ED. NOTE: It’s budget season again. As a public service to taxpayers, the Herald wanted to shed some light on the municipal and county budget process (explanation below). Next, the Herald will compare various 2020 budgets against each other to see how each town spent its money. The Herald will do the same for 2021 budgets, once they’re approved.The Herald will also provide highlights to readers, as 2021 budgets are introduced and approved.
COURT HOUSE – The annual municipal and county budget process is a cycle that spans most of the year. It begins in the late summer or early fall and runs through budget adoption in spring, with monthly monitoring of budget execution in the intervening months to ensure the surplus balance at the end of the year will be the same or greater than at the start.
While the process differs slightly depending on a municipality’s form of government, the basics of the cycle are the same for all the state’s 566 municipalities and 21 counties.
Request to Departments
In most towns, the process begins when a budget letter asks department heads to submit their requests for the upcoming year. This process overlaps with the monitoring of budget performance in the current year.
Departmental budget hearings are held based on the form of government and tradition in each municipality. These meetings are generally open to the public, but seldom gain much public attention.
The request to departments is one piece of a process that must include things not yet known to those putting the draft budget together. The state must contribute its information on required contributions to pension and health care programs. Information on debt and capital programs are also components that sit outside the departmental request process.
Revenue Anticipation
While disparate pieces of information on expected expenses are being gathered, budget officials are engaged in a process of projecting revenues other than those generated by the local purpose property tax rate. This process is, in part, dependent on realized revenues from past budgets for items as varied as parking meter income, license fees, and municipal court fines.
The anticipation of revenues from other sources is what allows budget officials to focus on the amount that will be needed from taxation. Once again, figures are needed that come from sources outside the control of municipal budget offices. A major example is that municipalities will need to know the amount of state aid to expect in the coming year.
Closing out the current budget year is a critical part of the revenue anticipation process since reasonableness of the anticipated revenue projections is based, in part, on what was realized in the year just ending. Sometimes those figures are not known untilthe current budget year ends.
Once the municipality understands the expenses, including those set by the state, and on the miscellaneous revenues available to cover those expenses, the amount needed from taxation is known.
Required Deadlines
The work is aimed at specific deadlines set by the state Department of Community Affairs. In recent years, those deadlines were routinely extended. For 2021, a budget must be introduced by March 30, extended from Feb. 10, and must be adopted by April 30, another date extended from March 20.
Since the new proposed budget for the year is introduced after the budget year begins, a temporary budget is adopted by the municipality’s governing body, often at the reorganization meeting in early January.
The temporary budget allows the municipality to meet its obligations while the statutory process of introducing and adopting a final budget is ongoing.
Among the deadlines involved in the budget process, municipalities must submit to the state an annual debt statement and unaudited financial statements by Jan. 31 and Feb. 10, respectively. These documents are used for a state review of the proposed municipal budget.
Introduction, Adoption of a Budget
Once a budget is introduced, it is made available to the public, and a scheduled public hearing is set before adoption.
The proposed budget contains an analysis to show that the budget conforms to the 2% cap rule set during Gov. Chris Christie’s administration.
To the degree that a municipality is below the cap, the difference can be banked for use in a future year when circumstances might warrant a greater increase.
By the time the budget is introduced, the municipality generally knows the level of state support that will be available. The impact of the pandemic upset much of the flow of normal information in 2020, when the state extended one budget year and shortened another.
State aid to the municipality comes in the form of consolidated municipal property tax relief and energy tax receipts. The latter is based on the value of public utilities that operate within the municipality.
Use of Surplus
Municipalities build a surplus or fund balance based on excess funds remaining after the execution of each year’s budget. The municipality may use a portion of that surplus as revenue in the proposed budget, an activity that helps the municipality maintain a lower property tax rate.
Budget execution is critical throughout the year to assure the surplus funds allocated to the current budget are returned, hopefully with additional excess, at the end of the budget year.
Tax Bill
The total property tax bill for the coming year is based on several factors that are outside the control of the municipality. The municipality only sets the local purpose tax rate for the operation of municipal activities. A similar county budget process sets the county’s property tax rate.
The school district tax rate is set on an alternative fiscal year basis with school districts budgeting for an academic fiscal year that runs from July 1 to June 30. There also may be special district tax rates for the support of activities like fire districts.
State law makes the municipality responsible for the collection and distribution of all taxes. Given that the school district operates on a different fiscal year, municipalities have some leeway in setting the amount of the school taxes they will distribute in the proposed municipal budget, as long as they meet the requirements of the half-year of the school budget that overlaps the municipal budget.
Utilities
Municipalities generally establish self-liquidating utilities in areas where user fees or rents will cover operating and capital expenses. The utilities offload expense from the property tax-supported current fund or operating budget.
Part of the budget process each year involves decisions on whether the user fees charged need to be adjusted to maintain the utility in a self-liquidating status. Examples include water and sewer rates that support a water/sewer utility or beach tag rates, which may support a beach utility.
Budget Examination
The municipal budget must go through a required state review process. The state reviews all county, municipal, and fire district budgets, but it can allow local examination and certification and generally does so on a rotating cycle.
Ongoing Process
Once a budget is adopted, many factors can impact the current and future budgets. Bond ordinances will have an ongoing budgetary impact that needs to be understood by the public, as well as by municipal officials.
A solid multi-year capital and debt service plan is essential to future budget health.
Long-term infrastructure plans and multi-year contract negotiations are just examples of budget decisions that can have an impact well beyond the current budget cycle.
It is a process with no end.
To contact Vince Conti, email vconti@cmcherald.com.
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