With New Jersey facing an unprecedented budgetary shortfall, municipalities are concerned about the potential impact of any reduction in state aid on their local operations for this year and the next.
By Matt Skoufalos | June 1, 2020
On May 22, ahead of making some $5 billion in cuts to the state’s $41 billion 2020 budget, Governor Phil Murphy announced that New Jersey was “approaching a fiscal cliff” as a result of the novel coronavirus (COVID-19) pandemic.
As Murphy has said for months, without an infusion of direct federal aid and the ability to borrow flexibly, those cuts may account for only half of the anticipated $10 billion shortfall in the state budget through the end of 2021.
As the federal government debates the possibility of subsequent public aid packages, municipalities are watching headlines and keeping their noses to the wind in anticipation of what, if any, help may be coming.
Throughout New Jersey, local governments have been advised to calculate their budgets for this year using 2019 state aid figures, but with the caveat that those dollars aren’t guaranteed.
As about half the proposed state budget for 2020, some $17.8 billion, had been designated as direct aid to offset the costs of schools or property taxes, local governments are awaiting word of whether they’ll have some meaningful holes to plug in their operations.
State aid is typically disbursed halfway through the calendar year and again in December, said Collingswood Mayor Jim Maley. Right now, “all indications we have is that it’s not going to be affected,” he said, as relaxed guidance on use of the first run of CARES Act money will “fill in our gaps.”
More concerning is what happens if municipalities can’t get their tax revenues from mortgage escrow payments. Collingswood derives 60 percent of its income from such sources, which have already been paid normally, Maley said. Should a prolonged shutdown keep residents from being able to meet those obligations, however, the borough’s financial condition at the end of the summer may be of greater concern.
“If this drags on, it’s a wait-and-see,” the mayor said. “We just have no idea.”
Collingswood hasn’t laid off any public employees, Maley said; instead, the local government is “doing all we can to give people other work” in its limited operations, deploying crossing guards to direct traffic at the cars-only Collingswood farmers market, for example, or pivoting library operations to online services. The Collingswood Cares foundation has also raised thousands of dollars to help directly support neighbors in need.
“We’re doing the best we can to not have it come to layoffs, but we’re also not buying stuff,” the mayor said. “Any expense that’s not essential, we’re not doing.”
Those non-essential expenses could mean keeping Roberts Pool closed for the 2020 season if COVID-19 metrics don’t improve enough to open it until later in the summer. At some point in the calendar, the cost of operating the pool outweighs the potential revenues it can generate, and “from all the indications right now, we’re not close,” Maley said.
Over the weekend, the borough cancelled all summer recreational activities through the end of June, and its Fourth of July celebrations may be next.
The biggest capital project in the borough, construction of its new emergency services building, has continued throughout the pandemic because it’s not budget-dependent (the costs of the project were covered in a bond that was acquired prior to the COVID-19 outbreak).
‘A tight budget on a good year’
Finances in Haddon Heights are “really tight,” Mayor Zach Houck said; so much so that the borough has approved a tax anticipation note (TAN) for the total cost of its roughly $8 million municipal budget just in case it becomes necessary to bond that amount.
With shortfalls in municipal court fees (which typically add $150,000 annually), rentals (about $60,000 annually), and construction permits (about $40,000 annually), council members have been scrutinizing the numbers “moreso than ever this year,” Houck said.
“It’s to the point where you can see the frustration, because we’re going round and round, and it’s trying to get blood from a stone sometimes,” the mayor said. “We haven’t seen a time like this in over 100 years.”
Like Maley, Houck said that so far, residential taxes from mortgage escrow payments have been remitted on time. He’s more worried what the reports will be by August 2020, particularly as Haddon Heights derives the bulk of its revenues from residential taxpayers.
“It’s a tight budget as is, on a good year,” Houck said. “The bigger question is going to be next year. The state gets its money from income tax and sales tax, which are being affected now.”
Two of the greater uncertainties for every Camden County community involve a pair of funding sources, the distribution of which hasn’t yet been clearly outlined. The first is a pool of some $88 million that the county received from its share of $1.6 billion in federal CARES Act money. Municipalities have not yet been issued guidance on how they might snag a share of those funds, or how the county plans to allocate them.
“If it’s based on who was hit harder than others, Heights is farther down the chain,” Houck said.
“When it comes to economic impact, that’s where we’re waiting to get a little more direction on what the money can be used for.”
A more nuanced conversation is being held about $1.435 billion in the state’s Consolidated Municipal Property Tax Relief Act program (CMPTRA).
These taxes, which originate as municipal fees for utility rights-of-way, have been collected and managed by the state for decades.
As written, the law that centralized their collection assures each community at least the amount of money it netted from these revenue sources in 2002.
If, for any reason, local allocations dip below those levels, a “poison pill” clause in the law means the authority to collect these funds would revert back to individual municipalities themselves.
“Since Heights only gets energy receipts taxes, our fear that our aid would be drastically cut shrank,” Houck said, but added that local governments are worried that the state could “squeeze other aid packages” to avoid that poison pill.
The borough government has reduced hours for some borough employees, and is trying to drive other efficiencies where it can, the mayor said.
“We’re watching closely,” he said. “If we’re able to do something, we’re going to do it.”
Residents still expect vital services
Haddonfield Mayor Neal Rochford said commissioners are “very, very nervous about our local municipal budget under these trying times.”
As a result, Rochford said, Haddonfield has delayed introducing its budget “because we aren’t sure if those numbers are going to stick.”
If they don’t, the borough could be short by as much as $1 million; even a cut of a couple hundred thousand dollars would leave officials scrambling to make up the shortfall.
That’s more difficult when state and local tax revenues are “way, way down,” including construction permits and sales, income, and realty transfer taxes; money that “has to be made up somewhere,” Rochford said.
Commissioners are postponing purchases of some capital equipment, including firefighting apparatus, while searching for other efficiencies, “but we’ve been very lean for years,” the mayor said.
“We still have vital services that the residents expect from us,” the mayor said. “Unfortunately, the first to get laid off in these situations are first responders, and these are people that are directly stepping forward in this difficult period to be of service.”
The same goes for county and school taxing authorities, he said: if school or municipal aid is reduced, local entities “are going to be hard pressed to make up those funds, or else make cuts that are devastating.”
Haddonfield, like many surrounding municipalities, has sacrificed parking revenues in an effort to bring shoppers to the borough, even as it’s cancelled some of its largest community events, like its Memorial Day and Independence Day celebrations and fall arts and crafts festival.
“That’s a hurt because our Business Improvement District (BID) depends on those revenues for our budget,” Rochford said.
The pandemic has also been “brutal” on retailers, the mayor said, noting that the borough is “definitely going to have some people who are throwing the keys back at the landlord and saying, ‘I’m done.’
“I feel for these folks because they’ve tried to build their businesses up,” Rochford said.
“Most of the landlords have offered discounts, but some companies say, ‘I’m three months in arrears. Let’s wait a year and reopen, start with a clean slate.’”
Rochford thinks it will be a while before shoppers and restaurant patrons have the confidence to go back to business as usual in the downtown shopping district, and opined that they might not return “until they come up with more widespread testing and a vaccine.”
“I think it’s going to be a slow rollout for people to feel the confidence to go back in public and be close to people again,” the mayor said.
“That’s one of the things that appealed to Haddonfield: that we could get together on Kings Highway, or at the farmers market, or converse at the parades,” he said. “I think you have to build the confidence of the public back up.”
Although Haddonfield hasn’t been touched by the same issues that have hammered long-term care facilities throughout the pandemic, Rochford said the borough still has felt the impact of the virus.
“We seem to have peaked out, but it doesn’t mean the curve is coming down fast enough,” he said.
‘Everything is on the table’
In Haddon Township, too, commissioners have delayed their budget introduction to avoid falling prey to cuts in state aid, Mayor Randy Teague said.
“We’re hesitant to go forward with the amount [of aid calculated] based upon prior years given the significant financial crisis we’re in right now,” Teague said.
“If we don’t get that, that will have a significant impact to our taxpayers. It will be very bad.”
In addition to borrowing and cost-cutting, which could mean cutting salaries or employee head counts, taxes would almost surely increase to provide even minimal local services, the mayor said, acknowledging that “raising taxes too much would have its own negative impact to residents and their ability to live in this town.”
Haddon Township is still proceeding with capital projects for which it’s already budgeted, including routine water, sewer, and road projects, but Teague noted that next year’s schedule may be “not so aggressive.” Neither did he rule out municipal bonding, which is available at “a favorable interest rate, if not zero, to carry us through at this time.
“Everything changes day by day, and we’re just staying aware of everything that’s going on,” the mayor said.
Like his colleagues in neighboring communities, Teague is concerned about the impact of the pandemic on the Haddon Township business district. He said “everything is on the table” as officials try to work out how to support their operations. While its bars and restaurants can serve takeout food and cocktails, they won’t open to dine-in guests until the state reopens more widely.
Commissioners recently passed an emergency authorization allowing Haddon Township business to use their parking lots as overflow capacity for retail and dining pickup. It seems less likely, at the moment, that local restaurants would use them for al fresco dining, or that the township would close streets to support that.
“Cars are still going to need to get to these restaurants and retail stores,” Teague said.
“In-the-street dining, while it may give them some additional ability to seat consumers, it may limit the other aspect of their takeout, delivery, or curbside pickup.
“We want our businesses to survive and then flourish after this,” he said.
“We want to make sure people can get employed again.”
Some of the biggest draws to the Haddon Avenue downtown, the Westmont Farmers Market and seasonal street fairs that it inspired, will be even slower to return. Haddon Township has cancelled all its community events through June, including what would have been its fourth Summer Solstice festival, and is developing a plan to transition the farmers market into a curbside pickup model.
And just like Roberts Pool in Collingswood, Haddon Township’s Crystal Lake Pool may not open again in 2020 if it’s not opened by Independence Day.
“My guess would be we would need a vaccination or some type of advanced testing so that we could gather more people together,” Teague said. “We probably have to wait for more of a medical breakthrough to continue with those events.”
The last time Audubon experienced a drastic municipal budget shortfall was in 2008, Mayor John Ward recalled, and that resulted in layoffs across a variety of public sectors.
Two years later, the same thing happened again when revenues dropped off as a result of neighboring Audubon Park switching its police services to Haddon Township.
Ward doesn’t expect the pandemic to usher in a similar drop-off, but acknowledged, “these are unprecedented times.
“I hate to think that a loss of state aid is definitive at this point,” the mayor said.
“It would be devastating to this town and would undoubtedly lead to reduced services.”
Despite these challenges, “Nothing is insurmountable,” he said.
“I believe in the power of positive thinking,” Ward said. “We will get through this and come out stronger on the other side.”
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