the same time Karp wants to reassure borough workers that the taskforce’s initiatives are not meant to attack them, but are necessary to deal with difficult economic realities.
“I have felt that all the workers I have dealt with have been competent, professional, and dedicated. I’ve been impressed and I am not trying to slam them,” says Karp. “But at a time where there is 10 percent unemployment, a total compensation package — wages, overtime, very generous health and pension benefits, more vacations than the average municipal worker — should converge with what the people paying them are earning.”
Where salaries are concerned, however, there is little wiggle room, suggests Jenny Crumiller, borough council member and liaison to the taskforce. She explains why police salaries, in particular, have grown disproportionately to other borough salaries and to the private sector.
Police salaries are bound by union contracts and, in the absence of an agreement, binding arbitration. If the negotiations (currently in process) do go into binding arbitration, the police are likely to secure higher salaries, says Crumiller, because binding arbitration “takes into account similar districts and, almost always, ends up with a decision that is favorable to the police.”
Borough Councilman Roger Martindell has been outspoken about the money Princeton pays its police force. Last spring Martindell cast the sole vote against a new police contract and questioned the raises, salaries, and perks therein. Martindell questioned the efficacy of paying sergeants time and a half to attend quarterly department meetings. He also questioned why sergeants on stand-by get 24 hours of comp time on top of the double-time pay they receive for getting called in while on standby.
Then there are borough-paid dry cleaning bills for police officers, the almost $2,000 a year in clothing allowances the officer receive, and the unlimited paid sick time.
One of Martindell’s main sticking points was paying off-duty officers to patrol at the Special Olympics — one of the department’s major charities. “If they are designating it as their charity,” he asked, “why is the borough paying for it?”
Various council members reminded Martindell that certain obligations are mandated by the state.
Since the borough’s hands are often tied by the unions, another option that is being considered is laying off employees. But Crumiller points out the big downside of layoffs — losing the services the employees are providing. “When you lay off people, you lose value and spend more money for less,” she says. “If you give raises to some and lay others off, it’s a bad deal for taxpayers, who are paying more money for less service.”
In the end, however, money is limited, and the police department, for example, has ended up shrinking by leaving positions vacant that the borough cannot afford to fund because of the high salaries required.
Second only to wages as a contributor to the borough’s costs is health care. Although health care is expensive for most employers, a number of factors contribute to particularly high costs for the borough:
Borough employees receive healthcare through the State Health Benefits Plan (which is more generous in almost all respects than what university employees receive), but, unlike most of the private sector, they share little of the cost.
The borough pays 100 percent of premiums for all union workers except for police officers hired after 2008, who must pay $360 per year toward health care premiums. Non-contractual workers, who comprise about a third of the borough’s total workers, pay five percent of the premium cost.
In 2009 the average worker in the United States with employer-provided family health-care coverage paid more than 25 percent.
Although the rate of increase in health-care premiums has slowed from 10 percent annually earlier in the decade to only 5 percent in the past four years, the costs are putting significant stress on the borough budget.
David Goldfarb, Princeton borough council member and liaison to the taskforce, suggests that the borough council must be clear during union negotiations that decisions on salaries and benefits are subject to negotiation. He emphasizes that the unions’ concerns will be seriously discussed, but that the current budgetary realities must also be taken into account.
“We need to be open-minded and fair in order to have a productive process,” he says. “We are not looking to litigate or be accused of being unfair in negotiations.”
The Princeton borough council, however, is committed to a 2010 budget that is no greater than the 2009 budget, with no spending or tax increases, says Goldfarb, so the negotiations ahead will be tough. The council is facing difficult decisions regarding potential staffing cutbacks, salary freezes, and an increase in employee contributions to health plans.
“There is a general recognition that the climate has changed in terms of what all employees can expect,” says Goldfarb. Borough employees, he thinks, “not only should they pay more for healthcare; they should also pay the actual cost of providing healthcare for people other than the employee, which is the pattern in most of the private sector. Many are heavily subsidized for the employee, but for spouses and family, the employee contribution is the lion’s share.”
Another fixed cost facing the borough is pension costs. Borough contributions to two state-run pension plans, the Police and Firemen’s Retirement System and the Public Employee Retirement System, says the taskforce report, are significant.
The borough contributes twice what police officers contribute to their pension plans. Police pensions in the borough are so large that 16 of 26 former borough police employees make more money from their pensions than do most New Jerseyans at their jobs.
As to pensions, Bruschi notes that the state, which has borrowed millions from the system, bears responsibility. Local governments, he says, have met their pension obligations.
Since pensions are based on employees’ salaries when they retire and most pension contributions are not negotiable due to state law, Goldfarb emphasizes that the borough must focus on what it does have some control over — salaries and the longevity bonuses that are part of union contracts.
Longevity bonuses are a separate item in the borough’s employee policies and contracts. “You get a bonus for having been around for a long time,” explains Goldfarb. “They can be good or bad employees, but they still get the bonus every year.”
Another issue that the taskforce report explores is significant overtime wages paid to borough employees. The report attributes these in part to the fact that borough employees have 13 annual paid holidays, as compared, for example, to 10 for federal employees. The taskforce would like the borough to investigate potential savings from reducing paid holidays.
Parking meter attendants received $79,000 in overtime last year; the police received more than $150,000 in overtime plus another $95,000 in other work-related supplemental pay. And seven percent of borough and joint agency salaries was supplemental compensation, as opposed to 1.3 percent for the average public sector employee in the United States.
Karp notes too that the borough’s time horizon is very short, focusing on getting done with the current budget and maybe thinking about next year’s. He would like to see a budgeting process that projects budgets for the next five years or, at worst, the next three.
“You want to look ideally at five years in order to develop strategies to deal with the constraints, the mandates, and solving our problems by planning ahead rather than looking behind,” he says.
Karp would like to work with the borough CFO Sandra Webb, the auditors, and Bruschi to develop a plan that looks ahead five years in terms of expenses and revenues and the assumptions underlying them. “This is not with the intention of beating anyone over the head if they were wrong, but to know the baseline on which the borough is planning and give citizens a chance to look ahead to think of upcoming issues,” he says.
Another way that the taskforce can decrease costs, suggests Karp, is by offering the skills of its members, who are a group of “really smart people who are willing to put in time to help.” He quickly reels off an impressive list of people with relevant expertise
Another way that the taskforce can decrease costs, suggests Karp, is by offering the skills of its members, who are a group of “really smart people who are willing to put in time to help.” Among the members with relevant expertise: Mark Alexandridis, an investment manager with experience in public and private finance; Jeffrey Perlman of Borden Perlman Insurance; and Jack Morrison, owner of the Blue Point Grill, Witherspoon Grill, and Nassau Street Seafood, who has also been active in several major real estate developments in the central business district.
Issues of transparency, he observes, reach far beyond the borders of Princeton borough. And it isn’t easy to digest the complexities, even if you know what you’re talking about. “As a financial professional for a couple decades and halfway to a CPA, understanding the borough’s finances is really hard,” says Karp. “The hurdle for ordinary citizens to participate in an informed way is unreasonable. I would like to see us be able to present the information so that the citizenry can participate in some of the difficult choices that will be coming in an informed way.”
Karp would like to help borough officials deconstruct budget elements, first at the borough level but then progressively for the county and the school district. He would separate out those elements that are difficult to control — fixed or mandated costs — to figure out whether the borough can influence them now or to develop a strategy to gain influence in the next negotiation.
The goal is to give the borough and its citizens a little more control over their fiscal destiny. “Gathering all the information is hard,” says Karp, “but finding it out and making it accessible is the first step to getting overall budgets under control.”
Karp grew up on the upper East side in New York City. His mother, Beverly Karp, wrote screenplays and short stories who co-produced with George George the film “My Dinner with Andre.” She died in 2003. His father, Harvey Karp, now 82, ran a conglomerate, Monogram Industries, in the 1960s, and today is still chairman of Mueller Industries, a Fortune 1000 company that makes about 50 percent of the copper tubing found in people’s basements today.
Karp, Class of 1984 at Princeton University, majored in classics, including Latin, Greek, and Roman history, and was also busy designing board games. He has published about 10 games, including Star Trader, Interstellar Commerce, and Vietnam: 1965-1975, which won an award in 1984. The Vietnam simulation interweaves all facets of the war, including geopolitical, political, economic, and military.
Karp first got interested in games when he was 13 and a friend told him, “Hey there’s this company downtown, and if you go play their games, they will give you free pizza.”
So off he went and ended up testing complicated simulation games with hundreds of pages of rules. At age 18 Karp published his first game, Rescue from the Hive; created at the time of the Iranian hostage crisis and set in space. Karp calls it “sci fi with rescue.”
Karp spent his first two years out of college teaching himself how to be a software developer. During this period he was also deeply involved with the New York Macintosh User’s group, which grew from 60 members when he joined to a couple thousand by the time he left.
In 1986 he took a job at Booz Allen and Hamilton in Washington, D.C., based on his experience in game design and his technology background. He started off by designing simulations of insurgency and counterinsurgency to train members of the military. Using El Salvador as a test case, the simulation would get users to role play different internal factions in El Salvador as well as the United States.
“They have to understand the perspectives of different parties, the tools and resources at their disposal, the limitations, and their goals, so as to not just be thinking like a U.S. soldier but to try and understand the broader picture and develop comprehensive solutions,” Karp explains.
Then another group at Booz Allen caught his attention; it was working with neural networks, an approach to artificial intelligence based on models of the brain that used parallel distribution processing. Says Karp: “These turn out to be good at things like identifying faces, pattern recognition, and in insurance. And probably the best backgammon player in the world is a neural network.”
Karp left Booz Allen in 1989. In 1990 a friend asked him to join a small firm, Reality Technologies, where Karp ran a small consulting group to develop products for the financial services industry. Karp had always had a personal interest in finance, and his new job required him to combine his background in technology, finance, and working in a group with the analysis skills he had developed through game design. This in turn required him to look at a very complex picture and isolate the significant elements. His group created software to educate people on risk and reward tradeoffs in portfolio asset allocation.
After a couple of years, he started consulting with similar clients on his own, including, for example, managing the trading portfolio for one of the major investment banks. Then between 1996 and 2000 he worked with his father’s company on strategic acquisitions, finding companies that were good fits for its line of business. He left because the work ran out. “We had made the decision to stick to our knitting and only make acquisitions that were very aligned with our current business, and the work had been done,” says Karp.
Karp moved to Princeton from Park Slope in Brooklyn in 2001. Since then he has managed his personal investments, spending time with his daughters, and traveling, including spending 19 days with yaks in the Himalayas.
One reason Karp has chosen to be part of the taskforce is that organizing information in an accessible way is one of his core skills. He also has another area where he is interested in applying his organizing skills: he would like to create a stronger link between modern technology and education.
“The idea of having novice professors [read: graduate students] giving lectures to 400 people, as opposed to having a really good person on DVD and then having a blog or forum, seems like a process that is increasingly expensive and should be reinvented,” he says.
Although a lot of companies are working in this area, he says, there is still resistance. But Karp sees this area as one of great potential. “If we can take those portions that can be done by DVD for those people who can learn that way, that might bend the curve down on educational expenses and improve that process,” he says.
Another option for his future is working in financial planning, says Karp, who adds, “But if I can figure out a way to do something more valuable, that’s what I’ll do.”
Even though what initially brought the taskforce together was the idea of providing useful advice in a non-confrontational way to the borough’s administration and elected officials, at the beginning the borough was a little defensive, says Karp. “They have had so many people yelling at them for things not under their control for so long that to have them hear us and be able to view us as a resource has taken awhile, but I think we’re getting there,” he says.
At least three borough officials — Bruschi, Crumiller, and Goldfarb — already have expressed appreciation for the taskforce’s role. Bruschi says, “It brings a different perspective to the budget process when you have lots of people from the private sector to look at how it operates and functions.”
But, he continues, sometimes outsiders can get frustrated when they realize that they do not have the freedom to make unilateral changes, because of bargaining units and state regulations. One of the first things the borough did, therefore, was to provide taskforce members with some “municipal budgeting 101” instruction, he says.
Karp himself sought a more active role in the process, submitting his name as a Democratic candidate for Borough Council this year. He was denied the nomination by the borough’s Democrat party, in favor of incumbents Andrew Koontz and Roger Martindell.
Bruschi sees the taskforce as providing a number of positive functions, as the borough faces decisions on potentially reductions in staff and programming.
“I look at the group as a great sounding board for the decision-making that ultimately the governing body will be forced to make,” he says.
He has also found the taskforce members to be very realistic in their approach. “They are not looking to command and work a miracle as sometimes groups that form over a concern with spending may do,” he says. “They realize it may take a couple of years, and they are not opposed to that type of sustained effort.”
Once a budget is finalized, continues Bruschi, “I also think they can be advocates for the borough and our budget when they believe we have done as much as we can do to trim costs and have tried to make efforts to make sure we are as lean as we can be and still be fiscally responsible.”
Discussions between the taskforce and the borough have been fruitful. “They are good about sharing their information and opinions with us, and I look at them as partners,” says Bruschi. “We’ve not had anything brought up that each side is not willing to listen to.”
Karp emphasizes that the taskforce’s suggestions for potential changes in the borough’s budget will affect the entire borough population and not just the borough’s employees.
“We are reaching out to the employees and the unions and letting them know that we are not asking them to bear it just on their backs,” says Karp. “We expect taxes will go up and business costs will go up. If we want any chance of Princeton retaining diversity, we’ve got to do something to keep costs under control.
“We have a lot of people who have diverse experience and are ready to volunteer time, and I hope and believe that the borough will take advantage of it and that we can take the experience here and share it with other municipalities and develop a process that will reconnect the citizenry with government,” says Karp. “It sounds grandiose, but it’s a vision.”
Karp emphasizes, however, that the borough’s budget problems are very serious and must be dealt with. “At the current trend, the average property in Princeton will be playing $26,000 a year before Barack Obama leaves office,” he says. “We are not talking about the distant future here.”
Bruschi also emphasizes the serious repercussions the budgetary problems will have for the town if they are not addressed. “A lot of people will have their eyes opened,” he says. “We’re going to provide for police and public safety, but some of the quality of life services like recreation or operating a senior center are not required,.”
“Those are difficult choices,” concludes Bruschi. “They are the things that make a community a community, and Princeton values those services. But with a limited ability to raise money, it may be a real problem.”