COURT HOUSE – 2020 began with hopes for another stellar tourist season after Cape May County’s record-breaking 2019, with over 10 million visitors and nearly $7 billion in direct tourism spending. However, an invisible threat changed everything.
The World Health Organization (WHO) Jan. 9, 2020, announced the presence of a novel coronavirus and two weeks later, the Centers for Disease Control and Prevention (CDC) confirmed the first U.S. case. By Jan. 31, the WHO declared a global health emergency.
Still, the virus’spresence hadn’t triggered public alarm. Plans for an even busier summer drove preparations, private sector spending, and public sector budget development.
The WHO March 11 declared Covid a full-fledged pandemic. Gov. Phil Murphy declared a public health emergency, issuing a stay-at-home order March 21and haltingall but essential services. The bottom fell out of the county’s economy.
Municipalities were faced with a need to adopt budgets that were largely formulated before the first confirmed county case of Covid March 18 and the first fatality April 4.
Uncertainty was king. What new services would the municipalities have to provide? How would the municipal workforce function within the parameters ofthe cascade of restrictions that seemed to follow daily? Would anticipated revenues from beach tags, parking meters and local occupancy taxes materialize?
By the time many municipalities adopted budgets, county unemployment was peaking. In March, it stood at 12% and plummeted to 26% in April. Pundits warned of a potential tsunami in property tax losses.
It is almost impossible to recall the level of uncertainty, both in terms of health and economics, and the often-uninformed predictions flooding the media in all its political flavors.
What happened was, in its own way, devastating, but it in no way lived up to the billing that fear had given to predictions in early 2020.
How to Measure Performance
One of the principal ways local municipalities can offset potential tax increases is using surplus revenues accumulated from the positive balances in previous budget years. Every town uses surplus each year as a revenue source in the budget. The goal is to have sufficient savings during the year to replenish the surplus account, returning what was used and, hopefully, adding to it.
There are generally three ways in which surplus used to balance a budget is recouped and added over the course of a budget year: 1) The municipality can see new revenues that were unexpected and unbudgeted. These new revenues would have to be over and above off-setting appropriations. 2) The municipality can realize revenues more than what was anticipated in the budget. 3)Appropriations can remain unexpended at the end of the year, allowing them to be reclaimed.
What happened to the surplus balance in each municipality is a quick measure of how the Covid year impacted municipal revenues and expenses. Every budget is different because each of the county’s municipalities is structured in unique ways.
Six of the 16 county municipalities do not make use of dedicated utilities that are self-financing and depend on user fees for their revenue. Of those that use utilities, most do so for water and sewer services, but there are also beach utilities in Avalon and Cape May, an airport utility in Woodbine, and a tourism utility in Cape May.
The use or non-use of utilities, the different level of dependence on user fees for potential revenue items, like parking and beach tags, and the different ways in which various municipalities approach the task of policing - the single biggest expense for many municipalities–all make direct comparisons of budget amounts and appropriations difficult. A lot of explanation is needed to identify oranges that otherwise would be compared to apples.
One area of useful comparison is the general fund surplus. Every town allocated some part of its surplus balance to the 2020 budget. Every town expected to “make back” that surplus amount used, ensuring that the overall balance that is a big part of the town’s financial stability remains at least the same at the end of the budget year.
Where that did not happen, one can see the impact of losses in expected revenue and attempts to control expenses that could not keep up with revenue losses.
Seven of the county’s 16 municipalities saw their surplus balances decline. Surplus funds allocated to the 2020 budget were not able to be recovered as expected during the budget year. Four municipalities were able to add to their surplus balances at the end of the year. The five others basically broke even, with a 1% or less addition to their surplus balances.
Upper, Dennis, Middle and Lower townships and Woodbine are home to over two-thirds of the county’s population and less than 20% of the net taxable value of property. The mainland is as inextricably tied to the seasonal tourist economy as the resorts, just more indirectly.
Of the five mainland municipalities, the two largest in population and area took the biggest budget hit from the pandemic. Both Middle and Lower townships saw their surplus balance shrink by over $900,000 each.
Woodbine and Upper Township largely broke even on surplus dollars, while Dennis Township was able to increase its surplus balance by $460,000, an increase of 40%.
For Middle Township, the loss was more significant because its surplus balance at the start of 2020 was only $2.6 million compared to Lower Township’s balance of $8.5 million. For Middle, the loss of over $500,000 in expected revenue, as well as the need to absorb new areas of expense, ate into the surplus that had been allocated to the budget.
In Lower Township, 50% of budgeted appropriations went to salaries and statutory expenses related to pensions and Social Security. Control of expenses resulted in savings over appropriated amounts, but the total amount of surplus funds used in the budget was over $4 million, and not all of it could be made back.
Upper and Dennis townships, along with Woodbine, avoided one major area of expense that represents the highest area of appropriated funds in Middle and Lower townships, as they depend on New Jersey State Police for police patrol and public safety.
Upper benefits from a large state aid allocation that comes from a tax on public utility assets in a municipality. For Upper, the major asset is the B.L. England plant, at Beesley’s Point.
In Dennis Township, two-thirds of the $5.5 million budget came from property taxes and state aid, two areas of revenue that were not severely impacted by Covid.
Property tax revenue held throughout the county. Since state aid is largely the pass-through of utility asset tax revenue, it held, as well.
The island resorts are more directly dependent on visitor spending. Some rely more on tax revenues than others. 2020 was a challenging year for all, not just in terms of what happened, but also in terms of tough calls each municipality had to make when no one knew what would happen.
In the resorts, dependence on revenue from parking meters, beach tag sales, and similar user spending areas took early hits, but most rebounded during a strong end of summer and a record-breaking fall shoulder period.
Ocean City had the largest loss, $1.5 million off its surplus balance. In just two areas of expected revenue, the city saw declines of $1 million - $600,000 in parking meter revenue and $400,000 in fitness center fees.
The five towns not able to make back the surplus levels allocated to the 2020 budget were Ocean City, Stone Harbor, West Wildwood, West Cape May and Cape May Point. West Cape May and Cape May Point suffered losses to their surplus balances that, together, were less than $100,000.
West Wildwood’s surplus balance declined by $155,302, which, for the small municipality, was a 32% decline on a balance that started 2020 at less than half a million dollars.
Stone Harbor had an unusual 2020 budget year. The borough suffered a loss of 20% of its surplus balance, with a combination of revenue losses and higher expenses. The borough also approved an emergency appropriation of $330,000 due to a shortfall in funds to pay higher salaries for its Beach Patrol. That emergency appropriation carries over into its 2021 budget.
Three island communities essentially broke even on their 2020 budgets, making back the surplus funds allocated to the budget, but only minimally adding to the overall surplus. Each of those municipalities sported healthy surplus balances as protection against any future unexpected events.
Wildwood Crest has the highest surplus balance of any of the county municipalities, at $10.2 million, as of Dec. 31, 2020. Avalon is not far behind, with $8.1 million. North Wildwood’s balance after the Covid year was a little over $6 million.
The three resort communities that managed to add to their surplus balances as they exited the 2020 budget year were Sea Isle City (up $538,128), Wildwood (up $426,994) and Cape May (up $385,342).
In Sea Isle, the city’s major revenue source - local taxes - represents over 70% of total expected revenue. Taxes held and so did the city's expected revenues.
Sea Isle was less vulnerable to pandemic-induced revenue losses because of its heavy reliance on its own tax base and its use of surplus funds. The city saw losses in revenue from parking meters and the municipal court, but these were not enough to impact the bottom line significantly.
Wildwood suffered revenue losses in areas of parking meter revenue, the municipal court, room tax revenue, ambulance corps fees, and tram car fees. Tax revenue benefited from a 3% increase in the municipal tax rate from the 2019 rate. Expense control was a primary focus, as well.
In Cape May, holding the line on expenses was part of the strategy, but what worked in the city’s favor was a late surge in visitors that allowed many areas of local revenue anticipation to meet or exceed budgeted levels.
The county provides a variety of services that range from transportation, the Crest Haven Nursing and Rehabilitation Center, an array of social services and county schools. Since municipalities must collect and pay the county its designated tax revenue, the county does not have to reserve for uncollected taxes.
The county’s surplus stood at $24 million at the start of the pandemic year and ended the budget year up just over $1 million, or $4.6%. The county budget for the year appropriated $56 million to salaries and wages, another $12.8 million for statutory expenses that are largely pension payments and $16.4 million to debt service.
Across the county, property tax revenues held despite dire warnings from pundits at the start of the pandemic. Federal funds, tight management of expense, a late surge in visitors, longer-than-usual residence in the county by second homeowners, and near-heroic work by municipal employees all led to a 2020 year that was difficult, but not anywhere as devastating for municipal budgets as it could have been.
To contact Vince Conti, email email@example.com.