Auditor Tells League Budget Caps Work

WILDWOOD CREST – Leon Costello, registered municipal accountant, who has likely forgotten more about municipal and school budgets than many will ever know, imparted words of wisdom to Cape May County League of Municipalities Feb. 26.
After the group of elected officials from throughout the county finished dinner at Gia’s Restaurant in the Sand Castle Motel, Costello served up the final course of instruction. The 37-year veteran of many budget wars passed out a packet of papers to all, the first of which resembled a mountain of red bars. That representation was the amount of increases in local purpose tax for all 16 county municipalities and a “trend line” for the past decade and the prior decade, 1993-2012. It graphically depicted the rise and fall of expenditures, and especially the impact the 2 percent CAP has had upon governmental spending.
Earlier in the day in Trenton, Gov. Chris Christie had given his budget address and the municipal aid many in the room feared might disappear. It did not, but remained at existing levels to all towns.
“If we listen to the governor and believe what he says, taxes are coming down,” said Costello. That was a fact well-known to most in the room. They were the ones who had pared personnel or took similar action to trim expenses in their towns’ spending.
“You have managed to bring the line down and control taxes without the aid of revenue,” he noted. Then, Costello cited what he told a mayor of an Atlantic County municipality, “When you have eight people retire, don’t hire 11 of your close friends to take their place.” Laughter erupted as the advice was digested.
Having worked with many in the room, most of whom Costello knew on a first-name basis, again, he spoke, “If 10 retire, replace them with two at the most.” He was driving home the point that much of budget costs are personnel related.
“The other thing, contract negotiations,” he said. “The hammer is in your hands for the first time ever. You have control of the contracts now.” The auditor noted that municipalities with contracts looming for police, fire and public works can dictate, in large part, the financial terms.
“In the old days, when you’d sit down, the governing body would want to give 2 percent; the public safety guys would want 5 percent. Then you’d hire an arbitrator and they’d get 4.5 percent. Those days are gone forever,” said Costello.
He cited Galloway Township where police officers previously had salaries ranging from $43,000 to $86,000 with six steps. A newly-penned contract sets the starting salary at $38,000 with more steps until the maximum amount is received. “This is going to save you guys for a long time,” said Costello.
“If you are in contract negotiations, be tough, hold the hammer,” said Costello. “The rules for arbitrage of 2.5 percent will last until 2014 for contracts before then. You never had this opportunity before. Take advantage of it,” he added.
Another long-held feature in municipal budgets was longevity. “Everybody is dumping longevity. In Lower it’s out completely,” Costello said. “I represent the governing bodies. I am telling you what you should be doing, how to control spending and taxes. Town after town has reduced their work force. You are running out of time to reduce your work force. You are getting down to the bone,” he noted.
Another feature of municipal budgets, especially those with homes and businesses impacted by Hurricane Sandy: the threat of decreased values, hence lower assessments meaning less tax money to fund budgets.
He said the present tax appeal process seriously impacts municipalities since budgets are constructed and approved, then, mid-year, if appeals are successful, the municipality finds it will take in less than anticipated. “Shore towns know how bad it is,” said Costello. “They lost money every year to appeals. With Sandy, we don’t know how bad the appeals will be. Once you strike the tax levy, say $50 million, the levy is struck and everyone who appeals, all that money is lost by the municipality,” he continued.
“I had five tax appeal cases for towns that had to borrow between $1.7 million and $2.5 million to make up the taxes,” he added.
Costello urged the officials “Talk to your legislators. Why is this system in place? You strike the levy, they appeal. If they win, we lost money. You should have new numbers; strike the rate on new numbers. It’s basic, basic mechanics.”
From a countywide perspective, the ratable decrease can be seen in this year’s budget. That spending plan went for a public hearing earlier Feb. 26, but could not be adopted under orders from the Governor’s Office. It carries a tax rate increase of less than two cents, but that increase was attributed to a decline in ratables. That was what Costello meant.
“Avalon had a significant decrease, devaluation. Ocean City has devaluation, North Wildwood did devaluation two years ago,” Costello said.
To his clients, Costello conceded, “You have done a great job. This is proof,” he said, pointing to the sharp drop in tax increases countywide.
He cited some recently introduced budgets containing tax rate increases: Cape May, 1.5 cents, Sea Isle City 1.9 cents, Lower Township 2.9 cents. Again he lauded, “You have done a good job with no revenue.”
Costello cited Lower Township that experienced, “A big revenue problem, how much money they lost to appeals and bad collections.” But investments have also failed to aid towns as they once did, and took some of the onus from the taxpayers’ backs. He cited an example of one municipality that received a scant $5,000 where it once received $2.6 million from investments.
What the overall effect of the new FEMA base elevation maps will have on property values, especially on the oceanfront, is not fully known as yet, Costello said. If homes are located below flood levels, “It’s done,” said Costello. “A new person cannot get a mortgage.”
That will likely cause a “ripple effect on how much values will go down on the shorefront,” he said.
He cited Ocean City immediately after the March 1962 storm. “All the houses were gone; you could buy at bargain basement prices. Sea Isle was even worse. It’s a big unknown but it will go down,” said Costello. “Properties will be worthless because you can’t do anything with them.”
He added that some Ocean City properties have yet to be reopened by their owners. “They are done,” he said, adding, “We see demolitions every day. What is the value now?” He said the value of land might have been $500,000 but might now be $300,000.
“Who knows what is going to happen with the assessments?” he asked. There is a “potential for FEMA money” to towns that sustained a 5 percent loss of ratables. However, no municipality in Cape May County suffered such a loss, Costello said. Towns to the north did, on Long Beach Island and north.
Asked by Cape May Councilman Jack Wichterman what might be the effect on decreased ratables on regional school funding formula? Costello replied, “In Cape May it will go down.” The city is presently paying $100,000 per student sent to Lower Cape May Regional School District.
Costello urged the officials, when drafting their budgets, not to think only of the next year, but two to three years in the future.