(Bloomberg News) Jersey City, New Jersey's second-largest municipality, borrowed $19 million in the past two years to cover retiring workers' unused sick and vacation time. Similar deals by other communities are helping double the penalty the state and municipalities are paying on their bonds.
While Governor Chris Christie wants those payouts eliminated, the current legislative session ended in June without lawmakers acting. The impasse between Christie, 49, and Democrats, the majority party in the Senate and House, has been going on since the Republican governor took office in 2010.
"I will not compromise on the issue that we should no longer have cash value attached to sick leave," Christie told reporters on Aug. 6 in Middlesex. "That's a matter of principle for me."
Christie calls the payouts "boat checks" because they can top $200,000 and some retirees use them to buy watercraft. Growing obligations for workers' retirement benefits have stressed city budgets from San Jose to Long Beach, New York. Officials say some perks can no longer be sustained as they struggle to balance revenue with spending.
In New Jersey, 428 municipalities faced liabilities of $825 million as of May 2011 for accumulated sick and vacation days, according to Christie's office. Boat checks and New Jersey's $42 billion unfunded pension obligation are helping raise borrowing costs for the state and its cities in the $3.7 trillion municipal-bond market.
Penalty Paid
New Jersey and its localities are paying an average yield penalty of 0.57 percentage point over AAA securities to borrow for 10 years, according to data compiled by Bloomberg. The gap is more than double the five-year average. It was 0.35 percentage point the day Christie took office.
Towns in New Jersey paid workers $43 million for unused sick and vacation time in 2010, according to Christie.
Jersey City, a community of almost 248,000 across the Hudson River from downtown Manhattan, has made payouts to 343 retirees since the governor vetoed a bill in late 2010 that would have capped the checks at $15,000. Christie also spurned a $7,500 limit.
Newark, East Orange and Hackensack have also borrowed to make the payments as workers retired ahead of Christie raising their pension and benefits contributions.
"The reforms in Trenton caused a stampede to the door," Jersey City Mayor Jerramiah Healy, a Democrat, said in a telephone interview.
Borrowing Costs