July 24, 2009
Here is an important Local Finance Notice the Division of Local Government Services released late this afternoon. PLEASE MAKE COPIES AVAILABLE TO YOUR CFO AND MANAGER.
Re: State Fiscal Year 2010 Municipal Budget Cap Cost-of-Living Adjustment
Pursuant to N.J.S.A. 40A: 4-45.1a, the Director of the Division of Local Government Services must promulgate the Cost of Living Adjustment (COLA, formerly called index rate) applicable to municipal and county budget caps.
The COLA is based on the Implicit Price Deflator for State and Local Governments, calculated by the U.S. Department of Commerce, Bureau of Economic Analysis. The COLA for SFY 2010 is calculated at three percent (3%). Pursuant to N.J.S.A. 40A: 4-45.2, “municipalities and counties shall be prohibited from increasing their final appropriations by more than 2.5%…”unless action is taken by the governing body to increase their final appropriations subject to the cap to the statutorily permitted three and a half percent (3.5%).
In other words, as was the case in SFY 2009, because the COLA exceeds the statutory maximum of 2.5%, the cap rate for SFY 2010 is 2.5%. The governing body may pass a COLA ordinance, increasing the cap base an additional 1% for a total of 3.5%.
A municipality may adopt an ordinance to increase the COLA percentage up to 3.5 percent [N.J.S.A. 40A:4-45.14(b)] or bank (for up to two years) the difference between its final appropriations subject to the cap and 3.5%. Cap banking is not automatic. A single ordinance can be used to accomplish both activities: increasing appropriations and banking any unappropriated balance. Cap bank balances from 2008 and 2009 are available for use in 2010.
A model ordinance is included with this Notice and is available for download as a Word document on the Division’s web site.
Important Cap Changes
In 2007, the legislature approved and the Governor signed into law P.L. 2007, c.62, creating an additional cap exception for Group Health Insurance. This exception is limited to an amount over 4% of the previous year’s expenditures, but not exceeding the State Health Benefits percentage increase. The State Health Benefits percentage increase for SFY 2010 calculations is 18 percent so there will be an exception for Group Health Insurance for SFY 2010 for the increase.
Cap Treatment for Pension Appropriations
For the 4% levy cap, the pension exclusion for PERS and PFRS is the amount of the normal accrued liability increase in excess of 4% of the prior year normal accrued liability. For the appropriation cap, the pension exception for PERS and PFRS is the amount of the normal accrued liability increase in excess of 3.5% of the prior year normal accrued liability.
The SFY towns that adopted their budget before the pension deferral was approved, can take advantage of the pension deferral for the FY 2010 budget.
Cap calculations will not be completed by the Division prior to budget introduction for SFY 2010. The CFO must complete the Cap calculation.
Using the Allowable Percentage Increase
If a governing body wants to increase its allowable percentage increase in its budget to 3.5 percent, the following steps must be taken:
- After July 1st, and prior to introduction and approval of the budget, an ordinance must be introduced that details the following:
a. The new rate (increase percent) to be adopted; and,
b. The additional amount of appropriations to be added by the increase.
- The ordinance must be approved by a majority of the full membership of the governing body, published, and a public hearing held at least 10 days after the publication date. A certified copy of the introduced ordinance must be filed with the Director of the Division of Local Government Services within 5 days of its introduction.
- The governing body may take a final vote on the ordinance any time after the public hearing and prior to adoption of the budget. Depending on the form of government, the chief executive may veto the action in accordance with local procedures.
- The ordinance takes effect immediately upon passage, and a certified copy of the adopted ordinance must be filed with the Director within 5 days.
- Cap increase referendums are not permitted if this option is chosen.
- If you have any questions regarding this determination, please call the Bureau of Financial Regulation and Assistance at (609) 292-4806 or by e-mail.
Implementation of the “Levy Cap”
Please use the updated version of the Levy CAP Workbook, which will be on our website under SFY 2010 Budget Forms.
Approved: Susan Jacobucci, Director
Table of Web Links
STATE FISCAL YEAR 2010
MODEL ORDINANCE TO EXCEED THE MUNICIPAL BUDGET APPROPRIATION LIMITS
AND TO ESTABLISH A CAP BANK
(N.J.S.A. 40A: 4-45.14)
WHEREAS, the Local Government Cap Law, N.J.S.A. 40A: 4-45.1 et seq., provides that in the preparation of its annual budget, a municipality shall limit any increase in said budget to 2.5% unless authorized by ordinance to increase it to 3.5% over the previous year’s final appropriations, subject to certain exceptions; and,
WHEREAS, N.J.S.A. 40A: 4-45.15a provides that a municipality may, when authorized by ordinance, appropriate the difference between the amount of its actual final appropriations and the 3.5% percentage rate as an exception to its final appropriations in either of the next two succeeding years; and,
WHEREAS, the (insert the name of the governing body) of the (insert the name of the municipality) in the County of (insert the name of the county) finds it advisable and necessary to increase its SFY 2010 budget by up to 3.5% over the previous year’s final appropriations, in the interest of promoting the health, safety and welfare of the citizens; and,
WHEREAS, the (insert the name of the governing body) hereby determines that a (insert the rate of increase) % increase in the budget for said year, amounting to $ (insert the dollar amount increase) in excess of the increase in final appropriations otherwise permitted by the Local Government Cap Law, is advisable and necessary; and,
WHEREAS the (insert the name of the governing body) hereby determines that any amount authorized hereinabove that is not appropriated as part of the final budget shall be retained as an exception to final appropriation in either of the next two succeeding years.
NOW THEREFORE BE IT ORDAINED, by the (insert the name of the governing body) of the (insert the name of the municipality), in the County of (insert the name of the County), a majority of the full authorized membership of this governing body affirmatively concurring, that, in the SFY 2010 budget year, the final appropriations of the (insert the name of the municipality) shall, in accordance with this ordinance and N.J.S.A. 40A: 4-45.14, be increased by (insert the rate increase) %, amounting to $ (insert the dollar amount increase), and that the SFY 2010 municipal budget for the (insert the name of the municipality) be approved and adopted in accordance with this ordinance; and,
BE IT FURTHER ORDAINED, that any that any amount authorized hereinabove that is not appropriated as part of the final budget shall be retained as an exception to final appropriation in either of the next two succeeding years; and,
BE IT FURTHER ORDAINED, that a certified copy of this ordinance as introduced be filed with the Director of the Division of Local Government Services within 5 days of introduction; and,
BE IT FURTHER ORDAINED, that a certified copy of this ordinance upon adoption, with the recorded vote included thereon, be filed with said Director within 5 days after such adoption.
Very truly yours,
William G. Dressel, Jr.