Acting Commissioner Constable's Statement to

Senate Budget and Appropriations Committee


TRENTON, N.J. – New Jersey Department of Community Affairs' (DCA) Acting Commissioner Richard E. Constable, III issued the following statement today to the Senate Budget and Appropriations Committee during their hearing on the FY2013 state budget.

"Good morning Chairman Sarlo, Vice Chairman Stack, and members of the Senate Budget and Appropriations Committee.  I am delighted to have the opportunity to brief you on the priorities of the Department of Community Affairs.  Seated with me today are my Deputy Commissioner, Charles Richman, and Chief Financial Officer, Cindy McDowell.

Having heard the mayors this morning; I can assure you that this Administration is committed to providing support and resources to municipalities so they can meet the challenges of governance in extremely difficult economic times.  Contrary to their contention, however, higher municipal aid allocations from the State are not the only way to help municipalities lower their property taxes.  Over the past two years, the Legislature and the Governor have worked together to reign in many of the costs driving up property taxes.  While I certainly understand that municipalities want more state aid, in addition to the $1.4 billion they received last year and is proposed for Fiscal 2013, there is no better way to help municipalities and, ultimately, the property tax payer than by reducing the overall cost of local governments.

With the bipartisan support of this Legislature, we have been able to effectuate significant reforms in the structure of pension and health benefits for public employees.  These reforms will achieve enormous savings for the State, as well as local governments.  Pension reform is projected to provide $120 billion in savings to New Jersey’s taxpayers over the next 30 years and over $250 million in savings in 2012 alone.

In Newark, for example, pension reform reduced the city's 2012 liability by approximately $10 million.  That $10 million in reduced annual billing will carry forward into future years so that over the next 10 years, the City will save $100 million.

It is projected that all taxpayers will save an additional $3.1 billion over the next 10 years from the health benefits reform the Governor signed into law last year.

Again using Newark as an example, when health care premiums are fully phased-in, the city will save an additional $16 million annually.

Taken together, pension and health benefits reforms will assist municipalities across the State drive down the once ever-increasing cost of local governments, and help provide real, long term property tax relief.

Two years ago the Governor outlined a comprehensive governmental reform package called the "tool kit" which is designed to address the fundamental drivers of property tax increases.  The tool kit is absolutely critical to New Jersey's future as these measures give towns and school districts more power to hold down pay increases, find efficiencies and reduce duplicative processes and services.

While we have seen some key parts of the tool kit passed –including reforms to the state's interest arbitration system -- we clearly recognize that the tool kit is critical for our local officials to manage within the 2% cap.  Mayors confirm this to us every day.

Let's be clear – the 2% cap is working.  Property tax increases in 2011 were the lowest in two decades (2.4%).  And between 2009 and 2011, property taxes collected from New Jersey's taxpayers increased from $24 billion in 2009 to $25.6 billion in 2011 – a 6.6% increase over a two-year period, and the lowest two-year increase in 20 years.

As of today, only three towns (Lawrence Township in Mercer County, Demarest Borough in Bergen County, and Medford Township in Burlington County) are currently considering levy cap waiver elections.  However, we must ensure that even those towns that are living within the 2 percent cap can maintain services and critical personnel.  That's why we need to enact the entire tool kit.

Of particular urgency are the reforms to sick and vacation time payouts.  These payouts are creating budgeting shortfalls across New Jersey and have many municipalities on the hook for millions of dollars.  The liabilities facing taxpayers across the state for unused sick and vacation day benefits total more than $825 million.

A recent news story on the problems associated with sick leave payouts highlighted eight (8) New Jersey municipalities that had to bond to fund their payouts.  In these eight towns, 700 employees exacted an average retirement payout of $54,000 and collectively cost the towns' taxpayers over $39 million.  South Brunswick, for example, had to borrow over $500,000 to pay just 18 retiring employees.

Large sick and vacation payouts are hurting towns that are cash strapped.  In East Orange, budget cuts forced the mayor and city council to lay off 55 employees, at the same time the City had to fund $1 million in sick and vacation payouts to a dozen (12) retirees.  The taxpayers of New Jersey should not have to carry the weight of this fiscally untenable system any longer.

We have heard from numerous municipalities throughout the State that one of the biggest obstacles to both effective management and fiscal efficiency has been the civil service system, which ties the municipality’s hands, especially when trying to enter into shared services agreements with neighboring towns.

Fully a third of New Jersey towns will be left out of the shared services discussion because their arcane, burdensome and expensive civil service structure renders them unlikely partners for a shared service or consolidation effort.

Civil Service regulations were written before sharing services was a common practice, and because they restrict who can be promoted, demoted and transferred, they impair a municipality's ability to make sensible choices.  We must move swiftly to bring the civil service system into the 21st Century, and we need to make it easier for municipalities that want to opt-out of civil service to opt out.

Regardless of what happens with civil service reform, DCA will continue to focus on consolidation and shared services.

As you saw last November, the vote to consolidate Princeton Borough and Princeton Township easily won approval.  Its path towards consolidation will be closely watched and will provide a template for other towns considering a merger – particularly other "donut hole" municipalities.  It is projected that savings from this merger will save the new "Princeton" $3 million annually.  Such savings will likely be realized immediately to Princeton taxpayers in the form of lower property taxes or increased services.

Sharing services is yet another method for neighboring municipalities to work together in ways that are both valuable for government and beneficial to the taxpayer.  DCA's Division of Local Government Services has the expertise to guide municipalities through the decision making process.  And to that end, we are intensifying our effort to provide municipalities with the resources and tools to explore and negotiate shared services agreements.

In the last few years New Jersey towns have entered into hundreds of shared service agreements.  These include the sharing of police and fire personnel, animal control officers, chief financial officers, and snow removal services.  More and more towns are seeing that by working together they can keep costs under control and save taxpayers millions of dollars annually.

As was noted last year, the Transitional Aid program has reduced the opportunity for wasteful spending by economically distressed municipalities and encouraged new fiscal discipline at the local level.

We continue to require Transitional Aid recipients to sign and adhere to a Memorandum of Understanding (MOU) agreeing to certain state oversight, reforms and reporting requirements in exchange for state aid.  Unlike previous MOUs, these new Transitional Aid MOUs contain measured goals, a clearly defined approval process and conditions that will precipitate the withholding of Transitional Aid funds for non-compliance.

For FY 2013, funding for Transitional Aid towns will again decrease, consistent with the Governor's desire that Transitional Aid be truly "transitional."  Total Transitional Aid is decreasing by $56.4 million, though $48.2 million of that decrease is being offset by an increase in formula aid for municipalities that are in full compliance with program conditions and that have taken aggressive steps to control costs.  Accordingly, this year's total request for Transitional Aid, along with those funds that were folded into base aid, is $8 million less than last year.

Requests for Transitional Aid in 2012 have already declined.   Two past recipients, Prospect Park and Chesilhurst, are not applying for aid this year. And our expectation is that local officials in current Transitional Aid towns will find that they need less and less aid as their economic health improves.  In fact, over the past two years, the number of municipalities relying on this aid has decreased from 22 to 12 largely because towns have taken steps to bring their budgets into structural balance.

A 2008 law signed by Governor Corzine provided that uncommitted municipal affordable housing trust fund balances revert to the State after four years (July 2012).  So, municipalities in receipt of trust fund dollars have had four years to spend or commit the money.  Only those towns that chose not to provide affordable housing within the four-year time span will lose control of those funds.

Accordingly, the Fiscal Year 2013 budget anticipates receiving $200 million of uncommitted and unspent municipal trust fund dollars to support the provision of affordable housing for individuals and households in need.

The revenue from the Trust Funds will assist the State's most needy populations.  Focusing on DCA's proposed budget, $21 million dollars of those funds will be used to continue the State Rental Assistance Program.  Over 4,000 households, 75% of whom have incomes below 30% of the State's medium income level, are aided by this program.  $4.4 million will be utilized by the Homelessness Prevention Program and assist 2,000 families unable to pay rent as a result of circumstances beyond their control—such as having to choose between paying rent or paying doctor bills or those left homeless as a result of fire—with short term rent support to avoid being cast out on to the street..  $2.3 million is allocated to match over $1 million in federal funds to expand and rehabilitate shelters for the homeless.

Lastly, in the next 18 months it is anticipated that up to $45 million will be spent to assist in the purchase and rehabilitation of homes for approximately 350 individuals with developmental disabilities many of whom presently reside in developmental centers.

Once again, I appreciate the opportunity to come before you.  I’m happy to take your questions."