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Sunday, May 19, 2024

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County Prepares Budget for ‘Unpredictability’

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By Vince Conti

To access the Herald’s local coronavirus/COVID-19 coverage, click here.
COURT HOUSE – Citing “unpredictability” in the months ahead, Cape May County officials recently took steps to reduce expenditures. 
The $173 million budget, adopted in March, will see a 10% reduction through the end of the budget year for operating and capital budget expenses. The actions taken also included a moratorium on uncommenced hiring, as well as tabling new bonding for capital projects.
In a July 28 press release (https://bit.ly/2Ea69Ya), officials stated that the county “remains in a solid financial footing,” and that the actions reflected “the unpredictability in the months ahead.”
A look at the county budget shows the financial strength referenced in the press release and the vulnerabilities of a budget dependent on a select few large sources of revenue.
Sources of Revenue 
The county’s budget is over 70% dependent on tax revenues. In 2020, $125 million is expected from taxes out of total revenue anticipated, at $173 million. 
When counting the $12 million of surplus used to offset budget expenses, the revenues from other sources appear to drop to $36 million, or a little over 20%.
The perception is deceiving in that the county would normally expect to add about $4 million to the budget in grants over the course of the fiscal year. There is also about $6 million in state funding that offset expenses for services but is not part of the budget.
Still, the overwhelming picture is one in which tax revenues are the major source of funding for county operations. The same was true, in 2019, and in 2018. Those tax revenues come from the property tax levy.
Municipality Property Tax Burden
The property tax is the largest tax revenue source in New Jersey. In 2019, the total property tax levy was just over $30 billion. By comparison, the state income tax netted $16 billion.
When one aggregates all government spending, in the state, almost 75% of it is at the local levels of government. In most municipalities, the local school tax is the largest single component of that spending.
When one looks at the county budget, the percentage of taxes collected is 100%. This is because the municipalities are required first to pay school districts and counties their share of the property tax revenue. If there is a shortfall in tax collections, that shortfall is borne by the municipality.
The municipal budget must contain an appropriation for the expected shortfall. If the loss in tax collections is greater than the expected offset for uncollected taxes, the municipality must find a way to cover the loss.
In May, a bill that would allow some flexibility in the payment of tax revenues from the municipality to other entities, like the school district and county, passed the state Legislature and was signed into law.
It permits a delay in the transmission of funds during a gubernatorial-declared emergency, as long as a percentage of funds, approved by the director of the Division of Local Government Services, is transmitted. The director, in turn, is required to make that decision based, in part, on the fiscal state of the municipality and the amount of property taxes collected. If it sounds confusing, it is.
Based on second-quarter property tax collections, the damaged COVID-19 economy has not produced a significant increase in unpaid property taxes. If and when property tax collections decline, it is unclear how the burden will be shared in Cape May County. 
For the county budget, any decrease in property tax revenue would be serious given the percentage of county operations that depend on that revenue.
Appropriations
What county operations are covered by the county budget, with its heavy reliance on taxation?
$29 million is spent on health and human services, $27 million on public safety, including the Cape May County Correctional Facility, another $27 million is allocated to various insurance payments, the largest being employee health insurance, and $15 million is paid for education, including the two county school districts and the annual support of the community college.
Other expenses range from mosquito extermination to Fare Free Transportation to the county health service and county parks, among others.
The real total cost of county operations is about $127 million, with another $3 million in programs offset by revenues, a $130 million total for operations.
To get from that $130 million to the $173 million bottom line, one has to add $16 million in debt service, $18 million in pension and Social Security outlays, and $8 million in capital improvement, including a $6 million contribution to the capital improvement fund. These monies are not part of the separate capital budget.
In terms of the $127 million that supports ongoing operations, almost 80% of the funds go into four broad categories of activities and services: 24% is appropriated for health and human services, 21% goes to public safety, with the Cape May County Correctional Facility as the largest single component, 21% goes to insurance, with employee coverage as the largest component, and 12% goes to education at two county school districts and the branch college.
In an email exchange June 29, Freeholder Director Gerald Thornton stated he told staff, not just to implement the 10% across the board cuts mentioned above, but also to prepare for future cuts in spending from the “feds and the state.” Thornton was telling county officials to prepare for more pain, not a rescue effort.
Property Taxes
The non-profit Tax Foundation annually produces a per capita property tax burden based on total property taxes collected and census population data. 
Annually, New Jersey leads the nation. The fact that New Jersey’s property taxes are notoriously high is not news, but it is a major hurdle in any recovery plan.
The state’s shortened fiscal year 2021 budget is not yet known. Potential federal support for states and municipalities is tied up in a Congress that seems incapable of actual legislation. 
Gov. Phil Murphy conditionally vetoed the bill that spoke to county and municipal borrowing to cover the economic impact of COVID-19. How that will play out is also still unclear.
Schools have faced new costs and may face greater ones as they open for a school year like no other. The local economy was badly hurt by the pandemic and the measures taken to combat it. 
The full extent of that damage is not yet known, but the season for making money for most local businesses has only weeks left before it begins the annual narrowing down to the dead space of late fall and winter.
One thing looks reasonably clear. Selling a significant property tax increase as part of any recovery plan is going to be a heavy lift.
To contact Vince Conti, email vconti@cmcherald.com.

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