Paterson Police PBA Local No. 1 v. City of Paterson
| Decision Date | 19 April 2021 |
| Docket Number | DOCKET NO. A-3937-19 |
| Parties | PATERSON POLICE PBA LOCAL NO. 1, PATERSON POLICE LOCAL 1, SUPERIOR OFFICERS ASSOCIATION, PATERSON FIREFIGHTERS ASSOCIATION, AND PATERSON FIRE OFFICERS ASSOCIATION, Plaintiffs-Respondents, v. CITY OF PATERSON, Defendant-Appellant. |
| Court | New Jersey Superior Court — Appellate Division |
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
Before Judges Messano, Hoffman and Smith.
On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-000120-19.
Leonard S. Spinelli argued the cause for appellant (Genova Burns, LLC, attorneys; Angelo J. Genova and Joseph M. Hannon, of counsel and on the brief; Leonard S. Spinelli and Daniel Pierre, on the briefs).
Mark C. Rushfield, argued the cause for respondents Paterson Police PBA Local No. 1, Paterson Police Local 1, and Superior Officers Association (Shaw Perelson May & Lambert, LLP, attorneys; Mark C. Rushfield, of counsel and on the joint brief).
Craig S. Gumpel argued the cause for respondent Paterson Firefighters Association and Paterson Fire Officers Association (Law Offices of Craig S. Gumpel, LLC, attorneys; Craig S. Gumpel, of counsel and on the joint brief).
Amy Chung, Deputy Attorney General, argued the cause for amicus curiae State of New Jersey (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Amy Chung, on the brief).
Defendant City of Paterson (the City) appeals from a January 29, 2020 trial court order confirming an arbitration award (the Award) that required the City to reinstate its self-insured health benefits program, "as it existed as of December 31, 2018."1 Once the City "reestablished" its program, the Award required the City to "transfer all police and fire employees, retirees, and dependents from the [State Health Benefits Plan] (SHBP) back into the self-insured plan." The City also appeals from a June 22, 2020 order, which not onlydenied reconsideration, but also ordered, sua sponte, the City "to move all public employees out of the SHBP [] and into the self-insured plan by the end of June 2020." (emphasis added). For the following reasons, we vacate the trial court's orders to the extent they confirmed and then modified the arbitrators' remedy, and we remand for further proceedings.
The Municipal Revitalization Index (MRI) of the New Jersey Department of Community Affairs (the DCA) characterizes the City as a "distressed" municipality, defined as "a multi-dimensional municipal condition linked to fiscal, economic, housing, and labor market weakness in conjunction with a resident population that is generally impoverished and in need of social assistance."2 Annual recurring budget deficits provide compelling evidence of the City's distressed financial state. For approximately ten years, the City has needed transitional aid from the DCA to support its operating budgets. While receiving this financial aid, the City has operated under the supervision and control of the DCA through an annual Memorandum of Understanding (MOU)with the Division of Local Government Services (the DLGS).3 The MOU sets forth the conditions and requirements the City must satisfy to receive the transitional aid. In addition, each MOU has required the City to develop a detailed plan to reduce its reliance on State aid and become self-sufficient.
Prior to January 1, 2019, the City provided its employees medical, prescription, vision and dental health benefits through a self-insured plan administered by Horizon Blue Cross and Blue Shield of New Jersey (the Horizon PPO) and Citizens Rx. Under the self-insured plan, the City covered 100 percent of its active and retired employees' health care costs, with no stop loss coverage.
The self-insurance plan proved expensive, with steadily increasing costs: approximately $46 million in fiscal year (FY) 2014; $48 million in FY 2015; $49 million in FY 2016; $54 million in FY 2017; and $59 million in FY 2018. In FY 2016, health care costs represented sixteen percent of the City's budget; in 2018, that figure increased to nineteen percent.
In addition to these conditions, the CNAs covering the police unions included one additional condition, that their "insurance expert must conclude that the SHBP is substantially similar to the current level of benefits."6
In FY 2017, the City received $25.5 million in transitional aid through an MOU between the City and DLGS (the FY 2017 MOU), which was amended by a FY 2017 MOU Addendum (the FY 2017 Addendum). In exchange for the $25.5 million in aid, the MOU imposed many conditions upon the City. One such condition required the City "to take all steps necessary to enroll in the [SHBP] should [its] health care costs exceed that of the [SHBP]." These related conditions in the Addendum provided:
If the City failed to comply with these conditions, the City risked losing the greater of the savings projected by the transition to the SHBP or ten percent of its transitional aid. According to the City, "the loss of any [t]ransitional [a]id could be devastating to the City, its employees and its residents."
On July 1, 2018, a new mayor and administration took office. At that time, the City faced a projected $10 to $13 million deficit. To cut costs, the new administration determined the single best way to save money without negatively impacting its citizenry was to transition from its self-insured plan to the SHBP. In addition, the DCA encouraged the City to enroll its employees in the SHBP by offering financial incentives. For FY 2019, in addition to receiving $29 million in transitional aid, the City could receive an additional $2 million in aid upon "documentation of successful transfer of the City's existing employee health benefits plan to the [SHBP]."
With the assistance of an insurance consultant, Brown & Brown Metro, the City performed a cost-benefit analysis of transitioning to the SHBP. Theanalysis projected savings to the City of $20 million for FY 2019; $23 million for FY 2020; and $26 million for FY 2021. In addition, the analysis concluded that City employees would benefit from the transition to the SHBP because their Chapter 787 premium contribution cost would decrease, due to the SHBP's lower premium cost, thereby increasing the take-home pay of City employees.
Between July and September of 2018, City officials worked on the issues of transitioning to the SHBP. On September 2, 2018, Vaughn McKoy, the City's business administrator, met with fire union representatives to discuss the transition to the SHBP. On September 12, 2018, the City invited the unions to preview the presentation that would be made to City Council on September 25, 2018. On September 18, 2018, City Council held a workshop meeting to discuss the transition to the SHBP; although invited to attend, none of the City's unions attended the workshop meeting.
The City's analysis projected that transition to the SHBP would save the City more than $200 million from FY 2019 through FY 2025. Based on theseprojections, and after determining that the SHBP was substantially similar to the City's current self-insured plan, the City council adopted a resolution, on September 25, 2018, transitioning all City employees and retirees into the SHBP, effective January 1, 2019. As a result of these actions, the City's self-insured benefits through the Horizon PPO and Citizens Rx would terminate after December 31, 2018, and coverage under the SHBP would commence on January 1, 2019. Of the City's nineteen bargaining units, only the fire and police units opposed the transition.
Not all retirees who had received health benefits through the City's self-insured plan were eligible for employer-paid coverage through the SHBP, but those retirees were still enrolled in the SHBP. The City addressed this issue by hiring Assure Software, a third-party vendor, to set up a health reimbursement account to reimburse the monthly premium charged under the SHBP to those retirees with less than twenty-five years of service. The City notified those retirees of its plan to deduct their insurance premiums from their monthly pension checks and then reimburse them those amounts through an administrative services agreement. This arrangement applied to approximately thirty-nine retirees with less than twenty-five years of service.
On October 1, 2018,...
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