The New Jersey Office of the State Comptroller has alerted state leaders it may request the withholding of funding to nine towns if, after 30 days, the towns don’t act to prevent illegal employee sick-leave and vacation payouts.
In a letter published Wednesday, and sent to Gov. Phil Murphy and the Legislature, acting State Comptroller Kevin Walsh said that Bridgewater, Hamilton, Pennsville, Piscataway, Red Bank, Rutherford, Sparta, Wantage and West New York failed to cooperate with the OSC and had not addressed deficiencies identified by the state watchdog.
“Many towns across New Jersey have made improper, wasteful payouts for years and years. It’s inexcusable that the basic steps to safeguard public funds are not being taken,” said Walsh. “Taxpayers deserve better.”
In July 2022, OSC reported that of 60 towns surveyed, 57 failed to follow the laws capping payouts of sick leave and accrued vacation time to government employees, costing taxpayers millions of dollars. The OSC directed the municipalities to provide corrective action plans that included provisions to identify and potentially recoup improper payments and prevent more wasteful payouts.
“These nine towns are failing in their most basic responsibilities: To act as a fiduciary of taxpayer funds and to be transparent about how these funds are used,” Walsh said. “After more than a year, they continue to delay. My office will use all of the tools we have to protect New Jersey taxpayers from fraud, waste, and abuse.”
Most of the 57 towns mentioned in the OSC’s 2022 report have complied with the agency’s recommendations and have corrected their sick and vacation leave policies, according to OSC. Some also are negotiating new contracts with labor unions and entering into side agreements. Many have notified unions of the unenforceability of illegal provisions in collective bargaining agreements.
Of the nine towns cited by OSC as failing to act, the agency said seven failed to have an independent fiscal assessment performed — as requested by OSC — to identify whether improper payments were made and need to be recovered, evaluate the strength of internal financial controls and prevent self-dealing in the event management received unlawful payouts. The agency also directed towns to submit corrective action plans, but six of the nine towns failed to do that.
By state law, all employees hired after May 2010 cannot receive more than $15,000 for unused sick leave. Employees can only receive that $15,000 at retirement — not when they resign, change jobs, or as an annual payout. Employees also can’t carry over more than a year’s worth of vacation time. The OSC’s investigation found, however, that most municipalities surveyed were violating aspects of this law and continue to enter into employment contracts and collective bargaining agreements that allow for these improper payments.
Subsequent OSC audits found similar improprieties in other towns. A 2023 audit of Rockaway Township found that the town accrued financial liabilities of nearly $4 million in unused vacation and holiday-related pay, most of it by police officers, and that the police chief was improperly paid $47,433 in sick leave pay over three years.
One of the OSC’s recommendations in 2022 was that the Legislature impose accountability measures to ensure the laws are enforced. A bill that was introduced last year has not advanced. Last month, the Local Finance Board issued regulations that clarified and strengthened the legal obligations of towns and counties. Specifically, chief financial officers are now required to review and approve any payments for sick leave and vacation payouts, and as part of annual audits, auditors are required to confirm the eligibility and propriety of any payouts.