Dear Fellow Resident:
The Borough Council recently completed the 2016 Municipal Budget after four months of review and deliberations in what would best be characterized as a comprehensive exercise of due diligence conducted by Mayor Muller, Members of Council, Borough Clerk/Administrator Hector Herrera and our CFO Mary Robinson. Collectively, we solicited the input from the various department heads who were present to justify their anticipated and respective needs in order to provide the most cost effective means to maintain, or in some instances improve upon, the services that are provided to our residents. Tim Vrabel, the Borough auditor, further examined the results of that exercise for purposes of accuracy and compliancy. The resultant budget will be subject to a public hearing scheduled on April 12, 2016.
By determined necessity, the municipal tax rate has increased from .536 in 2015 to .558 in 2016, which represents a 4.1% increase. The municipal taxpayer will realize a slight increase in property taxes that is directly related to the increased tax rate. There was also a 1.78% increase in the net property values municipal-wide, with the residential component experiencing the greatest increase of 2.57%. The average residential property value in 2015 was $640,038.00, but with the increased reassessment, that same property today is valued at $662,642.20. The municipal tax levy apportioned to each property is the product of the calculated tax rate, multiplied by the corresponding property reassessment, which in this example has increased from $3,462.77 ($646,039.00 multiplied by the 2015 tax rate of .536) to $3,697.54 (the increased reassessment of the same property to $662,642.20 multiplied by the new tax rate of .558). In short, the average property homeowner will realize a net increase of $234.77 in the municipal portion of the 2016 assigned taxes.
The municipal ‘in-cap’ appropriations (anticipated expenditures) have increased only .19%, or $8,723.46, relative to the prior year, which is notably below the statutory 3.5% spending cap that would have otherwise allowed for an increase in spending of $159,580.80. I share this with you to demonstrate the council’s resolve to be fiscally prudent, this notwithstanding the progressively increasing health care costs that went up 5.8% this year, and the awarded salary-incentive to our deserving staff in light of the flat Cost of Living Allowance as determined this year.
The municipal portion of the assigned property taxes represents the dollar liability or levy necessary to support municipally related appropriations or expenditures for that calendar year. The levy is the difference between the sum of all approved appropriations minus the sum of miscellaneous revenue anticipated to alleviate that tax burden. Our unadjusted tax levy is $223,272.35 higher in 2016 than last year, but the statutorily accepted method to calculate the adjusted tax levy places that figure to a more modest $53,660.30 over the permitted tax levy limit, which in this budget translates to 3.36% over the Tax Levy Cap. Fortunately, there were reserves available from prior year Cap Banks that provided the means to come into compliance with the 2% Tax Levy Cap mandate. Unfortunately, there will be no excesses in our tax levy calculation this year to reserve in our Levy Cap Bank for utilization in future budgets.
The council invested considerable time evaluating the implications of the budgetary decisions not only with respect to the current year tax levy calculations and resulting taxes to be realized by the property owners, but more importantly with the ramifications these hard decisions will have on subsequent budgets to come. We could have chosen more palliative methods to reduce the current year taxes such as utilizing more of the available fund balance to increase the anticipated revenue and thereby reciprocally reducing our tax levy, or appropriating less to our Capital Improvement Fund so as to reduce our total expenditures and tax liability, and/or further scrutinizing and constricting the submitted departmental budgets again with the intent to reduce the summative appropriations and tax levy; but for the reasons identified below, we collectively decided to adopt a more prescient approach rather than knowingly deferring the ostensibly innocuous and potentially unexpected adversities that could be realized in future budgets.
Fund Balance (FB):
There was a critical assessment of the Fund Balance (aka Surplus and hereinafter referred to as FB) as a relied upon revenue source to supplement the municipal budget. The FB reflects the monetary resources in a particular year’s budget that are generated from the annual closing of operations when the overall revenues received were higher than anticipated, and expenditures were less than amounts appropriated. The council subscribes to an unwritten tenant that the utilization of the FB in any one budgetary year should be no more than can be regenerated in the subsequent year through operations. Utilization of the FB in excess of the amount that can be regenerated is fiscally detrimental, and prudence would mandate a review of this matter to correct this undesired occurrence if so manifested. The difference between the resources available in the FB and the amount utilized to supplement the budgetary needs is referred to as FB reserves. Ideally, it would be desirable to have adequate FB reserves for future periods when economic difficulties may arise. Although there currently exists a small FB reserve, there is a trend developing that would perilously suggest a gradual depreciation of said reserves, which could become critical in 2020 absent any corrective means to redress. If things remain unchanged and this trend were to continue, then our ability to offset our tax levy with an adequately funded FB would translate to diminishing revenues that could inversely and substantially increase our tax levy and resultant tax rate.
The council decided, after considerable deliberation, to utilize less FB this year to preserve that precious reserve for as long as possible. Admittedly, we could have utilized more of the available FB to reduce taxes this year, but it was considered irresponsible and imprudent to further compound the declining reserves for future budget utilization.
Revenue:
An essential component of the municipal budget is the revenue, which reflects the amount of anticipated money to be received as necessary to offset the anticipated expenditures for that given budget year. Statutorily, estimates of revenue cannot be above the amount collected from the previous year, and they should not be overestimated even though the prior year collection may be high due to unusual circumstances. For instance, this year we recorded the anticipated court and construction revenues at $70,000.00 each, even though we actually collected $89,250.00 and $105,597.00 respectively from each department in 2015. More significantly, we estimated only $100,000.00 in anticipated receipts from uncollected taxes, this notwithstanding that we actually collected $130,305.11 in 2015. As you can see, we intentionally remained conservative in our estimates recognizing that any realized excesses received in revenue will eventually be deposited in our FB, which again is a relied upon revenue source that will be utilized in future budgets.
It is important to note that in 2015 the municipality sold a property-asset known as the Komline House for $500,000.00. The proceeds of which were recorded as revenue that was deposited in our FB. It was this transaction that significantly increased the available resources in the FB, and created a more desirable reserve balance that can provide greater latitude in future budgets when determining the amount of FB to be utilized as revenue to offset growing expenditures. If not for that transaction, then we would have depleted the FB reserves to the extent that it would then adversely limit the amount to be utilized as revenue, and this scenario would have likely translated to a more demanding tax levy with a significant increase in the tax rate.
The council discussed the mechanism available to increase revenue to include the prospect of encouraging or providing for more property development and improvements with the intent to increase rateables.
Capital Project Plan:
The council requested and received a three-year capital plan from the various Department Heads so that we can anticipate the resources and means necessary to accommodate those future requests. Formulas were devised to calculate the impact of these larger expenditures on our debt service and the impacts to our future budgets, so that we can determine the most appropriate and least adverse means to sustain our municipal services.
The council remains resilient in our shared philosophy to conservatively reduce our dependency on debt service to satisfy future capital needs; and in that vein, there was a consistent effort to commit a sizable dollar amount to our Capital Improvement Fund. This fund serves as reserve to cover multi-year expenditures of major capital projects with the intent to stabilize debt and to reduce borrowing costs. Instead of exercising an ad hoc approach to municipal budgeting, the council-members remained not only diligent to our current needs, we were also presciently mindful of the future needs and expectations.
Appropriations:
A detailed analysis of past budgetary appropriations was conducted with the intent to establish a proportional trend to estimate future appropriation demands as required to either sustain or
improve the current level of services provided to our residents. Those figures were then incorporated into our projection models to ascertain the impact they would have on our FB, tax levy and the statutorily imposed caps (Appropriation and Levy). That same type of historical analysis and estimated projections were applied to our tax obligations with the regional school system, county and open space taxes. Although those specific obligations are without municipal control or influence, they are nonetheless factors when calculating our total tax levy and therefore need to be included in any future projections.
The Finance Committee cannot stress enough our need to continuously examine our appropriations and services with an eye towards making them more efficient and extracting further economies of scale. This concept has been exemplified through the creation of our shared court arrangement, which has demonstrated improved profit margins without any sacrifice in service.
Rateables:
The council examined the variables that affect the total assessed property valuations within the borough, in addition to the newly recognized and assessed improvements, as determined by our municipal assessor Ed Kerwin. As you know, these assigned values have a direct and inverse relationship with the establishment of our applied tax rate for any given year, so it would stand to reason that constructive efforts to improve these values, such as through creative planning and zoning, could reduce the applied tax rate and resultant property taxes. It is generally accepted that a consistent 3% increase year-to-year in total property valuations would best mitigate the tax burdens as well as to provide for budget growth. Through the exercise of a financial trend analysis dating back to 2001, we determined that the average percentage change in property valuations was only 1.09%, interpretatively affected by the aberrant decline in values in 2008 and 2009, which were -8.51% and -9.41% respectively. The council considered the empirically improved climate in real estate and assigned a modest 1.5% increase in prognosticating future tax rates and its impact on the other variables contained in our budget with both current and future application. The exercise involved a series of Excel spreadsheets that were formatted to be integrated so that a suggested change in any of the involved variables in any given year would translate to the respective year-in-question and the subsequent years to follow.
In summary, the council remains cognizant to identify and cultivate new revenue sources, while exploring new approaches to minimize rising expenditures, such as the prospect of shared services, addressing the tide of rising health care, and adhering to a philosophy that will make us less dependent and obligated on assumed debt as a means to address our capital needs. As a result of forecasting the fiscal implications and assuming a less than myopic approach to formulating the 2016 budget, the council is demonstrating a proactive posture that will allow adaptive and constructive solutions to address the budgetary needs not only for this year, but in subsequent years as well.
The council discussed various ways to mitigate the adverse implications to our tax levy to include the possibility of providing more favorable means to increase a rateable base, to cultivate improved productivity, conservation and efficiency within the various municipal departments, and to investigate and address perceived zoning transgressions. The discussions were not easy,
the expressed objectives were at first mutually incompatible, but that antinomy was abated after deliberating upon the equity and balance that would be obtained when forecasting future budgets, especially when accepting that these issues will inexorably influence the budgetary determinants. We are no longer going to kick the proverbial can down the road; instead, we confidently and willingly accept the fiscal and fiduciary responsibilities entrusted to us, and we will do what is just and proper rather than what is expedient and propitiatory.
The council invites you to participate in our budget hearing discussions scheduled for the 12th of April so that you can better appreciate the budgetary objectives as outlined above and to offer your comments and suggestions before the budget is adopted. We believe that this proposed budget not only demonstrates the best approach to maintain the current level of municipal services provided to the residents with the least possible tax burden, but also establishes a meaningful template to remain fiscally responsible moving forward.
Respectfully,
Finance Committee
Borough Council of Peapack & Gladstone
Due to a typographical error, the User Friendly Budget has been revised. However the 2016 Municipal Budget, which starts on page 16 of the above document, has not changed.