CAPE MAY – The pandemic’s blow to Cape May’s municipal revenues was less severe than expected. Chief Financial Officer Neil Young is predicting an increase in the current fund surplus by the end of the fiscal year.
While some businesses across the county shuttered permanently and others are scrambling to survive, Young painted a picture of city finances in which revenues rebounded after a slow start.
He said that the rebound, in addition to tight expense control, left the city in “great financial shape” despite the impact of the pandemic.
Young made a presentation on the status of the city’s finances at the Oct. 6 Cape May City Council meeting.
Using data, as of the end of August, Young compared revenues and expenses to the same point, in 2019. Nowhere in the presentation was there any attempt to compare the city’s performance this year to the 2020 budget, even though the 2020 budget is $900,000 larger in revenue expectations than 2019.
Young first dealt with the city tax rate, from 2015 to 2020. He argued that while the total property tax bill increased 10.5 cents per $100 of assessed value over those years, the increases were largely outside of the city’s control, with almost 8 cents of that increase due to hikes in county and regional school system taxes.
“The city’s local purpose tax rate has been relatively stable in these six years,” Young said.
Several months ago, the city’s Taxpayers Association made a presentation to the council in which the association requested a municipal revenue and taxation committee be formed to reverse the tendency the group found to look to property taxes before considering other sources of revenue for meeting expenses. The council agreed to form the group, but, in the days since COVID-19, no action was taken to establish the committee.
Young moved from tax rates to a consideration of the city’s current fund balance. Young returned to 2014 for his comparison framework, which benefited the comparison of the beach fund balance. He showed his basic point that the fund balance, often termed the surplus, is healthy in all but one of the city’s utilities.
A consistent theme of the presentation was that a rate hike will be needed in the water and sewer utility. From 2014, the fund balance declined by over half a million dollars, leaving the $7-million-a-year utility with a fund balance below $900,000. Young said a system of regular rate hikes may be needed, with the first being more substantial than later ones.
Young pointed to the current fund balance of $7.4 million, in 2019, as a strong indicator of the financial health of the city; $3.3 million of that fund balance was used in the 2020 budget to offset the need for more property tax revenue.
The third area Young focused on was city debt. He showed that the city’s debt level was consistent since 2014, declining by $1 million in that period. The average of about $45 million in debt for the six-year span appears to be a level with which Young is comfortable. The question becomes how to maintain that debt level, or something similar, as the city plans for some major borrowing.
At stake in the Nov. 3 election is the controversy over new facilities for the city’s fire and police departments. Dueling referendums ask the voters to approve either $5 million or $15 million for that purpose. The city’s auditor said the city can take on that debt, with some other debt retiring, without significant burden on tax rates.
One argument offered in contention has been the need for borrowing in other areas, especially the need for modernization of the city’s water distribution system and expansion of its desalination plant.
City Engineer Thomas Thornton discussed the city’s water system management plan.
The plan was developed by the city’s engineering firm, Mott MacDonald, and presented to the council in March. It called for a hefty investment of $29 million over a 10-year period. More problematic was the plan’s call for a large part of the investment in the early years.
The plan was politicized to some extent, in that the needed investment in the water system has often been used by those opposed to the city taking on $15 million in debt for a new public safety building.
Thornton’s comments following Young’s presentation downplayed the urgency of the water system investment, noting that the plan was Mott MacDonald’s assessment of needs. “The city, like any city, can prioritize the projects according to your budget,” Thornton said.
It is precisely that prioritization that was at the heart of the debates on what, when, and where to invest capital dollars.
Responding to a probe from Lear, Young disagreed with reports that the city’s current fund budget is $5.5 million in deficit. He pointed to the fact there are months remaining when revenues will be received, including tax revenues. Young said the comparison to 2019 showed an August deficit of just under $900,000.
Young enumerated areas of reduced spending, saying that the projected end-of-year scenario is likely to produce a small increase in the city’s surplus, even amid pandemic-induced revenue declines.
While some of the discussion centered on the political debates of an election year, the presentation also spoke to a significant fear that emerged across the state at the crisis’ start.
Would property tax revenues be impacted by the economic losses suffered by so many individuals and businesses? The answer, in Cape May, appears to be no.
Young’s presentation showed no significant drop in expected property tax revenues. The city’s conservative budgeting of 95% of total tax revenues compared to its usual performance in excess of 98% provides a cushion, as well.
Young’s conclusion is that the city is in strong financial shape largely because it entered the crisis budget year healthy. Speculation about 2021 would be just that. Much depends on how long the pandemic lingers and the future measures taken to combat it.
To contact Vince Conti, email vconti@cmcherald.com.
