Middle Awaits News on State Aid to Inform Budget

COURT HOUSE – Middle Township Committee is working to do what it can, as the state and local economies take their toll on municipal budget assumptions. 
With roughly five COVID-19 infections a day, in the county, and the municipality’s economy in virtual lockdown, the committee April 20 adopted a $22.28 million operating budget for 2020. The budget called for no increase in the local municipal use tax rate.
Uncertainty was increasing daily, concerning when the local economy might reopen. Second-quarter tax deadlines were imminent. Even with an extended grace period for payments, no one could predict how deep the financial pain might go.
The municipality took several steps to improve its financial position. It froze hiring and salary increases. The use of an accelerated tax sale process freed the budget from the burden of, what would probably have been, a $1 million charge for anticipated uncollected taxes.
“It helped that the township was in good financial position as we rolled into this,” said Mayor Timothy Donohue, at the governing body’s July 6 meeting.
Donohue spoke of trade-offs in spending and saving during the several weeks of the COVID-19 induced lockdown. What new costs there were, Donohue said, ended up benefiting from savings in other areas of the budget. “There was a lot of inactivity,” Donohue explained, leading to lower overtime costs and other reductions in normal expenses. 
Several times, Donohue said the municipality sees some tough times coming for the budget. Two issues are probably at the forefront of his concern. 
Mortgage Payments, Taxes
Third-quarter property tax payments will be a true indication of how deep the financial dislocation caused by the pandemic goes. 
The statewide data does not look promising. Nationally, May saw 4.3 million mortgage holders fail to make their payments, up from 2 million in March. The five states with the highest percentage of non-current home loans include New Jersey, at 11%. 
Many of these home loans are in forbearance programs, but the longer a loan in forbearance goes without payments, the more concerned experts are that the homeowner will not be able to ultimately pay back what is owed. 
Understanding the delinquency picture is difficult given required forbearance for federally backed loans, Gov. Phil Murphy’s moratorium on evictions, the long period of limited activity in the state’s judicial system, and the variety of programs private mortgage companies put in place. 
What is known is that New Jersey is faring poorly compared to other states, and the Garden State has an unenviable recent history for being at the top of delinquencies and foreclosures.
Bankrate’s Housing Hardship Index points to New Jersey as most likely to see elevated foreclosures when forbearance periods end. The index projects 2021 as the worst year for the state, in terms of mortgage delinquencies and defaults. Uncertainty reigns.
State Aid to Municipalities
For Middle Township, the state budget is also a grave worry. While many of the communities, in the county, do not rely heavily on state aid, some, and Middle Township is among them, have a significant stake in how state aid fares in the nine-month budget that will govern state spending from Oct. 1, 2020, to June 30, 2021.
Unlike Cape May, where state aid is less than 2% of the revenues driving the city’s $21 million operating budget, Middle Township receives over 16% of its anticipated revenues from state aid, $3.6 million of its $21 million operating budget. What happens with the state aid budget matters in Middle Township.
It is useful to remember what state aid to municipalities is about. It comes largely from what is known as energy utility taxation, which was part of the Energy Tax Receipts Property Tax Relief program. The monies represent revenue from a tax on public utilities based, in part, on the presence of those utilities in a specific municipality. 
The revenue was meant to be used for property tax relief. Municipalities used to collect this revenue for themselves, but then the state took over the collection. As is often the case, the state began skimming off the top of the revenue before returning the remainder as “state aid” to the municipalities. The diversion of portions of those funds for state use continued. 
The state operates under a three-month stopgap budget that was balanced by delaying several large state payouts until Oct. 1, or later. Among those was the normal payment for consolidated municipal tax relief aid and energy tax receipts. The delay only increases the uncertainty over what the state aid level will ultimately be, leaving some county municipalities, Middle Township among them, with potential holes in their budgets if the state aid is significantly reduced. 
This is a major reason for the recent sending of estimated tax bills since the actual tax rate can’t be firmly set until the state’s budget, beginning Oct. 1, is known.
As this was written, the governor announced a deal with state Senate leaders that would open the door to massive borrowing as a way to replace lost revenues. The bonding could reach $10 billion. 
What this would mean for the state’s credit rating and its debt service requirements is unclear. Equally uncertain is how municipalities may be able to participate in the use of debt as a solution to serious revenue shortfalls. 
The deal has yet to be drafted as a formal legislative bill, which also will require state Assembly approval. 
Vulnerabilities
As the virus made its appearance, Middle Township was structuring the budget so it could address long-term problems. 
A capital improvement fund had nearly run dry, in previous years, and the committee was trying to establish a regular feed of funds to the account that would exceed use, so the fund could grow again.
After three consecutive years of high, unexpected fee charges from the county Municipal Utilities Authority (CMCMUA), municipal officials commissioned a study of the oldest parts of the sewer system, some of which dates to the 1930s. The goal is to stop stormwater intrusion that passes through the system as wastewater, running up fees at the CMCMUA.
Drainage improvement projects were underway, as was an effort to modernize the municipality’s pump stations.
Admitting that he sometimes gets a “queasy feeling” when thinking of the municipality challenging taxpayers to pay their taxes within the grace period at times of crisis, Donohue defended the use of the accelerated tax sale, saying that the municipality would have to add another $1 million to the general taxpayer’s burden if it had to reserve for all uncollected taxes. 
A chart at the beginning of the municipality’s budget document (https://bit.ly/32e0IRS) shows that the property taxes on a home assessed at $275,000 increased by $350 between 2019 and 2020, with not a penny of that increase due to the municipality’s local purpose tax. School district taxes and county taxes accounted for the entire increase. 
The question is: Can Middle Township maintain that performance in the face of the implosion of the state’s budget and the rising pressures unemployment is causing for homeowners? 
If the state and county economies are pictured as boats, they are far from port, and the seas are not calm. 
The state Department of Labor announced a 70% increase in weekly filings for unemployment assistance July 9, the highest weekly total of new claims in eight weeks. The school year ended with layoffs for teachers. Furloughed state workers are in the mix. As of July 4, the state paid $9.9 billion to unemployed workers, $7 billion in federal funds, the authorization for which is running out. 
Despite claims that some prefer to stay on unemployment rather than seek work, few of the experts claim the reopened economy can absorb any significant portion of the unemployed, even if everyone took the jobs that become available. 
Workers (1.35 million) submitted claims for unemployment, in the state, and over 1.2 million qualified.
Middle Township’s Budget
The municipality’s budget is heavily loaded with items over which the municipality has limited control. Pension payments, health insurance premiums, and debt service account for more than 25% of spending, better than $1 in every $4 of revenue.
On a tax base of less than $3 billion of assessed value, the municipality supports services in the largest municipality in the county by size and second-largest by population. At this time, the expense of a 24/7 police department is the largest single item in the budget. Appropriations for police salaries and pension payments amount to 29% of the municipality’s expense budget. 
Police Chief Christopher Leusner repeatedly pointed to the need for a force large enough to allow officers to engage in the kind of community policing protesters nationwide have been calling for. A reduced force, he argued, means reverting to an emphasis on enforcement as the primary goal. 
Donohue said the operating budget is getting the job done. Services are being delivered, and ongoing projects are moving ahead. 
Municipal Differences
Each municipality, in the county, has a different mix of factors that impact local budgets to a greater and lesser degree.
Cape May’s 2020 budget relies heavily on local revenue generated by the influx of summer tourists. Over 20% of the city’s operating budget is tied up in revenues from parking meters, beach tag sales, hotel occupancy taxes, and the like. 
State aid is a small player in the city’s budget, where other revenues, including use of the municipality’s surplus account, allow the 2020 budget to call on property tax revenue for only 50% of the $21 million in operating funds.
When Cape May takes actions to help local businesses survive the COVID-19 downturn, the city is also taking action that directly or indirectly rebounds to its expected revenues.
In Middle Township, taxpayers pay 60% of the needed operating budget revenues, with state aid another 16%. With $3 out of every $4 of municipal revenues largely out of its control, the municipality must concentrate on the efficiency of its operations and with what funds it can squirrel away to help deal with the unexpected. 
Late September and early October are when the township will have a reliable idea of the impact the COVID-19 crisis will have on its 2020 budget and the look forward to 2021.
Donohue compared the municipality to a well-built boat, which can withstand the ill winds that buffet it. As of yet, of course, he has no accurate forecast of the gale force winds the boat might encounter in the fall and into 2021. 
To contact Vince Conti, email vconti@cmcherald.com.