April 6, 2009
Survey Quantifies Local Budget Stress
In order to better assess current budgetary issues facing our members, the New Jersey League of Municipalities conducted a baseline survey consisting of four questions. The League represents the 566 local political jurisdictions within the State and we received responses from 272 of the municipalities, which represents approximately a 50% response.
The survey was designed to provide four indicators, which can serve as windows into the property tax pressure facing local governments, and to determine the budget problems municipalities are confronting. The results confirm what one would intuitively expect, but provides empirical data.
Ninety one percent of the communities responding to the survey indicated a diminution in their ability to realize non property tax revenues. A downturn in the economic market, slowness of the commercial market with lost investment opportunities, plus reductions of State revenue replacement payments, have resulted in significant losses to local governments. Of those who responded, 91% (248) documented the impact of the current economic climate on their municipal revenue base. To deal with this fallout, 60% of the municipalities are reducing staff and cutting services in 2009. These numbers demonstrate how local government is not insulated from the world at large. Mayors have taken responsible steps to reduce their budget. One of the primary costs of governmental expenditures is salary for staff. The survey indicated 162 reporting communities are reducing their level of staffing as method of dealing with the current economic crisis.
Local governments, utilize and depend upon capital expenditures to make major societal improvements such as roads, infrastructure and recreation facilities. In order to access the capital market, every municipality receives a financial rating. This, in part, determines the interest factor charged for municipal Bonds or Notes. A key factor that rating agencies look for is a solid and significant fund balance, which should be held for emergency or critical events.
A steady and stable fund balance is important. However 80% of the communities responding to the survey reported they are having difficulty maintaining their fund balance for 2009. These 217 communities are caught between the need to respond positively to the capital market and rating agencies versus the pressure which is applied by the inflexible and arbitrary expenditure and levy caps, which subvert careful planning and professional, business-like budgeting. In order to budget within the spending cap and tax levy cap, many municipalities were forced to utilize all or most of their surplus as a means of accommodating the statutory limits placed upon them. Once these surpluses have been depleted the communities have little or marginal ability to regenerate a like amount. Thus, the communities will be in a negative position for the next fiscal year, and the bond market will not look favorably on them and the public will see less service.
This was demonstrated by the response to the question regarding the tax levy cap waiver issue. Sixty four communities, or 24% of those responding, indicated they will need to apply to the Local Finance Board for a tax levy waiver. Loss of general revenues, shrinking tax base and declining fund balance have placed these communities in a position which will either require a waiver from the Local Finance Board or drastic reductions in service and programs which may directly impact Public Safety.
The tax levy cap limits the alternatives of governing bodies to deal with their current fiscal problems. Even if the electorate wishes to maintain service levels and staffing, the governing body is faced with a Hobson’s choice. It must either seek a waiver from the Local Finance Board and have its surplus decimated, or save through attrition, layoff, furlough, or some other personnel reduction method to seek tax levy stability over the next couple of years. In either event, the public will loose services.
It is important to note the results of the survey are statistically significant. When more than 48% of the communities within the State respond to a survey it is a remarkable indicator of the times. It is certainly statistically valid to utilize the results of the survey and extrapolate for all municipalities within the State.
Local governments are at a crisis point with State mandates, decisions by interest arbitrators granting significant salary increases to uniform police and fireman, reductions of State revenue replacement funding, rigid non yielding environmental regulations and mandatory development of low and moderate interest housing, resulting from COAH requirements. There is no help for property taxes in sight.
Municipalities are now carefully monitoring the Vallejo CA situation, where the courts, through Chapter 9, are permitting the cancellation of contracts with police and fire units to put the municipality back on its fiscal feet. If fire and police do not recognize the role of binding interest arbitration awards in the current crisis, they might experience a crisis of their own.
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For further information contact: William G. Dressel, Jr., Executive Director at (609)695-3481, extension 122 or 609-915-9072.