City introduces $67M budget

09/25/2005 Hoboken Reporter

About $5 million smaller, but does include 2 percent tax increase
 
MONEY MATTERS – On Oct. 19, the Hoboken City Council is scheduled to hold a hearing on the 2005-2006 fiscal year budget.  

The Hoboken City Council has introduced a $67 million budget for the 2005-2006 fiscal year that, while $5 million less than the year before, does include a possible 2 percent tax increase.

The budget can be amended with council suggestions (see sidebar) and will have a public hearing before the final vote, probably in October.

Nuts & bolts

The plan, which will run from July of 2005 through June of 2006, calls for approximately $67 million in spending on city services, supplies, and salaries.

The $67 million figure does not include the approximate $11 million operating budget for the Hoboken Parking Utility, which is kept separately.

The introduced budget is significantly down from last year's $72 million budget. The biggest reason is that the $4.7 million in overspending from the budget of two years ago (2003-2004), which had to be made up in last year's budget, can now be dropped.

The new budget that was introduced a week ago Thursday calls for $24.4 million to be raised in municipal property taxes.

But even with a smaller budget, Mayor David Roberts anticipates that the finalized new budget will represent at least a 2 percent increase in the municipal portion of the tax bill. It will be the first tax increase in the past decade, he added.

The City Council has scheduled a public hearing on the budget for Oct. 19. Copies of the preliminary budget are available at the City Clerk's office in City Hall and on the city's website www.hobokennj.org.

The structural deficit

So how can a budget be $5 million less and still include a tax increase?

For the past several decades, Hoboken has had a growing structural deficit, which means a recurring budget gap between spending and revenue that reopens every year until a steady revenue source can fill it.

Hoboken's budgets have had such deficits since two major waterfront development/revenue deals went down in the early 1990s.

Each year, the city has come up with limited or one-time sources to fill the gaps and keep taxes steady. Some revenue deals have involved selling off city property, not something the city can do forever. City officials have always said that when Hoboken's new development finishes up, there will be more properties to contribute to the tax base and close the gap.

According to the city's most recent audit, which was completed by Ernst & Young in July, the city's finances continue to be "structurally out of balance."

"For several years, the city has relied on one-time revenue sources to balance its annual budget," said the audit. "In addition, the city has not had a municipal tax increase in the past 10 years. The practice of relying on one-time revenue sources over an extended period is poor business practices and will only lead to a significant tax increase when a municipality can no longer generate such non-recurring revenue sources."

The audit suggested that to eliminate the structural deficit, the city should consider either reducing its operational costs, increasing taxes, or a combination of both.

The introduced 2005-2006 budget begins to take the first steps toward reducing the structural deficit.

Last year, the city was running about an $18 million structural deficit, which was almost as large as the city's entire municipal tax levy that year. This means that the city must find creative deals to fill the gap each year.

By reducing the budget by five million, without adding new non-recurring, one-shot revenue for that portion the city is reducing its structural deficit by about $5 million from $18 to about $13 million, said officials. While $13 million structural deficit is still sizable for a city of Hoboken's size, reducing it by $5 million on one year is a start, says city Business Administrator Richard England.

"The structural deficit is a continuing problem," England said. "This administration is attempting to correct it as quickly as possible. This year it is anticipated that the deficit will be reduced by 30 to 40 percent, with additional closing of the deficit over the next several years until it no longer exists."

Much less underbudgeting

Another problem that has plagued Hoboken's budgetary process over the past decade has been gross underbudgeting. Underbudgeting is when the city acts as if it's not going to spend so much money, in order to keep taxes down, but then it overspends and has to make up the amount the following year - forcing it to find new revenue sources.

It is actually against state law to deliberately overspend a municipal budget.

The budget from two years ago was underbudgeted by $4.7 million, which meant that city had to make up that money last year. This put a tremendous amount of stress on the city to find to money to pay those past bills.

To find the money, the city used highly controversial revenues sources: it frontloaded a tax abatement and sold its municipal garage, just to name two. Both of those cash grabs were partially needed because the city didn't properly budget the year before.

However, the municipal garage became such a political controversy that for more than a day, city services were shut down after the City Council failed to approve the deal.

Improvements

But improvements on this front have been made. Last year, the city did not overspend as it had the year before.

Thus, this year, instead of having to make up $4.7 from 2003-2004, there is only $899,747 in deferred funds from last year. The vast majority ($750,000) were for retirements in the police and fire departments which were unexpected, England said.

He added that that money was approved via and emergency appropriations, but because that was approved after the budget passed, it will have to be included in this year's budget.

That only leaves about $150,000 in what could be called true overspending, which represents a major improvement in the city's budgeting.

New revenues

According the England, there are several sources of new revenues in the proposed budget. These sources include $1 million for the sale of 10 new taxi licensees, $900,000 in new taxes from added assessments, $2.5 million in accelerated in-lieu-of-tax payments from New Jersey Transit, which were anticipated last year but not used, and $4 million from the final sale of the municipal garage, which was sold the Hudson County Improvement Authority and is now being leased back to the city.

Some challenges

But even with those new revenues, Roberts said that a 2 percent tax increase is reasonable given some of the challenges faced by cities across the county.

"Increases in health and liability insurance costs, utility expenses, and garbage hauling fees were factored," Roberts said. "Our entire nation faces increased fuel costs, which will remain uncertain. We will take strong measures to harness these costs through a thorough review of cost efficiency in every department and every division."

Union contracts are up

Also, one of the great unknowns in this budget is that all six of the city's unions for police, fire, and municipal unions are up this year and must be renegotiated. During the last several negotiation cycles, there has been substantial criticism that city gave away too many concessions last time, which led to a great deal of overspending, especially on the police and fire department contracts.

The Roberts administration is under a great deal of pressure to strike agreements with the unions that mollify the unions but that also eye the bottom line. It will be a delicate balancing act for the administration.

Traditionally, salaries of city employees are the biggest line item in the budget. This is once again true this year with the city budgeting about $12.3 million in police salaries and $11.9 million in fire salaries.

In total, the city will spend over $24 million on public safety salaries, which is about 36 percent of the entire budget.

Got a suggestion for the budget?

Just because the 2005-2006 municipal budget has been introduced, doesn't mean it a one deal. According to city officials, the City Council's Finance Committee is meeting on a regular basis to continue fine-tune the numbers and find additional ways to save.

"We have requested that all departments across the board tighten their belts and make reductions," Councilman A. Nino Giacchi said at Wednesday night's City Council meeting. City Business Administrator Richard England said that the current City Council has expressed in interest in interacting with the administration on understanding the makeup of this introduced budget, with several more committee meetings anticipated.

A minority faction of the council was criticized last year for not giving concrete budget suggestions, but they protested by saying they were not in the loop because they were political foes of the mayor.

In other cities, it is common to have public "budget workshops" where the council goes over the budget line by line, with the public present, to make necessary adjustments.

As for public comment, the lone opportunity may be at the Oct. 19 hearing, followed by a vote. If you would like to make suggestions before that, you can contact your councilperson.