In 2023 the 16 municipalities in Cape May County budgeted a collective $400 million for general fund expenditures. It is the general fund budget process that sets the annual local use property tax levy. Another $65 million is budgeted through self-financing utilities. Utilities are used by nine of the 16 towns.
This is the annual cost of doing business in the municipalities. Of that $465 million total budgeted, $247 million is funded through the local purpose tax.
While the municipal tax represents one chunk of the property tax bill, two other areas contribute significantly to the total property tax. One is the school levy, and the other the county tax.
In total, the operating costs of the municipalities, the county government and the 17 municipal school districts for 2023 ran to just under $1 billion. The total tax levy contributing to the funding for those activities is just over $585 million.
In other words, budgeting is a big deal. It is a process that almost never completely ends. The process that gets the most attention from the public is the budgeting for the town in which they live.
So take a deep breath and dive in, following are the basics of this complicated process.
Municipal Budgeting Schedule
The schedule for municipal budgeting follows state guidelines.
Generally it begins in late fall, when department heads in each town are asked to determine their needs for the upcoming year. The municipalities in the county all operate on a calendar year basis and do not mimic the state fiscal year.
State regulations set the dates by which the annual budget must be introduced and adopted. This year the dates are introduction by March 31 and adoption no later than April 28, or the very next governing body meeting.
Prior to any vote to adopt, the municipality must hold a public hearing. Most municipalities hold their hearings on the same night they have scheduled a vote to adopt the budget, a process that limits the likelihood that any significant changes will occur in the budget as a result of the public hearing.
Temporary Budget
The governing body passes a temporary budget at the start of the fiscal year to provide operating funds while the permanent budget is developed and adopted. The temporary budget is limited to a percentage of the previous year’s budget. Anything included in the temporary budget must be included in the final budget.
Surplus
Each town maintains a general fund surplus composed of unexpended funds from previous budgets. In formulating a new annual budget, municipal officials will often make use of some of the surplus funds, counting them as revenue in the new budget. This is done with an expectation that funds will be available at the end of the new budget year to replenish, or even enhance, the surplus balance. A year-to-year decline in the surplus balance is a sign of fiscal difficulty.
Revenue
For most municipalities, the local purpose tax levy is the single largest source of revenue for the budget. Other sources of revenue include state aid, which is almost entirely in the form of energy tax receipts, and various local revenues.
Local revenue sources can vary among the municipalities and may include paid parking, license fees, beach tag sales, a hotel and motel tax, funds derived from shared service agreements, municipal court fines and a recent addition, tax on cannabis sales.
Revenue from grants may arrive throughout the budget year, and such revenue is added to the budget for the specific purposes outlined in the grant award.
The budget makes use of any annual increase in ratables as a basis for additional tax revenue that does not impact the tax rate.
Appropriations
The cost of personnel is often the largest area of expenditure in a municipal budget. It includes salary and wages, pension costs, employee health and benefit program costs, as well as workers compensation and other liability insurance programs.
Each department’s operating expense is added to the budget but is generally not detailed. The detail would be located in individual department budgets.
Most municipalities make extensive use of professional services contracts. Positions usually filled through professional services contracts vary. They often include the municipal solicitor and attorneys with special areas of expertise, such as like bond counsel, labor lawyers or even prosecutors for the municipal court. They may include a borough engineer or engineering firm.
Other positions may be filled through shared service agreements with neighboring towns. These can include everything from sharing a chief financial officer to a conflict construction official.
Debt service is a major area of appropriation and one that property owner associations in the towns watch carefully.
An amount is also allocated for delinquent taxes. This follows the results of an annual tax sale and a calculation of the tax collection rate. The tax collector calculates the marketability of tax liens.
Examination
Each year the budget is subject to examination to ensure that it complies with all applicable budget rules. Most of the time the municipality is allowed to examine its own budget locally. Roughly once every three years the state may require a state examination.
When a budget is adopted every year it is sent within three days to the state. Other documents the state uses when looking at a municipal budget submission are the annual financial statements of the municipality and the annual audit report.
Capital Budget
A six-year capital budget is part of the overall budget document. The capital plan spells out the likely multiyear projection of anticipated capital projects. The projects are subject to change in future budget documents.
Caps
There are two state-mandated caps that limit the growth of the tax rate and the town’s appropriations.
The levy cap limits tax levy increases to 2% of the prior year’s levy based on a formula that contains certain exclusions from the calculated cap. These exclusions include capital expenditures, debt service, pension and health benefits over a 2% increase and government emergencies.
A cap bank is maintained by each municipality and earns funds when a municipality’s increase under its levy cap is below the maximum increase allowed. Three years of savings can be used to offset a one-year need to exceed the cap.
A healthy cap bank is considered an insurance policy of sorts when facing unexpected expenses.
The second cap that must be observed in the budget process is the appropriations cap. This cap, which also has exceptions, generally limits the increase in appropriations to 2.5% of the prior year’s number.
Generally the 2% levy cap is seen as the more restrictive of the two.
Things to Look for in the Process
Municipal budgeting is a long and complex process. Taxpayers may wish to get an eye on certain numbers as a guide to whether to look in more detail.
Is a municipality using a much higher level of surplus funds to cushion the budget than it historically has used? Has the surplus been declining, indicating that the town has not been able to replenish it from its previous budgets? The amount of surplus used in the current budget and the balance of the surplus for the previous two years are all numbers available in the budget document.
Is the debt service as a percentage of total appropriations growing? Is the municipality taking on too much debt relative to its budget revenue, meaning taxes may have to go up in the future? Here a look at the six-year projection of capital projects may be useful.
Are one-time revenues being used to plug holes in the budget, postponing a problem from one year to the next? An example of one-time revenue was the pandemic relief funds that were available for two budget cycles. The state advised municipalities to avoid one-time plug-ins that might leave a hole in a future budget. Are there ways to use one-time revenue to generate future funds or to reduce future expenditures?
The municipality is required to advertise only a summary of the budget in the newspaper. It must, however, make a full copy available to any member of the public. Usually that is accomplished by putting a digital copy on the town’s website after introduction and at least 10 days before the public hearing.
User-Friendly Budget Form
In addition to the traditional budget document format, each municipality must submit to the state a form known as the user-friendly budget. Most municipalities in the county do not make that format of the budget available on their websites, but they are required to make it available to any member of the public who requests it.
This budget format aggregates data in ways that are intended to demystify areas of revenue and appropriations. It also contains data not available in other budget forms, like full- and part-time employee counts and the aggregate cost of employees, including salaries, pension payments and benefits. In addition this format lists payments in lieu of taxes and the amount of assessed property that is not subject to local taxation.
It takes effort to get familiar with the budget process and documents. It may pay off for the interested citizen, but the citizen has to do the work to understand how the money is obtained and spent.
Contact the author, Vince Conti, at vconti@cmcherald.com.
