The New Municipal Reality: Difficult Choices

1. The New Municipal Reality:Difficult Choices Raphael J. Caprio, Ph.D., University ProfessorEdward J. Bloustein School of Planning and Public Policy

2. Overview of Major Issues • Major Shifts in the New Jersey Economic Landscape • Politics of belief over reality(Just because we want it to be a certain way will not change the facts) • Expedient short term decisions over sound long term planning • The 2007-2008 perfect economic storm • The forthcoming municipal tsunami

5. Source: Tom Moran, The Star Ledger, June 17, 2012

10. Total Government Employment in New Jersey Most of the constraints on revenue have been met by reductions in the workforce

12. Major Actions

13. Chapter 78: The Health Premium Cost Shift

15. -- In Addition -- Effective Wage Loss Due to Cost of Living

16. For most employees, real or planned income will decrease by between 5% and 10% excluding CPI considerations against their 2011 base. • Assuming between a 2% and 2.5% annual COLA, the effective net salaries for most employees will effectively be unchanged from 2011 through 2015. • While this may reduce stress on the revenue side of the ledger, it will also increase labor management contention and only defer the need to address the real cost of labor into the future.

17. A Quick Look at the 2% Levy Cap

18. Statewide, the total property tax burden (taxes assessed) as a percentage of equalized value, has gone from 2.46% of value in 2001 to 2.01% of value in 2011. • Appreciating that value expressed in 2011 reflects considerable loss due to the housing market collapse, this represents a reduction in total burden vis-à-vis value of 18.3%.

20. State aid to municipalities peaked in CY2007 at $1.727 Billion • Declined to $1.302 Billion in CY 2011, reduction of $425 million • Had 2000-2007 trend continued, State-aid in 2011 would have been $2.010 Billion

21. The State’s inability to fund aid to municipalities at past trends during the“recession” period (representingapproximately $707 million in lost aid to municipalities) effectively accountsfor 50% of municipal purposeproperty tax increases by CY2011

22. Flexibility exists in only about two-thirds of most budgets. Reduction of a $1.00 is really a proportional decision about where to cut $1.50 elsewhere

24. Option: Consolidation In Light Of The Cost of Delivering Municipal Government

25. An Analysis of 561 municipalities (exclude under 100 and over 100,000). 51 Variables including population, equalized property value, total budget, appropriations per capita, vacancy rates, demographic data, crime rates, etc. Lots of variables are related to size. Almost nothing is related to municipal appropriation per capita suggesting that the amount appropriated per capita is completely independent of the size of the municipality

26. There are approximately 175 municipalities with fewer than 4,500 people • Data – particularly from among the smallest municipalities (under 4,500 persons) -would suggest certain savings can be gained by “consolidation”

27. Reality (well, partial reality) Gets in the Way Consider There are several dozen municipalities with disproportionately small year round populations with services and infrastructure serving a “real” population many times larger

29. Once “Coastal” communities are excluded, the data are not so compelling that consolidation may save significant financial resources • Further complicating the “ease” of the solution is that the bundle of public goods and services varies from municipality to municipality

31. Interest Arbitration Just an Observation or Two Pendulum is Now at the Other Extreme Most Salary Guides Require more than 2% simply to meet the “cost of doing business” Uncertain pressures and outcomes

32. Limited surplus growth • Miscellaneous Revenue tied to a slow recovery • State aid growth marginal at best • Dependence upon property tax actually increasing while ability to raise revenue from this source is constrained • Health care cost increases only slightly deferred two years with virtually no bottom line savings • Labor pressures likely from Chapter 78 cost shifts • Consolidation not a realistic answer to provide the scale of savings (if savings actually would result from consolidation) • Shared service savings not sufficient in scale to compensate for regulated property tax revenue

33. Revenue will continue to be highly constrained– need to think now about how to do things differently. • Consolidation is unlikely to yield solutionsat the scale necessary. • Shared services, while they should continue to be encouraged and explored are not likely to yield savings of sufficient size to solve the revenue gap challenge. • How do you protect against increases in contract costs once you enter into an agreement (no CCCA equivalent in NJ). • Public employees will experience four years of decliningpurchasing power, further reinforced by changes in the InterestArbitration “rules” probably leading to extremely challenging labor relations that will have to be addressed by 2015 if not before. • Service priority decisions will become increasingly difficult as the easy “across-the-board” options will have been exhausted. • Need to place every service on the table and explore whetherit is a priority and how it should be delivered. • We no longer have the luxury not dealing with how public good and services are paid for, organized, and delivered. A 19th century structure cannot deliver 21st century services in an economic environment that may be more modest in its growth than that which we saw in the 50s and 60s. • Need to think outside the box.

34. Some options explored by the CNJGInitiative and Others • County-wide (State-wide) annual revaluations to equalize tax burden and reducetax appeal liabilities • Consolidation of IT services where in most municipalities there is not sufficient scale to incur the economies nor expanded services that are possible • County-wide “back-office” support for School Districts • Explore expansion of regional dispatch and other place independent services • Assess which services must remain as part of the local “bundle of government services” • Expansion of contract (shared) services … but structured in a way that allows for some quasi-market benchmark and price control (e.g., CCCA) • In those veryfewplaces where it may make sense (i.e. there is a sense of common community), yes, … consolidation should be considered • Proportional assessment to schools and county of the Reserve for Uncollected Taxes • Several dozen of more than 700 examples are provided by the CNJG in its updated report • Every municipality/county/district is a potential participant in a pilot to help solve the challenges!

35. Open Discussion and Q&A