May 3, 2009

Revenue Loss Putting Cities in Fiscal Vise

UNTIL the economy collapsed last year, Berlin Borough had three school crossing guards on the payroll. Today the borough can afford only one.

Hoboken, which expects its property tax revenue to fall this year, plans to lay off or demote dozens of police officers and firefighters, and trim the overall municipal work force by 10 percent, to balance a $75 million operating budget in a year of dwindling revenues.

And in Camden, two of the city’s three ladder trucks are out of commission awaiting repairs, forcing the city to call in reinforcements from neighboring Collingswood so often that Collingswood is canceling its agreement to respond to calls in Camden.

“We can’t afford to be doing anything like that,” said Mayor Jim Maley of Collingswood, whose crews have been dispatched to Camden 40 times this year — five times more than they were called in 2008. “It’s not what people in our town expect and deserve.”

Throughout New Jersey’s 566 local governments, the global economic crisis that has felled Wall Street icons and small countries is taking a toll at street level.

“I don’t think there is any town that would not say they are in an economic crisis,” said Susan Jacobucci, who is the chairwoman of the state’s Local Finance Board, a post that in the last few weeks has given her a front-row seat on the woes of municipalities.

Ms. Jacobucci’s panel considers appeals from communities seeking to raise local taxes beyond the 4 percent maximum allowed by state law. Of 50 communities whose budget years end on July 30, 11 went before the panel this month seeking waivers. The hearings, held weekly, have provided a public glimpse into the desperate straits many cities find themselves in these days.

Mayors across New Jersey are preparing to see revenues vanish through tax appeals meant to lower commercial and homeowners’ payments, and the collapse of construction permit fees. Major land sales or concession agreements expected to generate millions of dollars in supplemental funds are being canceled by skittish developers. State aid is shrinking as income tax and other revenues decline. And in some towns, long-delayed union contracts are finally being resolved, prompting the need to cover months or years of retroactive pay increases in the midst of a revenue collapse.

William G. Dressel Jr., executive director of the New Jersey State League of Municipalities, said circumstances in local government are the worst he has seen in his 35 years on the job.

“In municipal parlance, this is a train wreck,” he said.

In Weehawken, officials needed permission to raise taxes by $1.9 million more than the 4 percent cap would allow to avoid a 40 percent cut in municipal services before July 1.

Also, nine months into its budget year, Weehawken reached a contract settlement with its unions that requires $811,000 in retroactive salary payments.

With the increase approved by the Local Finance Board, the typical tax bill in Weehawken is scheduled to go up by $375.

In Gloucester Township in Camden County, a hiring freeze since 2007 means the police force totals 110 officers — the same level that patrolled the township in 2004, when the township had 5,000 fewer residents.

Gloucester, with a budget of $45 million, illustrates in almost every way how the sinking economy is battering local governments.

A developer recently canceled a signed agreement to buy a piece of municipal property, punching a $1.8 million hole in the local budget nine months into the fiscal year.

An arbitrator concluded two years of negotiation with the police union, granting retroactive pay increases of 3.5 percent annually that must be paid from the current budget.

A special state aid payment of $500,000 was not renewed, and construction permit fees have dropped by $165,000.

“We have analyzed this budget over and over and over again,” Thomas Cardis, Gloucester business administrator, said shortly before the Finance Board approved a tax increase that was $3.1 million more than the state’s 4 percent limit would allow. “We’re running out of cash.”

Taxes on the typical Gloucester home will increase by $240 this year, an increase of 10 percent from the year before.

In other communities, the problem is tax appeals. As corporate landlords and new condominium owners survey the real estate market, thousands are petitioning for a cut in the property values on which their taxes are based.

In Hoboken, 2,000 property owners in the trendy condominiums that have sprouted along the Hudson waterfront over the past two decades have appealed their property tax assessments this year, officials said.

Perth Amboy is facing more than 300 tax appeals, worth a total of $11 million. In a typical year, about 80 taxpayers challenge the assessments on their properties, said Jill Goldy, the city’s chief financial officer.

James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said part of the reason the fiscal problems are hitting towns so hard is that many added to their work force during the boom years of the early 2000s, when municipal coffers were brimming. Since December 1999, he said, local governments and schools have increased their payrolls by 63,000 employees. Private employers, over the same period, have cut a total of 57,000 jobs since the new century began.

“If you’re going to have a healthy public sector, you have to have a healthy private sector,” he said. “And that hasn’t happened.”

Cuts in state aid have also played a role.

Ms. Jacobucci said Gov. Jon S. Corzine’s decision to trim Extraordinary Municipal Aid by more than $10 million this year meant she had to adjust the level at which such aid was deemed to be needed.

Last year, she said, the board tried to award towns enough so-called extraordinary aid to head off any local tax increase of more than $150 per household. This year, with less money to offer, the board could only offer aid to towns where the average tax bill was going to increase by at least $300, she said.

Mr. Corzine said he tried to blunt the impact of the cuts by offering local governments the option of deferring half their required payments into the state pension system for public employees and the police and firefighters this year.

About 70 communities had been approved for deferrals by the middle of last week.

But those deferrals come with a price. The two pension systems that cover local government employees, the Public Employees Retirement System and the Police and Firemen’s Retirement System, are underfinanced by a total of $11.4 billion, actuaries reported in April. Next spring, the payments due from local governments are scheduled to be almost 10 percent higher than the amount that was owed this year.

That means the communities that skip half their pension payments this spring will have to find room in their coming budgets for the fully restored pension contribution as well as another 10 percent. Statewide, this year’s $584 million pension contribution from local governments is scheduled to increase to $1.28 billion next year.

“Clearly, this is the start of a sustained, long-term crisis,” Dr. Hughes said. “The message is, ‘Cheer up, the worst is yet to come.’ ”

The dire fiscal prospects have sparked a renewed interest in consolidation among New Jersey’s 566 local governments.

Princeton Borough and Princeton Township held a meeting last Monday to discuss for the third time the prospect of merging their local governments.

Mr. Corzine, who has long said the state has too many governing bodies, welcomed talk of mergers.

“I’m very encouraging of that,” he said. “If there’s any light that comes out of this deep national recession it’s that people have to take realistic views of things they would not otherwise consider at other times.”

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