STONE HARBOR – Two experts gave reports on the borough’s finances at a work session of the Borough Council. Michael Garcia, Stone Harbor’s external auditor, and Rick Richardella, leader of a state team from the Department of Community Affairs, made their presentations on Aug. 20.

Among the areas that Garcia focused on were the borough’s position vis-a-vis state taxing and spending caps, its use of budget surplus and its debt service ratio.

Richardella, head of a three-member team that will soon begin to look at ways the borough can cut costs and boost efficiency, keyed on shared service agreements with other municipalities.

Auditor Presentation

Garcia, a partner at Ford-Scott & Associates, has been the borough’s auditor for several years. His report comes in light of the borough’s recent naming of a new CFO and of potentially serious issues looming in its finances, issues that have the potential to interfere in the 2025 budget process.

The major concern affecting budget formulation in the borough is the state’s appropriation cap. As Garcia put it, the borough is faced with a budget problem that is not about taxing authority but rather about spending authority.

He said the council has room to spare with respect to the tax levy cap: The borough can raise taxes, but the appropriation or spending cap is so close to its limit that any new tax revenue could not be spent.

In Garcia’s words, “The borough has remaining taxing ability of $1,487,287 but only has additional spending ability of $83,431 for in cap items – this means the borough could raise more in taxation but not be allowed to legally spend the amounts raised.”

While he did not explain in detail why the borough’s spending authority is so overextended, he did point to an $800,000 increase in operating expenses, with over half that for an increase in salaries and wages.

Garcia also focused on other financial hot spots. He said the borough’s surplus has grown in the last two years, but largely through one-time infusions of revenue related to the vacating of a street. The current general fund surplus of $4.6 million will probably not be maintained at that level, he told the council. With the end of the one-time funding, the surplus may retreat to the $4 million level or below.

He added that the bond rating agencies in 2018 gave the borough an AA rating, citing among other things a strong surplus balance that was 15% of the total budget appropriation. He said the agencies like to see a surplus balance at or in excess of 15% and use of surplus funds each year to balance the budget at no more than 50% of available surplus.

Stone Harbor has a surplus balance of over 20%, but it also uses more than 50% of that surplus to balance the budget. Much will depend on how the surplus settles following the two years where it had the one-time infusions of $1 million per year.

The issue of bond rating was particularly timely due to the fact that the borough is looking to bond in the near term to rid itself of more expensive bond anticipation notes on which it is paying a higher interest rate. Garcia said the bond sale would probably occur a few days before the notes needed to renew on Oct. 11 and would probably be at least $10 million. He added that current debt service ratios are higher than the levels the bond agencies prefer.

The Herald has pointed to this debt service issue in the reporting on the annual budget process. Stone Harbor at 23% has the highest ratio of debt service to total appropriations among county municipalities.

Jennifer Gensemer , chair of the Administration and Finance Committee, asked how the borough could increase its flexibility with respect to the spending cap. Garcia explained that it would require a special election in which the borough asked voters to approve going over the state cap limits.

Council member and mayoral candidate Tim Carney summed up his view on the borough’s financial position in public remarks following Garcia’s presentation. He said, “The reality is we have an out-of-balance financial position in this borough. We have been deficit-spending for close to a decade, and the bill is finally coming due. No sugar-coating it.”

While Garcia never used language that harsh, he did tell the council that barring some action to alleviate the spending cap limitations, the 2025 budget will probably require reductions in operating expenses.

Local Assistance Bureau Presentation

As Garcia’s presentation ended, the meeting transitioned to a second presentation by Rick Richardella from the Department of Community Affairs’ Local Assistance Bureau.

Stone Harbor’s new CFO, Cynthia Lindsey, announced at the Aug. 6 council meeting that consultants from the bureau had been invited to the borough to look for ways to increase efficiency and lower operating costs. The team from the state comes at no cost to the borough. Any recommendations made are not mandatory, and the council is free to accept or reject any or all.

The three-person team from the bureau will begin work soon. Based on the discussion of intent and some of the examples used from assignments in other municipalities, a major focus of the discussion will be on shared services arrangements, including those for public safety departments, fire, EMS and police.

Gensemer said, “The LAB employs an innovative approach to local government service, providing comprehensive management consulting services to local government agencies utilizing experienced local government professionals and date-driven analytics.”

Richardella began by announcing that Gov. Phil Murphy would be issuing a video on municipal shared services. The announcement gave evidence that Assistance Bureau consultants arrive with an interest in improving municipal efficiencies through shared services. Richardella himself is a retired police chief, and another member of the team, Vince Granese, is a retired fire chief.

Public safety is one of the most expensive areas of most municipal budgets, in part because it is a 24/7 activity 365 days a year. It is thus a natural area for looking at potential savings in operating costs through shared service efficiencies.

Carney prefaced the bureau presentation with remarks aimed at distancing himself from any eventual recommendation to share public safety services with other municipalities. As he did on Aug. 6, he stated an unequivocal position, saying, “I do not support, nor will I vote for, any recommendations that consider outsourcing our citizens’ public safety needs. I will not support nor vote in favor of entering into a shared services agreement for fire/EMS, police or the beach patrol.”

Part of the bureau’s presentation included information about state grants that may be available to aid in establishing a shared service arrangement. Local Efficiency Achievement Program grants support the study and implementation of shared services. The grants are under the control of two individuals that Richardella called “shared services czars.”

It was unclear how much the bureau consultants will look at ways to improve the borough’s finances outside of shared services. What was clear following the presentation is that a large and often-used tool in the bureau’s tool box is shared municipal services.

No schedule was given for the bureau work and final report. It remains unclear whether the consulting work can produce recommendations for debate and possible acceptance by the borough in a time frame that allows the results to be reflected in the formation of the 2025 budget.