A Jersey City general-obligation bond due in 10 years and rated Aa3, Moody's Investors Service's fourth-highest grade, traded Aug. 6 with an average yield of 2.71 percent, 1.02 percentage point above top-rated municipals with similar maturity, according to data compiled by Bloomberg. That yield difference is down from a 1.23 percentage-point spread on a Dec. 21 trade in the week the city sold the bonds.

Jersey City, which has a budget of $485 million, will continue to be squeezed by the cost for unused leave payouts unless Christie and lawmakers act, Healy said. A cap would be a good start, and then the payments could be lowered or eliminated in the future, the mayor said.

"The governor in his search for the perfect has abandoned the good," Healy said. "To carry on in this fashion is just not sustainable for any city, any government or the taxpayers."

The governor had sought a plan that would have required employees to burn through amassed sick time before using new days off. Democrats have balked at that provision, saying the state can't strip employees of a benefit they've already earned.

'Retirement Fund'

"Sick leave should be for when you are sick -- not a supplemental retirement fund," said Assemblyman Declan O'Scanlon, a Republican from Little Silver who sponsored a bill to stop workers from amassing the payouts.

Even a $7,500 cap would cost taxpayers $3.25 billion if all 434,000 public workers retired, Christie said.

Senate President Stephen Sweeney, a Democrat from West Deptford, in February proposed legislation that would stop current employees from amassing more for the payments and end them for new hires. Christie called the plan "encouraging." No hearings have been scheduled on Sweeney's measure.

Public-employee retirements in New Jersey jumped 45 percent in 2010 as Christie pushed proposals to raise their pension and health-care contributions, and 10 percent last year as he enacted them. Workers are retiring at a slower pace this year, and filings are on track to drop 30 percent in 2012, based on data from the state Treasury Department as of July 20.

800 Retirees

Julien Neals, business administrator in Newark, said he doesn't expect a repeat of 2010, when the state's largest city had to borrow $7 million to cover checks to more than 800 people for unused sick and vacation days. The city caps the awards at $15,000, he said. Yet with an additional 80 police and fire retirements expected this year, Neals said the payouts will still put a dent in the budget.

John Mousseau, a portfolio manager at Cumberland Advisors in Vineland, New Jersey, said allowing workers to cash out unused days is a "meat-ax" issue: local governments can make a big dent in spending with one trim. The expense is weighing on cities as they deal with less state aid and higher pension contributions, he said.