Fiscal Assistance for Local Governments Amid COVID-19 Pandemic?

COLLEEN O'DEA | MAY 13, 2020

NJ Spotlight

City Hall in Newark

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Local governments in New Jersey may get the option to borrow in order to pay salaries and other bills and at the same time blunt property-tax increases resulting from the COVID-19 pandemic.

Two Assembly committees have approved two separate bills that local officials say are vital to helping them compensate for lost revenues and, in at least some places, increased costs due to the viral outbreak that began 10 weeks ago in the state.

Republicans are balking, however, particularly at the prospect of allowing bonding without voter approval or, as is envisioned by one bill, state oversight.

Governing bodies borrow routinely for construction projects and large equipment purchases, but bonding for operating expenses is generally not allowed. But the lawmakers promoting the bills and organizations that are supporting them say these extraordinary times demand extraordinary measures. Gov. Phil Murphy is seeking to borrow funds to be used, in part at least, for “effective cash flow management for revenues and expenditures” for the state budget.

“While I don’t advocate borrowing generally … this is the kind of thing that if we don’t do is going to incur an enormous amount of tax increases and not provide towns the flexibility that we need,” Bridgewater Mayor Matthew Moench told the Assembly Commerce and Economic Development Committee during an online hearing last Thursday on one of the bills (A-3971), which would permit local bonding for general expenses.

Moench described the unprecedented situation his township is facing as a result of Murphy’s nearly two-month shutdown of all but essential services and travel across the state. He said the 33-square-mile community in Somerset County typically gets $1 million annually from hotel occupancy taxes and $1.2 million in revenue sharing from the Bridgewater Commons Mall based on rents the mall receives. It also relies on building permits and court fees to help fund a $44 million budget.

“Right now, our CFO at last estimate is anticipating that we’re going to lose just under $2 million of revenue,” Moench said. “If we were to pass that on directly to our residents this year, we would be looking at almost a 12% tax increase … It’s not something that we can burden our residents with.”

‘Significant’ shortfalls

The Assembly is scheduled to vote tomorrow on the bill, which would allow towns and counties with COVID-19-related revenue shortfalls or unexpected expenditures to issue “coronavirus relief bonds.” The Assembly Commerce and Economic Development Committee approved the measure Thursday, 6-4, along party lines.

“Municipalities and counties are experiencing revenue shortfalls and expense overruns due to battling Covid-19,” said Assembly Speaker Craig Coughlin (D-Middlesex), a sponsor of the bill, in a statement following committee passage of the measure. “All available options, including the ability to borrow funds, must be on the table if we expect our local economies to recoup losses and strengthen post pandemic.”

John Donnadio, executive director of the New Jersey Association of Counties, said counties across the state are “facing significant revenue shortfalls” due to the loss of realty transfer fees, court fines, park and golf revenues and other fees that make up between 10% and 20% of a county’s operating budget.

“County governments have incurred substantial unanticipated expenses as counties have been at the forefront in providing essential services and protecting the public health, safety, and welfare of residents,” he continued.

For instance, counties have been coordinating emergency-management activities, establishing COVID-19 testing sites, purchasing personal protective equipment for first responders, establishing secure facilities and temporary housing for homeless COVID-19 patients, redirecting SNAP food benefits to a home delivery operation and much more.

Under the bill, a governing body that needs money because of lost revenues or unanticipated expenses directly attributable to the COVID-19 pandemic would be able to authorize the issuance of such coronavirus-relief bonds.

Assemblyman Daniel Benson (D-Mercer), another sponsor, said the bill would allow “towns and counties to spread the pain of this pandemic over a series of years.”

Dena Mottola Jaborska, associate director of New Jersey Citizen Action, said allowing local governments and the state to bond is “absolutely essential” both to saving jobs and services and not burdening residents with large tax hikes when so many are out of work.

“If we don’t do bonding … it will be working families who will bear the burden of both the pandemic response and recovery,” she said. “That would be in the form of either jobs that working people will lose — many of our public workers are first responders, so they would bear the burden through job loss — but also through service cuts to programs that working families so desperately need.”

Some limitations apply

A governing body would not need approval from the state Local Finance Board, provided it bonds for no more than 30% of its prior year’s budget and the terms do not exceed 10 years.

Additionally, a town or county would need to seek and spend any financial assistance from the federal government or state first and could only borrow to cover whatever outstanding shortfall remained.

As to getting help from the federal government, Benson said, “Obviously, we’re not holding our breath right now.”

Some large municipalities and counties have gotten targeted federal assistance, but smaller counties and towns have not and no governing body has received any general purpose federal aid.

But Assemblyman John DiMaio (R-Warren) said that while the bill is well-intended, it will force governments to make budget cuts in future years to stay within the state-imposed 2% cap on annual tax levy increases or keep asking to exceed that limit.

“To not say we’re going to tie it to cuts, it’s only setting up these towns for long-term disaster,” said DiMaio, who voted against the bill, along with the three other Republicans on the committee.

Moench, a Republican, said he generally advocates for smaller government and has started to look for budget cuts. “But I can’t lay off enough employees to make up a $2 million difference,” he noted.

Michael Cerra, assistant executive director of the New Jersey State League of Municipalities, said that given the current health emergency, not paying for first responders, health officers and sanitation services “is simply not an option.” He also said the Great Recession, Superstorm Sandy and other events have communities operating leanly.

“The underlying problem we face is a crushing, unprecedented loss of revenues,” he said. “There’s no way to streamline operations, reduce services and find savings that will cover the loss of revenues we’re about to confront … While we don’t view this particular bill as a panacea, we do see it as a viable tool in the toolbox for local governments to proceed in the years ahead.”

GOP: Ask voters first

But DiMaio and other Republicans said they opposed letting local officials incur large amounts of debt without getting taxpayer approval.

“I really would like to see this bill tied to voter approval,” he said. “Lay it out to the public, say, ‘This is what we need to do,’ and put it up and let the people who are going to pay the bill have a say in the matter.”

A second bill (A-4127) would allow local governments and counties to make special emergency appropriations to respond to and recover from the pandemic and issue special emergency notes to fund that spending. It also would allow local governments to borrow money to fund COVID-19-spending with approval from the Local Finance Board. Bonds would need to be repaid within five years.

The Assembly Appropriations Committee passed that bill Monday without comment — 8-3, with one Republican voting “yes” and three others voting “no.”

“Giving local authorities and school districts flexibility in borrowing would widen sources of public funding,” said Assemblywoman Shanique Speight (D-Essex), a bill sponsor, in a statement following the vote. “Equipping them to manage the fiscal fallout of the current public health crisis in this way will also be crucial as we navigate revenue challenges during recovery.”

Even with these options, Donnadio and Cerra said, both county and municipal officials are likely to turn to furloughs, layoffs and other cuts to balance their budgets, which must be adopted by May 30.

“There’s no question that as towns finalize their budgets and look ahead to the rest of this year and the immediate horizon, a number of local governments are seriously considering furloughs, despite the negative impact on services,” Cerra said.

Jersey City, the state’s second largest municipality, for instance, already has offered buyouts to more than 400 long-term workers, frozen all city employee salaries and instituted a hiring freeze.

“We are working every day to get Jersey City healthy and to get past COVID-19, but we are also taking steps to plan long term to avoid hurting homeowners and renters with increased taxes,” Mayor Steve Fulop said at the time.  “The more proactive and aggressive we can be now, the better off we will be in the long term.”

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