Washington Borough Financial Questions
Q: Why did my sewer bill go up $7 per month?
In 2010, the Borough Council increased the monthly sewer bill from $45 to $52/Equivalent Dwelling Unit (EDU). The amount of the EDU needs to be adjusted from time to time in order to account for operational and debt increases. In this instance, when the sewer utility came “on-line” in 2000, it was recommended that this charge be revisited and adjusted every three (3) years in order to account for these increases on an incremental basis. By 2010, there should have been three (3) to four (4) small increases over the past ten (10) years versus the small increase in 2006 and the larger one in 2010. It should be noted that in 2006 the EDU rate was increased, which was the first time the EDU rate was increased since the inception of the sewer utility.
Q: Since the new manager took over in March 2009, what changes has he made to the Financial procedures of the Borough and what benefits have been realized?
Prior to his employment, there were very little, if any, checks and balances in the financial oversight of the Borough. No continuity in the position of Chief Financial Officer, numerous deficiencies were noted in annual audits from previous years, not utilizing the Borough’s finance system to its full potential, and lax or no employee training were some of the major items. As a result of these shortfalls, accurate financial oversight was almost impossible.
Almost immediately, these shortfalls were addressed and corrective actions were put into play, which include but are not limited to the following:
- Creation of separate accounts for Current Fund, General Capital, Sewer Operating & Sewer Capital for better financial oversight.
- This included ceasing the practice of inter-fund accounting, which allowed moving funds from one fund to another.
- NOTE: While the use of interfunds is legally permissible, and when used properly can be an excellent budgeting tool, our financial woes were too great to continue taking these risks.
- Total restructuring of Finance department to ensure proper oversight while allowing separation of duties.
- Restructuring/realignment of staff in order to operate in a more effective and efficient manner.
- Sought approval from the Department of Community Affairs to create a “trust” account dedicated to snow/ice control services.
- This would allow any unexpended funds dedicated for snow removal to be rolled over from one year to the next. Any funds that we saved we would not have to raised in the following years budget.
- Employee Training & Cross Training
- Specifically in Governmental Purchasing & Financial procedures
- Creation of a formal Borough Purchasing manual that all Departments, Boards, Committees and Commissions must adhere to ensure that we are compliant with State Law.
- Correction of missing/inaccurate date in the finance system
- Monthly bank account reconciliation
As a result of these changes, the Borough has realized in increase in their fund balance (AKA “Surplus”) from $39,381.41 in 2008 to $166,830.64 in 2009. This increase can be directly used to offset the amount of money that needs to be raised in taxes in 2010.
Q: What is the role of the Borough Chief Financial Officer?
In accordance with N.J.S.A. 40A:9-140.1, all municipalities are required to appoint a Chief Financial Officer (CFO). The statute defines the CFO as “the official appointed to be responsible for the proper financial administration of the municipality under the Local Government Supervision Act (P.L. 1947, c. 151); the Local bond Law (N.J.S.A. 40A:2-1 et seq.); the Local Budget Law (N.J.S.A. 40A:4-1 et seq.); the Local Fiscal Affairs Law (N.J.S.A. 40A:5-1 et seq.); the Local Public Contracts Law (N.J.S.A. 40A:11-1 et seq.) and such other statutes, and such rules and regulations promulgated by the Director of the Division of Local Government Services, the Local Finance Board, or any other State agency, as may pertain to the financial administration of the municipality.”
In short, the CFO is responsible for oversight of all financial transactions taking place in a municipality in accordance with the statutory references above.
Q: What is the role of the Borough Auditor and how often is the Auditor up for re-appointment and what is the process?
N.J.S.A. 40A:5-4 requires every municipality to conduct an annual audit of its books, accounts and financial transactions within six months after the close of its budget year, which must be conducted by a Registered Municipal Accountant (RMA).
According to N.J.S.A. 40A:5-5, the scope of this audit “shall embrace the books, accounts and transactions of the local unit and every board, body, officer or commission supported and maintained wholly or in part by funds appropriated by the local unit, unless otherwise provided by statute or regulations of the board. Each audit shall cover a complete fiscal year and, in addition, shall include a verification of all cash and bank balances as of the date of the audit thereof and an audit of the accounts to such date.”
The appointment of a RMA is done on a yearly basis in accordance with the Local Public Contracts Law (N.J.S.A. 40A:11-5), as it is considered a “Professional Service.” The law defines a professional services as “services rendered or performed by a person authorized by law to practice a recognized profession, whose practice is regulated by law, and the performance of which services requires knowledge of an advanced type in a field of learning acquired by a prolonged formal course of specialized instruction and study as distinguished from general academic instruction or apprenticeship and training. Professional services may also mean services rendered in the provision or performance of goods or services that are original and creative in character in a recognized field of artistic endeavor.” The appointment process itself must be done in accordance with the Pay-2-Play statutes (Chapter 19, P.L. 2004 & Chapter 271, P.L. 2005) and can be done in one of two manners. The first option, which is defined as the “Fair-and-Open Process” requires the Borough Council to solicit sealed proposals from potential applicants. Once receives, the governing body can review the submission and begin the contract negotiation process. The second method, which is defined as the “Non-Fair-and-Open Process” allows a governing body to appoint a person or firm they choose without soliciting proposals from additional sources, but still allowing for contract negotiation.
Q: Why have my taxes gone up, seemingly every year, with little in return?
Municipal taxes go up each year for a variety of reasons, which include, but are not limited to the following:
- Increase in statutory obligations (IE: Pension, Health Insurance, Reserve for Uncollected Taxes)
- Contractual Obligations (IE: Organized Labor Contracts)
- Cost of Living Adjustments (COLA)
- When the cost of goods and services increases, the costs gets passed on to the Borough when we make these purchases.
- As a result, the cost associated with providing municipal services increases.
- Debt Service
- The principle/interest amounts on Bonds/Notes vary from year-to-year.
- Currently, the amount of Sewer Debt is decreasing while the amount of Capital Debt is increasing.
The phrase “very little in return” has a different meaning to all residents. Meaning; if there is a service that you choose not to take advantage of, and this service is cancelled, this will have no impact on your day-to-day life. On the flip side of that coin, if you use the service and it is cancelled, you will be upset. The same concept applies to capital projects, which are designed to benefit the overall community as a whole, not just an individual.
Local municipalities are requires to operate under the rules and regulations dictated by the State, whether we agree or not. Increased un-funded mandates handed down by the State represent a very large burden on taxpayers. When this occurs, municipalities are being forced to reduce local services in order to fund the State requirements. As a result, residents are seeing their taxes increase and are receiving less local services.
Q: Why has the Borough DPW Garage taken so long (original funding was allocated in 1997) to complete? What is the current status?
Lack of direction and professional oversight from the inception of the project has driven the costs of the DPW garage higher. Improper cost estimates, studies upon studies, designs and re-designs and lax Borough oversight have all contributed to the delay in completing this project.
Taking this into account, over the past 12 months, there has been both positive and negative movement on the project. The project picked up speed in the summer of 2009, but the quality of the contractor who was running the project was poor. Unfortunately, the State requires that the lowest bidder receive the contract award; and this concept is not synonymous with highest quality. As a result of the many shortfalls of the contractor, they were declared in default of contract on November 6, 2009. Subsequently, the Borough has been actively working with the insurance company for the defaulted contractor in order to rectify any outstanding issues. While this review process was slow, nearly all the issues have been resolved and construction has restarted.
Q: Are residential tax dollars going towards funding the Business Improvement District (BID)?
No. The Borough created a Special Improvement District (Also known as the Business Improvement District) to which only commercial/industrial property owners are assessed an additional tax which partially funds the BID. In addition to the taxes supplied to the BID by commercial/industrial property owners, they (the BID) also have various other revenue sources, which can include fundraising and grant opportunities.
Q: Why can’t the Borough refinance our current debt to get a better rate over a longer period of time?
They can, and it is referred to as a “Refunding Bond”, which in government terms is equivalent to refinancing. In order to achieve this, a “debt restructuring plan” must first be developed and approved by the Division of Local Government Services, Local Finance Board. Additionally, the Borough would also need advance approval by the New Jersey Environmental Infrastructure Trust as this is where the Borough sewer utility debt was approved.
In order to be approved by both governmental entities above, the Borough would need to authorize the issuance of a “Refunding Bond Ordinance”, which would authorize new bonds to refund/redeem/replace existing ones. This bond would not go into effect until approved by the State if certain criteria are met. The most important criteria is that the refunding my produce at least a 3% savings overall. The problem with refunding bonds for the purpose of debt restructuring typically do not produce the State required savings amount, and frequently produce a “dis-savings” as the debt is “pushed out” by extending the final maturity to later years. Rarely does the State approve these “not for savings” refunding bond ordinances as this actually has a negative impact on the municipality.
Q: What are TANS (Tax Anticipation Notes) and what is their function?
N.J.S.A 40A:4-64 allows municipalities to take out a TAN. Specifically, it states that “In any fiscal year, in anticipation of the collection of taxes for such year, whether levied or to be levied in such year, or in anticipation of other revenues for such year, any local unit may, by resolution, borrow money and issue its negotiable notes.”
In simpler terms, it allows municipalities to receive tax revenue in advance of tax collection date(s). Basically, it equates to an advance on the revenue. This common practice allows municipalities to ensure that their cash flow is at sufficient levels to maintain government operations.
Q: What are Inter-Funds and what is their function?
Throughout the year over the normal course of operations, it could occur that a bill that should have been paid by one fund is paid by another fund, grant funds received from the outside agency deposited into a wrong account or expenditures reallocated between funds- those occurrences create inter-funds and as a rule eliminated during the year. The only function that inter-funds carry is to act as a temporary loan of cash from one fund to another. Those loans and repaid as soon as possible.
Q: Can you explain what a Tax Levy is?
Tax Levy is a total amount of taxes collected for all purposes. Specifically; Municipal, School, County and Special Improvements Districts. All of those funds are collected by municipality and paid to all respective agencies.
Q: What is a CAP Bank?
State law authorizes municipality to increase expenses from prior year by Cost of Living Adjustment (COLA) not
to exceed 2.5% while the law authorizes municipalities to increase expenses up to 3.5%. Because the law limits COLA to 2.5% but authorizes increase to 3.5% the difference of 1% is allowed to be “banked” and utilized in as additional authority for the total budget. CAP Bank allows municipality to have more room in available appropriations in case of unanticipated increases above 2.5%. For example; in 2009 Pension increases were above 2.5% but at the same time no allowance in CAP was given for this increase and all costs had to be absorbed within the CAP. The same occurred with health insurance line item in 2010 budget. State insurance cost increased 18% and had to be absorbed with the CAP. Municipality without CAP bank would be forced to cut other necessary line Items to accommodate this increase and eventually might have to ask for CAP referendum.
Q: How is the Borough positioning itself for the possible passage of Proposition 2-1/2?
Currently, the Borough has serious financial difficulties. We have $2,000,000 Tax Anticipation Note due to shortage of Cash in the Current Fund, debt is almost to the maximum of the statutory allowed limit, and several inter-funds that could not be eliminated due to shortage of cash in various funds. The introduced 2010 budget that authorizes tax increase up to 4% of prior year municipal levy placed us almost $700,000 above maximum authorized. Lowering maximum increase to 2.5% without adjusting labor contracts, services provided by the Borough or finding alternative sources of recurring revenue will be detrimental to the Borough.
Q: What are the major controllable and uncontrollable expenditures for the Borough?
How are they managed?
In the 2010 budget, major uncontrollable expenses are pension, health insurance, salary increases, debt payments, social security.
Some other expenses (not classified as major) are also considered uncontrollable are set for 2010 budget. These expenses include utilities, maintenance contracts for various services, waste disposal fees.
Major controllable expenses would be funding of other departmental expenses and various Borough programs. Many expenses are controllable up to the point where decision is made to provide certain service to the residents. Once decision is made to provide the service, those expenses are not longer controllable by the borough.
Q: With the loss of approximately 125K in state aid are we still going to build a recreation area where the hardware store once stood? A nice to have, but do we really need it?
The Borough Council previously agreed to working with the Business Improvement District (BID) for the purchase and development of a “pocket park” downtown. Since that agreement, the Borough has been notified that our State Aid will be reduced by $125,000, and the BID has lost their funding that was to be used for the purchase of the property itself. They (the BID) are currently exploring the possibility of grant funding that would pay for the entire purchase and developments costs for the park itself, which would result in zero cost to the taxpayers.
Q: Will the Borough begin to seek, in earnest, a merger with the Township to take advantage of possible savings by combining services? – See article. http://www.lehighvalleylive.com/warren-county/index.ssf?/base/news-2/1267419932122900.xml&coll=3
The Borough has approached the Township of Washington regarding this issue several times in the past. In order for a complete municipal merger to occur, the primary community (Township) needs to be in favor of the concept, which they are not willing to do.
The Borough will continue to work with the Township on a myriad of Shared Services opportunities in order to benefit both communities. If, in the future, the Township will consider to total municipal merger, it will need to be done in accordance with the Municipal Consolidation Act (N.J.S.A. 40:43-66.35 et seq.), Sparsely Populated Municipal Consolidation Law (N.J.S.A. 40:43-66.78 et seq.) or Local Option Municipal Consolidation (N.J.S.A. 40A:65-25 et seq.) as applicable.
Q: If the Borough needs to raise property taxes greater than the 4% state mandated cap, does the Borough follow proper procedure by obtaining exemption from Trenton?
Yes. The 4% CAP is more commonly know as the Levy CAP. This cap limits the amount a municipal budget can be funded through property taxes. If the municipal tax levy is over the allowable amounts, the Borough will need to apply to the Division of Local Government Services, Local Finance Board, for a Levy CAP waiver. This application, if approved by the State, would allow a municipality to exceed the 4% limit.
Q: Do we really need a Manager for the Borough?
Yes. According to the Optional Municipal Charter Law (N.J.S.A. 40:69A-1 et seq.), the Council –Manager form of government, which the Borough of Washington has adopted, requires this position.
Q: How will the loss of 125k in state aid affect our taxes in 2011?
As with any cut in State Aid, it will have an adverse effect on both the current and future municipal budgets. The only way to account for this loss is (1) reduce the current budget (IE: reduce services and/or cut expenditures), or (2) raise this amount in property taxes to maintain the current level of expenditures. Currently, as part of the 2010 budget process, the Borough Council is reviewing all options, both popular and unpopular, to see what option are most beneficial to the community as a whole.
Q: Does the Highlands Act have any effect on the Borough's finances?
The N.J. Highlands Council can, from time to time, have an impact of Borough finances. As a municipality located within the N.J. Highlands Region, there are many water-related and planning-related requirements that we must adhere to. As a result, any mandates that are passed down by the Highlands Council may have a direct effect on the Borough. Depending on the scope of these mandates, the Borough may need to incur additional costs in order to be compliant with State laws.
Q: What the percentages of ratable and non-ratable properties in the Borough?
Ratables 374,253,624 91.91%
Exempts 32,932,624 8.09%
Total 407,186,249 100%
Q: What cuts will be made to Borough administration? (Manager, departments, administrative assistants).
The decision to reduce departmental budgets can only be made by the Borough Council. As part of the municipal budget process, the Borough Council reviews all departments “requested” budget. Once their review is complete, the Council can adjust all departmental budgets accordingly.
Taking the above information into account, it should be noted that, with few exceptions, all departmental spending levels are at or below 2008 spending levels. The only increases in departmental spending are due to statutory requirements.
Q: Why is it that our taxes go up steadily each year and there is still only half-day kindergarten and no bus transportation?
The provision of bus transportation and kindergarten fall solely under the jurisdiction of the Local and/or Regional Boards, not the Borough itself. Answers to these questions can only be answered by either the Local or Regional School Superintendents.
Q: Are there any more scheduled raises/bonuses for Borough administration and employees?
There are no bonuses ever provided for in Borough government. As far as salary increases, see answer 26 below.
Q: Are there any departments that can be shared with Washington Twp. Or other contiguous municipalities? (Duplicate Question)
Yes. The Borough Council has created a sub-committee named the “Shared Services Committee” whose sole mandate is to explore any/all possible shared service activities with neighboring communities.
Membership to this committee is open to any resident in the Borough, and contact information can be obtained from the Borough’s website at: http://www.washingtonboro-nj.org/committee-vacancies.html.
Q: Has a pay freeze/cut been considered for all Borough employees?
Yes. Effective March, 2009, the salaries of all part time employee were frozen at their 2008 rates. This freeze is still in effect for 2010.
The Borough is legally bound to pay unionized employees (IE: CWA Local 1032) their contractually negotiated salary increases during the duration of their contract, which is due to expire on December 31, 2012. The Borough can not legally reduce employees represented by the union unless the CWA agrees to re-open contract negotiations.
For the remaining non-union employees (2), there are provided a salary increase equivalent to that equal to the unionized employees. The Borough Manager’s salary in provided for in the terms and conditions of his employment contract.
Q: Do Borough employees pay into their health benefits? If so, what percentage?
No. Currently, the State Pension/Health Benefits reform bills signed by the Governor do not require unionized employees (IE: CWA Local 1032) to contribute to their health insurance until the expiration of their current organized labor agreement, which is December 31, 2012. The State will be requiring that all non-union employees make contribution toward their health insurance in 2010. Guidance on how this change needs to be implemented has not been provided to municipalities by the State as of yet.
Q: When are the union employee’s contracts up for renegotiation?
The current organized labor agreement with the Communication Workers of America (CWA), Local 1032, is not due to expire until December 31, 2012.