ANALYSIS OF THE NEW JERSEY BUDGET DEPARTMENT OF COMMUNITY AFFAIRS

Transcription

1 ANALYSIS OF THE NEW JERSEY BUDGET DEPARTMENT OF COMMUNITY AFFAIRS FISCAL YEAR PREPARED BY OFFICE OF LEGISLATIVE SERVICES NEW JERSEY LEGISLATURE APRIL 2016

2 NEW JERSEY STATE LEGISLATURE SENATE BUDGET AND APPROPRIATIONS COMMITTEE Paul A. Sarlo (D), 36th District (Parts of Bergen and Passaic), Chair Brian P. Stack (D), 33rd District (Part of Hudson), Vice-Chair Peter J. Barnes III (D), 18th District (Part of Middlesex) Jennifer Beck (R), 11th District (Part of Monmouth) Anthony R. Bucco (R), 25th District (Parts of Morris and Somerset) Sandra B. Cunningham (D), 31st District (Part of Hudson) Linda R. Greenstein (D), 14th District (Parts of Mercer and Middlesex) Steven V. Oroho (R), 24th District (All of Sussex, and parts of Morris and Warren) Kevin J. O'Toole (R), 40th District (Parts of Bergen, Essex, Morris and Passaic) Nellie Pou (D), 35th District (Parts of Bergen and Passaic) M. Teresa Ruiz (D), 29th District (Part of Essex) Samuel D. Thompson (R), 12th District (Parts of Burlington, Middlesex, Monmouth and Ocean) Jeff Van Drew (D), 1st District (All of Cape May, and parts of Atlantic and Cumberland) GENERAL ASSEMBLY BUDGET COMMITTEE Gary S. Schaer (D), 36th District (Parts of Bergen and Passaic), Chair John J. Burzichelli (D), 3rd District (All of Salem, parts of Cumberland and Gloucester), Vice-Chair Anthony M. Bucco (R), 25th District (Parts of Morris and Somerset) John DiMaio (R), 23rd District (Parts of Hunterdon, Somerset and Warren) Gordon M. Johnson (D), 37th District (Part of Bergen) John F. McKeon (D), 27th District (Parts of Essex and Morris) Raj Mukherji (D), 33rd District (Part of Hudson) Elizabeth Maher Muoio (D), 15th District (Parts of Hunterdon and Mercer) Declan J. O'Scanlon, Jr. (R), 13th District (Part of Monmouth) Eliana Pintor Marin (D), 29th District (Part of Essex) Maria Rodriguez-Gregg (R), 8th District (Parts of Atlantic, Burlington and Camden) Troy Singleton (D), 7th District (Part of Burlington) Benjie E. Wimberly (D), 35th District (Parts of Bergen and Passaic) OFFICE OF LEGISLATIVE SERVICES Frank W. Haines III, Legislative Budget and Finance Officer Thomas Koenig, Assistant Legislative Budget and Finance Officer Marvin W. Jiggetts, Director, Central Staff Robert H. Levin, Section Chief, Local Government Section This report was prepared by the Local Government Section of the Office of Legislative Services under the direction of the Legislative Budget and Finance Officer. The primary author was Scott A. Brodsky. Questions or comments may be directed to the OLS Local Government Section ( ) or the Legislative Budget and Finance Office ( ).

3 DEPARTMENT OF COMMUNITY AFFAIRS Budget Pages... C-3, C-7, C-9 to C-10, C-16, C-23, D-43 to D-60, F-7, F-9, H-14, H-15 Fiscal Summary ($000) Expended FY 2015 Adjusted Appropriation FY 2016 Recommended FY 2017 Percent Change State Budgeted $486,868 $802,577 $822, % Federal Funds $1,950,309 $456,679 $460,292.8% Other $63,777 $100,710 $95,873 ( 4.8%) Grand Total $2,500,954 $1,359,966 $1,378, % Personnel Summary - Positions By Funding Source Actual FY 2015 Revised FY 2016 Funded FY 2017 Percent Change State % Federal % Other % Total Positions % FY 2015 (as of December) and revised FY 2016 (as of January) personnel data reflect actual payroll counts. FY 2017 data reflect the number of positions funded. Link to Website:

4 Highlights The Fiscal Year 2017 recommended appropriation for Consolidated Municipal Property Tax Relief Aid (CMPTRA) is $ million, an increase of $29.0 million (4.9%) from the Fiscal Year 2016 adjusted appropriation of $ million. This increase affects only three municipalities allowed to receive a portion of their Fiscal Year 2016 Transitional Aid to Localities funding as an increase in their CMPTRA payment. Budget language allows for the transfer of $ million from CMPTRA to the Energy Tax Receipts Property Tax Relief Fund to support annual inflation increases in Energy Tax Receipts Property Tax Relief Aid, resulting in no change in combined formula aid distributed through these two programs. A proposed revision to budget language would change the municipal aid payment schedule by shifting 10% of municipal aid payment from the first quarter of the State fiscal year to late into the second quarter of the State fiscal year. Changing the municipal aid payment schedule is intended to assist the State s cash flow situation. Funding for Transitional Aid to Localities is $ million, unchanged from the Fiscal Year 2016 adjusted appropriation. When the proposed transfer of Transitional Aid to CMPTRA is taken into account, the funding level is an effective increase of $29.0 million. The Executive recommends renewal of budget language that extends Transitional Aid eligibility to localities experiencing financial distress caused by the destruction or loss of a major business ratable. On April 5, 2016, the Executive announced the reallocation of $10 million in Fiscal Year 2016 funds to the Department of Community Affairs for a lead remediation and containment program for low- and moderate-income households. An announcement released by the Governor s Office indicates that the program will provide up to $20,000 per unit to fund lead remediation costs for eligible households. On April 6, 2016 the State Treasurer informed the Assembly Budget Committee that these funds would be reallocated from the Affordable Housing Trust Fund. On February 19, 2016, New Jersey was awarded an additional $69.2 million through the federal Department of the Treasury s Hardest Hit Fund to support foreclosure assistance programs. New Jersey was required, by March 4, 2016, to confirm its intention to accept all or a portion of these funds. If accepted by the State, these funds will be received and spent by the New Jersey Housing and Mortgage Finance Agency. The State was also permitted to apply, by March 11, 2016, for up to $150.2 million in additional foreclosure assistance funds. New Jersey s Superstorm Sandy recovery efforts are ongoing. New Jersey has been allocated $4.174 billion in federal Community Development Block Grant-Disaster Recovery (CDBG-DR) funds. According to the Superstorm Sandy CDBG-DR Dashboard, $2.412 billion has been obligated and $1.834 billion has been disbursed, as of March 30, CDBG-DR supports homeowner assistance, the construction of affordable housing, rental housing and renter programs, economic revitalization, assistance to governmental entities, supportive services, and planning monitoring and oversight. 2

5 Highlights (Cont d) The recommended funding level for the State Rental Assistance Program (SRAP) is $18.5 million, unchanged from the Fiscal Year The State has also allocated $32 million in CDBG-DR funds to provide tenant-based housing vouchers. On March 30, 2016, the department announced that it will issue 500 SRAP vouchers through a Statewide Housing First program. According to the department s press release, these vouchers will be available to chronically homeless individuals and families who are high utilizers of public systems. The press release also indicates that the department anticipates $5.4 million in annualized funding for the vouchers but it is unclear whether this new initiative will be supported by State funds, federal funds, or both. The Fiscal Year 2016 Appropriations Act provided $250,000 for the Camden County Housing First Pilot Program; additional funding for that initiative is not recommended. New State funding for affordable housing construction is limited to collections of the additional fee segment of the realty transfer fee above the amount anticipated, and revenues generated by the Statewide non-residential development fee, but only to the extent they are not needed to provide a minimum funding level of $20 million for SRAP. These additional revenues, estimated at $ million, are projected to decline by 25% from the Fiscal Year 2016 level of $ million. The Executive does not recommend additional State appropriations to support four Fiscal Year 2016 legislative initiatives: New Jersey Re-entry Corporation One Stop Offender Re-entry Services ($3.5 million), Volunteers of America Re-entry Services ($1.5 million), City of Orange Community Center for Youth and Seniors ($2.5 million), and City of Newark Anti-Violence Out-of-School Youth Summer Program ($1 million). The Budget anticipates all sales tax revenue collected in urban enterprise zones (UEZs) as State revenues, diverting about $78.6 million from the Enterprise Zone Assistance Fund that is normally dedicated to assisting UEZ municipalities in undertaking public improvements and economic development projects. The estimated amount of revenues to be transferred to the General Fund is 6.2% less than the amount to be transferred ($ million) in Fiscal Year Background Papers State Supervision of Local Government Fiscal Affairs p. 14 County and Municipal Accumulated Absence Liabilities p. 24 3

6 Fiscal and Personnel Summary AGENCY FUNDING BY SOURCE OF FUNDS ($000) General Fund Adj. Expended Approp. Recom. Percent Change FY 2015 FY 2016 FY Direct State Services $52,104 $40,672 $40,672 ( 21.9%) 0.0% Grants-In-Aid 51,535 44,390 35,640 ( 30.8%) ( 19.7%) State Aid 1,462 1,600 1, % 0.0% Capital Construction % 0.0% Debt Service % 0.0% Sub-Total $105,101 $86,662 $77,912 ( 25.9%) ( 10.1%) Property Tax Relief Fund Direct State Services $0 $0 $0 0.0% 0.0% Grants-In-Aid % 0.0% State Aid 381, , , % 4.1% Sub-Total $381,767 $715,915 $744, % 4.1% Casino Revenue Fund $0 $0 $0 0.0% 0.0% Casino Control Fund $0 $0 $0 0.0% 0.0% State Total $486,868 $802,577 $822, % 2.5% Federal Funds $1,950,309 $456,679 $460,292 ( 76.4%) 0.8% Other Funds $63,777 $100,710 $95, % ( 4.8%) Grand Total $2,500,954 $1,359,966 $1,378,992 ( 44.9%) 1.4% PERSONNEL SUMMARY - POSITIONS BY FUNDING SOURCE Actual Revised Funded Percent Change FY 2015 FY 2016 FY State % 16.1% Federal % 3.8% All Other % 1.9% Total Positions % 3.9% FY 2015 (as of December) and revised FY 2016 (as of January) personnel data reflect actual payroll counts. FY 2017 data reflect the number of positions funded. AFFIRMATIVE ACTION DATA Total Minority Percent 35.0% 35.8% N/A

7 Significant Changes/New Programs ($000) Budget Item Adj. Approp. FY 2016 Recomm. FY 2017 Dollar Change Percent Change Budget Page COMMUNITY DEVELOPMENT MANAGEMENT Grants-in-Aid Camden County Housing First Pilot Program $250 $0 ($ 250) ( 100.0%) D-48 Established in February 2015, the Camden County Housing First Pilot Program provides permanent housing and supportive services chronically homeless persons. The New Jersey Comprehensive Financial System indicates that $125,000 has been expended and $125,000 is encumbered. The Executive does not recommend continued funding for this legislative initiative. It is unclear from spending activity to date whether the department intends that this grant extend for two years or whether all funds will be released to the program within Fiscal Year In December 2015, the department set aside 50 project-based Section 8 Housing Choice Vouchers for the Camden Coalition of Health Care Providers for referrals to the Camden FUSE Housing First Pilot. These vouchers support affordable housing opportunities for Camden City residents who are chronically homeless and are super-utilizers of the health care system. News reports indicate that the vouchers will subsidize the full cost of monthly rent for each resident because most homeless persons have no income. State and federal housing voucher programs generally require residents to pay 30% of their income towards rent. It is unclear whether these vouchers are a substitute for a Fiscal Year 2017 Budget appropriation for this initiative. All Other Funds Housing Services $44,468 $36,378 ($8,090) ( 18.2%) D-49 The change in these appropriations reflects a decrease in revenues, generated by a portion of State realty transfer fee collections, dedicated to the production of affordable housing through the New Jersey Affordable Housing Trust Fund. New State funding for affordable housing is limited to the amount of realty transfer fee collections above $ million, but only to the extent that those funds are not needed for the State Rental Assistance Program. Budget language appropriates at least $20 million from the New Jersey Affordable Housing Trust Fund for the State Rental Assistance Program. Despite this projected decrease in funding for affordable housing production, the budget projects an increase in housing units produced, from 3,750 to 5,500 (See pages D-45 & D-47). 5

8 Significant Changes/New Programs ($000) (Cont d) Budget Item Adj. Approp. FY 2016 Recomm. FY 2017 Dollar Change Percent Change Budget Page Uniform Fire Code $11,061 $12,327 $ 1, % D-49 Uniform fire code revenues support the operations of the Division of Fire Safety. Pursuant to P.L.1983, c.382 (C.52:27D-25n et seq.) and the Uniform Fire Safety Act P.L.1983, c.383 (C.52:27D-192 et seq.), the Division of Fire Safety administers a Statewide fire incident reporting program, oversees local fire code enforcement and monitoring, conducts inspections in approximately 100 municipalities and for all State-owned and leased property, and regulates and certifies the fire protection equipment industry. The division also provides domestic security guidance to local fire departments, administers the State s Fire Coordination System, and investigates serious firefighter injuries and fatalities. The division supports public education programs to inform the general public on fire prevention, provides loans to emergency service agencies, and provides training, programs for local firefighters, fire officers, and fire code enforcement personnel. This appropriation represents that amount above $ million in Fire Safety Fees anticipated for Fiscal Year In total, revenue from fire safety fees is expected to increase by 4.5%. Registered life safety hazards, the primary source of these revenues, are projected to increase by 500 (0.7%). SOCIAL SERVICES PROGRAMS Grants-in-Aid New Jersey Re-entry Corporation One- Stop Offender Reentry Services $3,500 $0 ($3,500) ( 100.0%) D-53 The New Jersey Reentry Corporation (NJRC) provides services to individuals released from correctional facilities. These services include individualized assessments and treatment plans that address essential needs such as housing, mental health care, medical care, and access to health insurance and other public benefits. The NJRC also provides job training, employment counseling, and employment placement programs as a means of reintegrating former offenders into the general population. Pursuant to Fiscal Year 2016 budget language, these funds support one-stop reentry services in four municipalities: the City of Jersey City, Newark City, Paterson City, and Toms River Township. The New Jersey Comprehensive Financial System indicates that $1.75 million has been expended and $1.75 million is encumbered. The Executive does not recommend Fiscal Year 2017 funding for this legislative initiative. It is unclear from spending activity to date whether the department intends to extend this grant for two years or whether all funds will be released to this grantee within Fiscal Year

9 Significant Changes/New Programs ($000) (Cont d) Budget Item Adj. Approp. FY 2016 Recomm. FY 2017 Dollar Change Percent Change Budget Page Volunteers of America Re-entry Services $1,500 $0 ($1,500) ( 100.0%) D-53 The Fiscal Year 2016 Budget appropriated $1.5 million to Volunteers of America Delaware Valley to provide reentry services to ex-offenders leaving State and county correctional facilities in the City of Atlantic City and Trenton City. The State accounting system indicates that $750,000 has been expended and $750,000 is encumbered. It is unclear from this activity whether the department intends to extend this grant for two years or whether all funds will be released to this grantee within Fiscal Year In testimony before the Senate Budget and Appropriations Committee on March 15, 2016, Volunteers of America Delaware Valley indicated that it has used State funds to establish a Safe Return program to provide employment, housing, and other necessary services for 200 ex-offenders upon their release from prison. Volunteers of American Delaware Valley reported that it has assisted nearly 450 people and anticipates serving over 600 people by the end of Fiscal Year The Executive does not recommend Fiscal Year 2017 funding for this legislative initiative. City of Orange Community Center for Youth and Seniors $2,500 $0 ($2,500) ( 100.0%) D-53 City of Newark Anti-Violence Out-of- School Youth Summer Program $1,000 $0 ($1,000) ( 100.0%) D-53 The budget recommends that funding for these appropriations, not originally recommended by the Governor in Fiscal Year 2016, be discontinued. Information available through the City of Orange Township s municipal website indicates that the State grant-in-aid appropriation will support the acquisition and development of the former Orange YWCA property into the Orange Senior and Youth Recreation Center. The City of Orange Township City Council has approved a resolution to insert these funds into the municipal budget as a special item of revenue with an offsetting appropriation. According to a news report posted on essexnewsdaily.com on January 10, 2016, the purchase of the YWCA building will cost $1.5 million and renovations will cost $1.0 million. No information on the use of the State grantsin-aid by the City of Newark is available at this time. Information available through the New Jersey Comprehensive Financial System indicates that 50% of the amount appropriated for each initiative has been expended and 50% is encumbered. 7

10 Significant Changes/New Programs ($000) (Cont d) Budget Item Adj. Approp. FY 2016 Recomm. FY 2017 Dollar Change Percent Change Budget Page STATE SUBSIDIES AND FINANCIAL AID State Aid Consolidated Municipal Property Tax Relief Aid (PTRF) $594,082 $623,082 $29, % D-55 The Fiscal Year 2017 Budget increases State Aid allocated through Consolidated Municipal Property Tax Relief Aid (CMPTRA) by $29.0 million. This increase would permit three municipalities to receive a portion of their Fiscal Year 2016 Transitional Aid to Localities funding as part of their CMPTRA payment as follows: Atlantic City ($10 million); Trenton ($10 million); and Union City ($9 million). Since the annual cost-of-living adjustment is calculated at 0%, there is no annual inflation adjustment to Energy Tax Receipts Property Tax Relief Aid. No municipality will receive a formula-based increase in State Aid for Fiscal Year

11 Significant Language Changes Truth-in-Renting Account Unexpended Balances Deletion 2016 Handbook: p. B Budget: - The unexpended balance at the of the preceding fiscal year in the Truth-in-Renting Account, and receipts from the sale of Truth-in-Renting statements, including fees, fines, and penalties, are appropriated for the Truth-in-Renting program, subject to the approval of the Director of the Division Budget and Accounting. Explanation The Truth-in-Renting Act P.L.1975, c.310 (C.46:8-43 et seq.) required the Department of Community Affairs to prepare a statement of the primary clearly established legal rights and responsibilities of tenants and landlords of rental dwelling units. Upon enactment, the department was required to make the Truth-in-Renting booklet available to the public at cost, which was approximately two dollars. PL.2007, c.177 amended the Truth-in-Renting Act to require the department to make the Truth in Renting Booklet available to landlords and tenants at no cost, to the extent funding is made available for free distribution. The Legislature appropriated $250,000 to the department to subsidize the cost of printing and distribution the booklet. Current law requires the Truth-in-Renting booklet to be posted on the department s website in an easily printable format, updated annually. According to a notice issued by the department in October 2014, the Truth-in-Renting booklet is no longer available for sale through the Department of Community Affairs. The booklet is available through the department s website. Neither the Fiscal Year 2016 Appropriations Act nor the Fiscal Year 2017 Budget anticipate revenues from the sale of Truth-in-Renting booklets. The deletion of this language would reflect that the department no longer collects receipts from the sale of Truth-in-Renting booklets. New Jersey Re-entry Corporation One-Stop Offender Re-entry Services Deletion 2016 Handbook: p. B Budget: - The amount hereinabove appropriated for New Jersey Re-entry Corporation One Stop Offender Re-entry Services shall be utilized to provide One-Stop Re-entry services in Newark, Jersey City, Paterson, and Toms River. EXPLANATION: FY 2016 language not recommended for FY 2017 denoted by strikethrough. Recommended FY 2017 language that did not appear in FY 2016 denoted by underlining. 9

12 Significant Language Changes (Cont d) Explanation The Fiscal Year 2016 Appropriations Act provided $3.5 million to the New Jersey Reentry Corporation (NJRC) to provide one-stop re-entry services in Newark City, the City of Jersey City, Paterson City, and Toms River Township. According to the NJRC, program participants receive individual assessments and treatment plans that address essential needs, such as housing, mental health care, medical care, and access to health insurance and other public benefits. The NJRC also provides job training, employment counseling, and employment placement programs as a means of reintegrating probationers into the general population. Since the Executive does not recommend Fiscal Year 2017 funding for this initiative, this language is unnecessary, and is recommended for deletion. Volunteers of America Re-entry Services Deletion 2016 Handbook: p. B Budget: - The amount hereinabove appropriated for Volunteers of America Re-entry Services shall be utilized to provide expanded re-entry services in Atlantic City and Trenton. Explanation The Fiscal Year 2016 Appropriations Act allocated $1.5 million to Volunteers of America Delaware Valley to provide reentry services to ex-offenders leaving State and county correctional facilities in the City of Atlantic City and Trenton City. In testimony before the Senate Budget and Appropriations Committee on March 15, 2016, Volunteers of America Delaware Valley indicated that it has used State funds to support a Safe Return program intended to offer employment, housing, and other necessary services for 200 ex-offenders upon their release from prison. Volunteers of America Delaware Valley reported that it has assisted nearly 450 people and anticipates serving 600 people by the end of the fiscal year. Since the Executive does not recommend Fiscal Year 2017 funding for this initiative, this language is unnecessary, and is recommended for deletion. EXPLANATION: FY 2016 language not recommended for FY 2017 denoted by strikethrough. Recommended FY 2017 language that did not appear in FY 2016 denoted by underlining. 10

13 Significant Language Changes (Cont d) Change to Municipal Aid Payment Schedule Revision 2016 Handbook: p. B Budget: p. D-56 The amount hereinabove appropriated for Consolidated Municipal Property Tax Relief Aid shall be distributed on the following schedule: on or before August 1, 45 40% of the total amount due; September 1, 30% of the total amount due; October 1, 15 10% of the total amount due; November 1, 5% of the total amount due; December 1 20 for municipalities operating under a calendar fiscal year, 5 15% of the total amount due; and June 1 for municipalities operating under the State fiscal year, 5 15% of the total amount due; provided, however that notwithstanding the provision of any law or regulation to the contrary, the Director of Local Government Services, in consultation with the Commissioner of Community Affairs and the State Treasurer, may direct the Director of the Division of Budget and Accounting to provide such payments on an accelerated schedule if necessary to ensure fiscal stability for a municipality. Explanation For several fiscal years, annual Appropriations Acts have required municipal State Aid to be distributed on the following schedule: on or before August 1, 45% of the total amount due; on or before September 1, 30% of the total amount due; October 1, 15% of the total amount due; November 1, 5% of the total amount due; and either December 1, 5% of the total amount due (for municipalities operating under a calendar fiscal year) or June 1, 5% of the total amount due (for municipalities operating under the State fiscal year). The Executive proposes changing the municipal State Aid payment schedule so that municipalities receive 40% of the amount due on August 1, 10% of the amount due on October 1, and either 15% of the amount due on December 20 or 15% of the amount due on June 1, depending on a municipality s budget calendar. The current language has the effect of compensating calendar budget year municipalities for receiving no State Aid payments in the first seven months of their fiscal year, by providing then with 75% of their total State aid by September 1, before the end of the third quarter of their budget year, and 90% of their total aid by October 1. As revised, the payment schedule would assist the State s cash flow situation by shifting 10% of municipal aid payments from the first quarter of its fiscal year to late in the second quarter. As revised, this language provision also permits the Director of the Division of Local Government Services, in consultation with the Commissioner of Community Affairs and the State Treasurer, to require the payment of municipal State Aid on an accelerated schedule to ensure the fiscal stability of a municipality. EXPLANATION: FY 2016 language not recommended for FY 2017 denoted by strikethrough. Recommended FY 2017 language that did not appear in FY 2016 denoted by underlining. 11

14 Significant Language Changes (Cont d) Filing of Transitional Aid Application Deletion 2016 Handbook: p. B Budget: - Notwithstanding the provisions of any law or regulation to the contrary, the amount hereinabove appropriated for Transitional Aid to Localities is subject to the following condition: a municipality that has not yet applied for Transitional Aid in 2015 as of the effective date of this act may file an application on the appropriate forms prescribed by the Director of the Division of Local Government Services and such application shall be considered by the director for a determination of eligibility for Transitional Aid for the current fiscal year. Explanation This language provision permitted a municipality to submit a 2015 application for Transitional Aid to Localities after the deadline announced by the Division of Local Government Services. The deletion of this language from the annual appropriations act will not affect the authority of the Director of the Division of Local Government Services to establish, and, when necessary, waive Transitional Aid to Localities application deadlines. Short-Term Loans to Fiscally Distressed Local Units Revision 2016 Handbook: p. B Budget: p. D-57 The State Treasurer, in consultation with the Commissioner of Community Affairs, is empowered to direct the Director of the Division of Budget and Accounting to transfer appropriations for any State department to any other State department as may be necessary to provide a loan for a term not to exceed 180 days to a municipality local government unit faced with a fiscal crisis, including but not limited to a potential default on tax anticipation notes. Extension of the term of the loan shall be conditioned on the municipality being an eligible municipality pursuant to P.L.1987, c.75 (C.52:27D et seq.). EXPLANATION: FY 2016 language not recommended for FY 2017 denoted by strikethrough. Recommended FY 2017 language that did not appear in FY 2016 denoted by underlining. 12

15 Significant Language Changes (Cont d) Explanation The revision to this language provision allows the transfer of State funds for the purpose of making a short-term loan for up to 180 days to any local government unit (e.g., a municipality or county) faced with a fiscal crisis, including but not limited to a potential default on tax anticipation notes. Under the current budget language, short-term loans of up to 180 days may be made only to municipalities, and only loans to municipalities eligible for State financial assistance under the Special Municipal Aid Act, P.L.1987, c.75 (C.52:27D et seq.) may be extended beyond 180 days. Section 3 of P.L.1987, c.75 defines an eligible municipality as: (1) a municipality that is qualified to receive assistance under P.L.1978, c.14 (C.52: et seq.), (2) a municipality under the supervision of the Local Finance Board, pursuant to the provisions of the Local Government Supervision Act (1947) P.L.1947, c.151 (C.52:27BB-1 et seq.), (3) a municipality that has issued qualified bonds pursuant to the provisions of the Municipal Qualified Bond Act, P.L.1976, c.38 (C.40A:3-1 et seq.), or (4) a municipality identified by the director to be facing serious fiscal distress. EXPLANATION: FY 2016 language not recommended for FY 2017 denoted by strikethrough. Recommended FY 2017 language that did not appear in FY 2016 denoted by underlining. 13

16 Background Paper: State Supervision of Local Government Fiscal Affairs The regulation and monitoring of local government fiscal affairs is the responsibility of State government. Recent events in the City of Atlantic City have brought renewed attention to the State s authority to regulate local finances and oversee the day-to-day management of a municipality. All municipalities are subject to the requirements of New Jersey s general local finance laws and directives issued by the Local Finance Board and Division of Local Government Services in the Department of Community Affairs. This background paper discusses the State s general authority to oversee county and municipal finances. It also describes the current laws, and the Transitional Aid to Localities program, which allow for direct State intervention in local administration. The Local Finance Board and Division of Local Government Services The Local Government Supervision Act (1947) ( Act ) P.L.1947, c.151 (C.52:27BB-1 et seq.) grants the Local Finance Board (LFB) and the Division of Local Government Services (DLGS), both in the Department of Community Affairs, broad authority to regulate local fiscal affairs and practices. Originally named the Municipal Finance Commission, and then the Local Government Board, the LFB is authorized to study the entire field of local government in New Jersey and promulgate reasonable rules and regulations for the interpretation and administration of State laws included within the jurisdiction of the DLGS. The LFB is also authorized to prescribe financial administration and uniform accounting systems for counties and municipalities. Systems of financial administration include: 1. Procedures for the receipt, custody, control, and disbursement of public funds; 2. Forms receipts, requisitions, disbursement, purchase orders, and other necessary documents; 3. The exercise of a comptroller function by a designated local officer; 4. Definitions of the respective powers and duties of the several local officers engaged in financial administration; and 5. Instructions, rules, and regulations, for the proper procedures and practices of financial administration. The rules and policies issued by the LFB are enforced by the DLGS. Established in 1917 as the Department of Municipal Accounts, the DLGS provides assistance to local governments and authorities in developing and strengthening managerial, planning, and financial competence. The DLGS oversees and monitors compliance with local budgeting, debt, ethics, and finance laws, administers State Aid programs, assists fiscally distressed municipalities with financial and managerial support, and assists local governments and schools with procurement regulation. The Act authorizes the Director of the Division of Local Government Services ( director ) to issue instructions and orders requiring compliance with LFB requirements for the fiscal administration of local government. The DLGS regularly issues Local Finance Notices concerning the work of the division, problems of local government, requirements of law and regulations, and recommendations for improvements. Local officers and governing body members who fail, or refuse to obey, an order of the director are guilty of a misdemeanor and upon conviction, may be fined not more than $1,000 or imprisoned for one year, or both. The Act authorizes the DLGS to make inspections and examinations of the financial administration of a county or municipality. Inspection and examination may extend to the use of the uniform accounting system and accounting methods; collection, custody, and disbursement of funds procedures; a selective audit of particular funds and accounts; and any other matter or practice subject to regulation by the LFB, or regulated by any State law administered by the DLGS. 14

17 Background Paper: State Supervision of Local Government Fiscal Affairs (Cont d) Reports of inspection and examination are certified to the local governing body together with instructions for the correction of procedures and practices found not to be in accordance with the requirements of law or regulations of the LFB. The DLGS may also make a special investigation of a county or municipality, if, upon examination of the reports of audit and recommendations of an accountant, there appear to be errors, inaccuracies, or omissions in the report of audit or recommendations, evidence of illegal conduct, or if the director has reason to believe that irregularities in the conduct of financial affairs have occurred. The DLGS may issue orders appropriate to correct errors, inaccuracies, or omissions in the report of audit or recommendations, illegal financial practices, or irregularities in the conduct of financial affairs disclosed as part of a special investigation. New Jersey s General Local Finance Laws The fiscal affairs of counties and municipalities are regulated by four general laws that apply to all of these local units. These laws provide the foundation for the financial management of local government in New Jersey. The requirements established by these statutes and orders or directives issued by the LFB or the DLGS pursuant to these laws apply to all municipalities and counties. 1. The Local Bond Law (N.J.S.40A:2-1 et seq.) governs the issuance of bonds and notes to finance certain municipal capital expenditures; establishes bond maturity requirements; limits the amount of debt a county or municipality may authorize; and allows for the issuance of refunding bonds. 2. The Local Budget Law (N.J.S.40A:4-1 et seq.) establishes the basis for local government accounting and the cash basis budgeting system; allows for emergency financing and the issuance of short-term debt, and provides for State review of local budgets with reference to all estimates of revenue and certain appropriations (i.e., statutory expenditures and deferred charges). 3. The Local Fiscal Affairs Law (N.J.S.40A:5-1 et seq.) regulates the non-budgetary financial activities of counties and municipalities, such as treasury management and local investment policies; and requires all municipalities to submit an annual financial statement to the DLGS and have an annual, independent audit of local accounts performed in accordance with State standards. 4. The Local Public Contracts Law P.L.1971, c.198 (C.40A:11-1 et seq.) governs the local contracting process, allows for joint purchasing agreements and competitive contracting, sets public bidding requirements, and permits local contracting units to establish qualifications for prospective bidders. R.S.52:27-40 et seq., which permits New Jersey s political subdivisions to file a petition with the United States Bankruptcy Court, also applies to all municipalities. The filing of a bankruptcy petition must be authorized by an ordinance adopted by the affirmative votes of not less than two-thirds of all the members elected to the municipal governing body and approved by the LFB. Supervision of Municipalities in Unsound Financial Condition Article IV of the Local Government Supervision Act (1947) (C.52:27BB-54 to C.52:27BB- 95.1) allows the State to impose special restraints upon municipalities in, or in danger of falling into, unsound financial condition. These restraints are intended to prevent a default on local obligations and demoralized finances that burden local taxpayers and destroy the efficiency of 15

18 Background Paper: State Supervision of Local Government Fiscal Affairs (Cont d) local services. Two municipalities, the City of Atlantic City and the City of Newark, are under State supervision due to unsound financial conditions. Section 55 of P.L.1947, c.151 provides that a municipality is in unsound financial condition if: 1. A default exists in the payment of bond obligations or notes. 2. Payments due to the State, county, school districts or special districts have not been made for two successive years. 3. The cash deficit of the preceding year is greater than four percent of the tax levy for two successive years. 4. The percentage of tax collections for two successive years is less than 70 percent. 5. The required budget appropriation for the liquidation of debt exceeds 25 percent of total operating appropriations (except dedicated revenue appropriations) for the previous budget year. 6. There is a judicial determination of gross failure to comply with the Local Bond Law (N.J.S.40A:2-1 et seq.), the Local Budget Law (N.J.S.40A:4-1 et seq.), or the Local Fiscal Affairs Law (N.J.S.40A:5-1 et seq.) which substantially jeopardizes the fiscal integrity of the municipality. If the director finds that any of the conditions listed above exists in a municipality, he is required to notify the governing body of that municipality that the LFB will consider whether Article IV of the Act will apply to that municipality. If the LFB finds that a municipality is in unsound financial condition, the municipality is subject to State supervision pursuant to the Act. The LFB must adopt a resolution placing a municipality under State supervision. Upon adoption, the resolution is submitted to the Commissioner of Community Affairs, the State Treasurer, and the Attorney General, and becomes effective upon approval by any two of those cabinet officers. To remain effective, the resolution must be renewed each year by the board and approved by two of the above named officers. The LFB may also modify the resolution to terminate or limit its operation. The modification, renewal, or termination of a resolution placing a municipality under State supervision must also be submitted to the Commissioner of Community Affairs, the State Treasurer, and the Attorney General and only becomes effective upon approval by any two of those cabinet officers. The LFB may recommend that a municipality appoint a fiscal control officer. Upon such recommendation, the LFB is required to submit to the governing body of the municipality the names of not less than three persons who are found by the LFB to be qualified to perform the duties of fiscal control officer. The governing body is authorized to select one of the persons recommended by the LFB. The fiscal control officer is paid by the municipality; his salary is fixed by the governing body and approved by the LFB. The fiscal control officer remains employed by the municipality until his services are terminated by the governing body, with LFB approval. The fiscal control officer may exercise only those powers assigned to him by the LFB, under the general supervision of the director. The LFB is authorized to impose restrictions on the fiscal affairs of municipality under State supervision. The Act provides that the LFB may: Require that the issuance of debt be approved by the director; Require that the municipality may not borrow any moneys or enter into any arrangements or contracts requiring the expenditure of any revenues in an amount 16

19 Background Paper: State Supervision of Local Government Fiscal Affairs (Cont d) exceeding $4,500, or undertake any financial liabilities or indebtedness, without the approval of the director; Require that any or all expenditures and appropriations of a municipality (except the amount required for the full payment of debt service) be expressly authorized by the director; Require that all collective bargaining agreements entered into while under State supervision are subject to review and approval by the director (when negotiations on a collective bargaining agreement have reached an impasse and the matter is submitted to an arbitrator, any arbitration award is binding without the director s approval.) Authorize the director to fix the hours, terms, and conditions of employment for all municipal employees, and appoint and dismiss municipal employees, to the extent permitted under the State s civil service laws and collective bargaining agreements; Authorize the municipality to appoint or dismiss unclassified persons in managerial positions necessary to the rehabilitation of the financial affairs of the municipality without regard to any procedural or other statutory requirements; Have the director supervise and control local revenue administration, including the methods and procedures used for the assessment, collection, and enforcement of taxes upon real and personal property, and the administration of licenses and other miscellaneous revenues; Authorize the director to liquidate old property tax liabilities; Instruct the director to investigate and determine the possibilities of maintaining municipal services at a lower cost through the use of cooperative agreements with the county or other municipalities; and Instruct the director to act as municipal controller. When a municipality is under State supervision, it is required to submit its proposed annual budget to the LFB for approval. The LFB may approve the budget, modify it, or instruct the director to prepare an alternative budget to be submitted for approval. A budget approved by the board is deemed adopted. If the LFB finds that the appropriation of the amounts required for deferred charges and statutory expenditures other than debt service, cannot be made without a probable increase in a municipality s cash deficit, it may, by written order, authorize an appropriation of less than the full amount required for deferred charges and statutory expenditures but not less than the greatest amount possible without an anticipated increase in the cash deficit. State supervision of a municipality is terminated if: (1) the LFB resolution is not renewed; or (2) the unsound financial condition that triggered State supervision has ceased and the municipality has operated during the last fiscal year without incurring a cash deficit (as computed pursuant to N.J.S.40A:4-42). The LFB is required to adopt a resolution authorizing the cessation of State supervision, after which the director is required to certify to the municipal governing body that the provisions of Article IV of the Act no longer apply to that municipality. Notice is also given by registered mail to the municipal clerk. State Oversight of Local Affairs - Transitional Aid to Localities Program Established in Fiscal Year 2011, the Transitional Aid to Localities program is the only discretionary aid available to provide general support for municipal budgets. According to Local Finance Notices (LFN) issued by the DLGS, Transitional Aid is available only to municipalities anticipating difficulties making payments toward nondiscretionary or critical 17

20 Background Paper: State Supervision of Local Government Fiscal Affairs (Cont d) obligations including, but not limited to debt service, contractual obligations, and payroll. LFN No , which announced the Transitional Aid application process for the Calendar Year 2016 round of funding states: Applying for aid under this program is a declaration that the municipality is incapable of meeting its obligations and managing its finances without special state assistance, oversight, and intervention. The application, evaluation and award process is rigorous and developed to apply to municipalities that have severe structural financial problems. Since the inception of this program in Fiscal Year 2011, 27 municipalities have been subject to State oversight. During Fiscal Year municipalities were awarded Transitional Aid. Some of the qualifications and procedures governing the Transitional Aid to Localities program are stated in a language provision on Page D-57 of the Fiscal Year 2017 Budget, which is identical to language in effect for Fiscal Year In order to qualify for short-term financial assistance to meet immediate budgetary needs, a municipality must experience serious financial distress even after local officials have implemented substantive cost reductions. Conditions that may indicate serious fiscal distress include the following: substantial structural or accumulated deficits, an ongoing reliance on non-recurring revenues, a limited ability to raise additional non-property tax revenues, extraordinary demands for public safety appropriations, and other factors indicating a constrained ability to raise sufficient revenues to meet budgetary requirements that substantially jeopardizes the fiscal integrity of the municipality. For Fiscal Year , LFN sets forth additional criteria for eligibility. The pool of potential applicants has been narrowed to two groups: municipalities that received Transitional Aid in Fiscal Year and municipalities that did not receive Transitional Aid in Fiscal Year , but meet all other program criteria and also suffered an extraordinary revenue loss or extraordinary appropriation increase (other than appropriation increases common to other municipalities). The LFN also provides that the receipt of aid will require a municipality to submit to broad State controls over hiring, procurement and other matters; enact or strengthen comprehensive pay-to-play ordinances; perform reasonable revaluations or reassessment of property as required by law; and submit to such additional fiscal control measures as may be directed by the DLGS. Subsection a. of section 1 of P.L.2011, c.144 allows the director to determine conditions, requirements, orders, and oversight for the receipts of any amount of grants, loans, or any combination thereof, provided to municipalities through the Transitional Aid to Localities program. Conditions, requirements, or orders deemed necessary by the director may include, but not be limited to, the implementation of government, administrative, and operational efficiency and oversight measures necessary for the fiscal recovery of the municipality, including but not limited to requiring approval by the director of personnel actions, professional services and related contracts, payment in lieu of tax agreements, acceptance of grants from State, federal or other organizations, and the creation of new or expanded public services. Municipalities that receive Transitional Aid are required to sign a Memorandum of Understanding (MOU) with the DLGS acknowledging compliance with State controls. The MOU also requires the municipality to cooperate with a State Fiscal Oversight Officer designated by the director who is authorized to operate on the director s behalf. According to a model MOU available through the DLGS website, the State may place the following 18

21 Background Paper: State Supervision of Local Government Fiscal Affairs (Cont d) restrictions on the fiscal and management operations on Transitional Aid municipalities in the following areas: 1. Hiring, termination and suspension of employees; 2. Awarding of longevity pay, assignment of individuals to acting capacity, overtime, salary increases, promotions, and transfers; 3. Public contracting and the hiring of firms and individuals to provide auditing and accounting services; 4. The approval of tax exemptions and payment in-lieu of tax agreements; 5. The creation or expansion of services; 6. Out-of-state travel and overnight stays within New Jersey, including the annual New Jersey State League of Municipalities convention; 7. Expenditures and reimbursements from municipal funds for food or meals; 8. Acceptance of grants or the execution of grant agreements requiring current or longterm public matching funds or a commitment of municipal resources; 9. Contributions to non-profit or charitable organizations; 10. Reductions in municipal fees; 11. Adoption of bond ordinances and contracts exceeding $1 million. The MOU requires a municipality to adopt a pay-to-play ordinance limiting the awarding of public contracts by the municipality or its agencies to business entities that have made a campaign contribution pursuant to The New Jersey Campaign Contribution and Expenditures Reporting Act, P.L.1973, c.83 (C.19:44A-1 et seq.). The ordinance must limit contributions that any business entity can make during the term of its contract with the municipality and cannot be repealed or amended so long as the MOU is in effect. Finally, the MOU places a series of reporting requirements on the municipality regarding employee data, judgments, State and federal investigations, and complaints related to requests for government records. A municipality may apply, in writing, to the director for a good cause exception of any condition or requirement contained in the MOU. The MOU remains effective until a successor MOU is executed. If a municipality adopts a calendar year 2016 budget that provides for a structural imbalance for 2017 that is greater than 5% of the property tax levy for municipal purposes, the MOU remains in effect until the municipality adopts a budget for calendar year 2017, or a subsequent year, that does not contain a structural imbalance. The director s determination to extend the MOU may be appealed to the LFB. A majority of the appointed members of the LFB may vote to overturn the director s decision. Otherwise, the director s determination is final. If a municipality adopts a calendar year 2016 budget that does not rely on Transitional Aid to Localities, then DLGS may offer early termination of the MOU. The Municipal Rehabilitation and Economic Recovery Act The Municipal Rehabilitation and Economic Recovery Act, P.L.2002, c.43 (C.52:27BBB-1 et al.) ( MRERA ) established a framework that allows a State-appointed chief operating officer to conduct the day-to-day affairs of a qualified municipality. MRERA allows for additional State control of the most fiscally challenged municipalities in order to facilitate improvements in government operations and economic development efforts. Although MRERA is a multifaceted statute, this paper focuses on the State s authority to control the government of a qualified municipality. The State s authority under MRERA extends beyond fiscal administration to personnel management and delivery of municipal services. 19