December 15, 2011
Re: New Requirements for Budget Message in 2012
This week your Chief Financial Officer received Local Finance Notice 2011-37 from the Division of Local Government Services regarding significant changes to the budget process for the forthcoming year. Here is the first of two letters you will receive from the League wherein we have identified some major changes that you should bring to the attention of your fellow elected officials and members of your administrative staff involved in the budget preparation process.
One of the major changes to the budget process in 2012 is the revisions to the Budget Message section of the annual budget. The Budget Message sheet has been revised to include a “good faith explanation of budget issues related to structural imbalances” in four areas. The budget now requires the following disclosure on Budget Sheet #3(b)(2):
- 2012 Revenues at Risk: These are anticipated revenues that will not incur in 2013, or that are known to be declining over time. “Revenues at Risk” should include, but are not limited to, revenues from one time land sales; concession fees or deposits associated with agreements, including redevelopment or utility agreements; short term or expiring grants that support operating costs; transfers of funds from authorities that are not expected to continue; awards of Transition Aid; and other revenues that are not known to be temporary in nature or not reasonably expected to continue.
- 2012 Non-Recurring Cost Reductions: These are proposed reductions in line items that will not recur in 2013, or that are known to be declining over time. Non-recurring Cost Reductions should include, but are not limited to: short term savings in debt service payments attributable to refundings that allow for a skipped debt service payment or reductions in short term maturities; savings in expenses made possible through contractual short term concessions that result in later increased payments (i.e. elimination of immediate overtime expenses in return for the creation of bankable compensatory time), and other one-time short term savings that will not be available in 2013.
- Anticipated 2013 Appropriation Increases: These are reasonable projections of appropriation increases and can include, but not be limited to: increases in debt service payments due to new or restructured debt; increases in lease payments due to new or restructured leases; increased salary or compensation payments attributable to contractual obligations; and other increases in items of expenditure for which policy changes or decisions will necessitate increased appropriations (for example, full year’s cost of a program partially implemented in 2012).
- Structural Imbalance Offsets: These are budget changes that are expected to occur in 2013 that offset the impact of the three items above. These offsets may include new or one-time 2012 appropriations or non-recurring increases in 2012 appropriations that will not appear in 2013 and out-year budgets. Examples of these include: 2012 funding of deferred charges from a prior year; 2012 appropriation of funds for retroactive salary increases; payments from litigation settlements; increased capital appropriations, or increases in employee premium sharing for health care costs; etc. These items may also include increased revenues such as the full year value of fee increases only partially implemented in 2012, or contractually required increases in payments under supply contracts or service agreements.
In addition, the budget message shall contain information or a schedule regarding Health Insurance Contributions. The amounts contributed by employees, the employer share and total costs must be included in the message. This disclosure may be broken down by employee group. As an option, the local unit may include a breakdown of future revenue from those employees currently under contracts that will begin contributions when those contracts expire.
In announcing these changes the Division stated that they are “concerned that some municipalities have for too long relied heavily on short term solutions. Such solutions can, when applied in moderation be appropriate solutions while structural reforms are implemented. In addition to it being extremely important that local officials understand the structural imbalances their communities may face, it is extremely important for these imbalances to be communicated to the public, financial markets, and the State. While budget messages often contain the ‘good news’ of cost reductions from new initiatives (i.e. shared services), the challenge of one-time solutions to structural imbalances are not often disclosed.”
Depending upon your specific circumstances some or all of these categories may not apply to your municipality. Please consult with your Chief Financial Officer and Auditor to determine what impact these new requirements will have on your municipality.
Very truly yours,
William G. Dressel, Jr.