COURT HOUSE — Since 1976, Leon Costello has worked with municipal budgets, and this is the gloomiest year for the Ocean City-based CPA.

Like a prophet, shunned for ideas because they made people uncomfortable, Costello, the figures man, tells officials in 14 of 16 Cape May County municipalities and the freeholders what they may hate to hear: tax truth.

Figures don’t lie, and Costello, with the firm of Ford, Scott & Associates, has long tracked budgets in chart form since 1990. His charts depict an indisputable truth throughout the county, like it or not: “Primarily in every municipal budget, the only way to change the budget now is to reduce staff,” said Costello in a Jan. 14 interview.

For many years, middle 90s and into about 2002 or 2003, most municipal budgets went up, perhaps $2 million a year, if that much. In more recent years, the increase seems to tilt skyward at a dizzying rate.

“Nothing can be done to make any substantial decrease other then elimination of employees. Employees mean salary, pension and health insurance,” he continued.

Towns have not arrived at this fiscal crossroads overnight. Like a tidal wave building from the open ocean, the tax situation started about six years ago.

“In general, in the last six years, we have had a dramatic rise in the (county municipalities) municipal tax levies,” said Costello.
One factor that helped stem an even steeper increase in those taxes is the state-mandated 4 percent CAP law.

Much of the increase being experienced in municipal budgets is the result of employee pensions being paid by municipalities.
“In 2002, no one paid anything into the pension,” said Costello.

Those pensions were gradually phased in, 20 percent annually, until finally, this year; those pensions are being fully funded by the municipalities.

There are two pension funds, one for police and firefighters, and another for all other municipal workers.

Recently, Costello said, Gov. Jon Corzine proposed to municipalities that they cut in half or reduce their pension payments.

“That doesn’t make sense,” said Costello.

“Now that they (towns) are caught up, he wants to take it down again, which does not seem to make any sense,” he continued.
Police and Firefighters’ pensions are approximately $22,000 to $25,000 per person to the municipality.

The PERS system, for other employees, is between $3,000 and $5,000 per employee, he added.

Health insurance, the ever-increasing factor in private and public sector budgets, also add to the increase.

Most towns, Costello said, are seeking higher co-pays for those insurance or other concessions from unions.
Ocean City changed its police and firefighters to the State Health Benefits, which is state funded, Costello said.

The overall economic downturn is also to blame, in part, for the budget increases.

“One of the biggest reasons towns are having trouble meeting the 4 percent CAP is that they don’t have their own money. The economy has taken away from their normal revenue sources,” Costello said.

He cited the Cape May County Clerk’s recent report that revenue from total receipts, including N.J. Realty Transfer tax in 2008 amounted to $25.6 million compared to $30.9 million in 2007.

From that amount, Clerk Rita Fulginiti noted in her Jan. 2 report, $4.7 million was retained as county revenues. That compared to $5.8 million in 2007. Overall, $20.9 million was remitted to the state for its share of the transfer tax and state fees.

Of the overall fiscal picture, Costello stated, “Everything is spinning in a downward direction.”

Even ratables, which had trended upward for many years, and which allowed municipalities to spend more as tax rates were shaved, showed “almost no increase,” according to Costello.

State mandates, too, do not seem to help.

The new CAP law tightened the belt, but left little to no “wiggle room” for local officials to overestimate some items in order to trim the next budget.

The result of that, what is needed must be funded by tax increase.

“You cannot afford to make a mistake, because the law prevents how much the (tax) levy can go up,” said Costello.

As a result, he offered that, “Municipalities will be forced to downsize, cut expenditures.”

“Very few places are in good shape. All in all, 85 percent of municipalities are in the same boat trying to make their budgets work,” said Costello.

Some municipalities are in even worse shape, since they begin their fiscal years in July.

As in years past, the state aid figures, used to fund part of almost every municipal budget, are slow in filtering to the local level.
Because of the meager condition in which the state finds itself, just how much localities can expect is unknown.

Final budget numbers cannot be calculated until those aid figures are known, Costello said.

While local taxes are under the state CAP law, utilities, such as water and sewer rates are not, he said.

Costello said four municipalities, three of them in Cape May County, Sea Isle City, Cape May and West Cape May did not meet their anticipated utility revenues for 2008.

The other, in Atlantic County, is Brigantine.

“Every now and then it may happen, but to have all four have shortfalls in utility revenue is pretty remarkable. There is less to use, less billing,” Costello said.

The reason utility services are not under the CAP, he said, is because they are considered user fees, and not taxes.
“They can raise it to whatever they need,” he added.

Overall, “This trend can’t continue,” he stated.

From the charts, he provided for review, it is evident to Costello that “There is a limit to how much taxpayers can pay. With ratables slowing down, that means budget spending has to slow down.”

Contact Campbell at (609) 886-8600 ext 28 or at: al.c@cmcherald.com