2% Cap Place Ball Squarely in Muncipalities' Court

The 2% cap is a good thing. It places real restrictions on municipal tax increases by capping additional tax levies year to year at 2%. But make no mistake, this law places the onus for tax relief on municipalities. The Governor's "tool chest" promises to make that job easier, but the job of cutting spending rests with the towns. The Governor and Assembly have sent a clear message that most of the hard work of saving tax dollars will take place at the local level. Given that reality, we need to prepare for the difficult work ahead.

To be clear, we operate under a 4% cap now, but there are numerous exceptions that make the existing cap toothless. The new law has just a few exceptions and will leave municipalities with little wiggle room. In any given year, if you have a category of spending (e.g. fuel costs) that increases by more than 2%, you will need need to cut spending elsewhere to offset that increase. Many municipalities, including Middletown, have not had the discipline to operate within a cap. Last year, against my vote, we applied for a waiver of the cap. We voted to defer our pension contributions (which will need to be repaid with interest over a term that starts in 2012), and by year's end, we needed to borrow $800,000 from 2010 to pay 2009 expenses. This type of reckless spending must end.

The time to start planning for this cap is now. One of the biggest problems with the budget process in Middletown has been our failure to start the process until well into the fiscal year. This year has been no different. It is July, and we have not held a single public meeting to discuss our budget or how we should cut spending. Clearly, at this point, any annual savings to be achieved from budget cutting measures will only be 50% effective, since half the funds have been spent by now. The perennial excuse is that we don't know exactly how much money we're getting until the State gives us our revenue numbers several months into the year. The problem with that line of thinking is that it assumes we cannot make cuts until we know how much money we have. Obviously, uncertainly over our final revenue numbers does not stop us from planning layoff, furloughs, reductions in service, etc. We have waited too long, and we cannot afford to make that mistake again.

We should start working on the 2011 budget now. We need to assume that Governor Christie's tool kit will pass. We should assess that tools that will be available to us, and we should start planning on how to use them. There will be difficult, contentious debates when it comes to jobs and benefits. We may need to reconsider our status as a civil service town. Our negotiating stance with Unions will toughen as the specter of mandatory arbitration is removed.

But even with these additional measures made available to us, a thorough, regular process for evaluating our services and the programs we deliver needs to be followed. Currently, we have no mechanisms or structure to ensure efficient execution of budget-cutting ideas and recommendations. No finance or budget committee. Without a more robust governance structure to engage in the work of following through on some of these budget-cutting ideas, we will never see their fruition. Some ideas that have been discussed but not yet implemented include: combining the maintenance functions in the Parks Department and Public Works Department, sharing maintenance functions with the Board of Education, outsourcing leaf and brush pickup, one day per week garbage pickup, and tougher enforcement of recycling laws. There are more suggestions, but no real process for implementing them. So, as we consider how we might use the Governor's tools, let's also put in place the committees and people to help us use the tools to their full measure.

Televise Township Committee Meetings

On Tuesday night at our Workshop Committee Meeting here in Middletown, I asked the Township Administrator to provide the Committee with an assessment of the costs to televise Township Committee meetings. My preference would be televise them live, but even a taped, televised meeting is better than no televised meetings. I think televising our meetings is an important step toward engaging our citizens in their Government. If we can play tapes of concerts in the park, we surely can play tapes of our elected officials at work. If we are to put our financial house in order, we need a citizenry that pays attention, expresses opinions and has transparent access to all of our budget and spending records. Indeed, our system of government anticipates an informed electorate that cares about how its local government spends its precious tax dollars.

In recent years that type of involvement has been limited to a small segment of our residents. When good times prevailed, many members of our community lost interest in the activities of our elected officials. I do not exclude myself from that criticism. Escalating real estate values and a booming economy lessened the burden of real estate taxes on the average resident. As a result, the actions of our elected officials became less important.

But those times are gone for the foreseeable future, and we now must manage our public resources during a time of financial crisis. This means mobilizing our citizens to participate in the governing process and to volunteer to perform services that may have been previously paid for with tax dollars. As an example, we budget a significant amount of money every year toward the maintenance of parks and fields. We should explore organizing the local neighborhoods adjacent to our parks to participate in regular cleanups, grass-cutting and upkeep of these assets. I believe that Middletown residents would welcome the opportunity to come together as a community to take care of their "jointly-owned" assets and save tax dollars at the same time. To set ourselves on this path, we need to connect to our residents. Televising our meetings would allow citizens to observe their government at work and to weigh in on decisions that impact them or that involve matters where they may have expertise.

Corruption and mismanagement arise when Government is conducted in the shadows. Two years ago we took an important step toward opening up our government when Committeeman Short and I introduced a resolution to place all township meeting agendas, resolutions and ordinances on our website in advance of meetings. This resolution was passed unanimously by the Township Meeting. (It was also an excellent example of bipartisanship). This allowed residents to see what was being voted on at meetings. Prior to this, residents who attended meetings would frequently have little idea what was being discussed, because they had never seen, and had no meaningful access to, the documents being voted upon. Bringing our meetings to television would further open a door to local government that until recently remained shut to all but a chosen few.

Budget Irony in Middletown

The Middletown Township Committee recently voted to introduce a proposed budget for 2010 that raises the municipal portion of the tax levy by 13%. In other words, the operation of the Township requires the taxpayers to contribute 13% more than they did last year. During a period of belt-tightening and financial hardship for most taxpayers, an increase of this magnitude cannot be justified. You will hear excuses about loss of State funds, retirements and other factors that made this a difficult year -- and much of that is true -- but our Township Government has failed to take the decisive action demanded by these difficult times. We are in an economic downturn of historic magnitude, and we need to take action that meets the challenge of these times. Just take a look around at other municipal budgets and see if you can find a town increasing the municipal budget by 13%. These neighboring communities operate in the same budget environment we do, but have been far more proactive in preparing for and dealing with this financial crisis.

The irony in all this is that while the Mayor touts the Governor's actions to cut spending and serves on his transition team, he refuses to take comparable strong action here in Middletown. Instead, we vacillate and miss opportunities for savings. Rather than imposing layoffs and furloughs early in 2010 when we knew we were in financial difficulty, he waited until almost halfway through the year. When I recommended letting pre-qualified engineering firms bid for the road construction projects that we undertake each year, he voted no, choosing instead to award in January all of the Township's engineering work to one engineering firm, thereby removing any chance of securing savings through a competitive bid process. When I recommended negotiating a fixed monthly legal fee from our attorneys, he voted no, again missing an opportunity to negotiate savings. The Mayor refuses to consider merging the Sewerage Authority into the Township Government to eliminate hundreds of thousands of dollars in overhead. We need to immediately merge all property maintenance functions in the Township into one Department. We need to move swiftly to outsource a significant portion of the leaf and brush pickup. The salaries and benefits necessary to support this operation represent a significant portion of our municipal budget. Moreover, we pay heavy maintenance costs for the equipment used by these employees in the leaf and brush pickup. We should also consider moving to a one day per week garbage pickup. While this may be unpopular with some residents, with a renewed emphasis on recycling of all types of paper, the volume of waste can be cut in half, and the savings to taxpayers would be tremendous.

But change cannot begin until there is an acknowledgment that we must radically change the way services are delivered in Middletown. The Governor has boldly altered the debate, and we need to seize this rare opportunity to restructure how local government is run. We must first identify the core services that residents need and expect and ensure these services are delivered as efficiently as possible. Everything else that falls outside the category of core services should be evaluated for reduction or elimination. For core services, we must analyze, with the assistance of professionals, which services can be outsourced. In my brief tenure on the Township Committee, I have observed that the burden of salaries and benefits in support of the delivery of services is crushing. In our decision-making, we frequently fail to measure the lifetime costs of employees. In addition to a person's salary, we provide generous benefits that are unavailable to all but a small portion of private sector employees. After retirement, we continue to provide these benefits with little or no contribution from employees. As health care costs have escalated, taxpayers have picked up the tab. Until now, little has been done to contain these costs.

As elected officials, we need to be willing to make difficult, painful decisions to reduce spending. We will always provide police, fire and ambulance services. We will always maintain roads, respond to emergencies and pick up the garbage. But we need to examine parks and recreation programs, the swim club, the arts center, drug counseling, Middletown Day, and other non-essential services to determine whether we can provide those services through partnerships, outsourcing or other less-expensive means. We need to consolidate the sprawling, inefficient buildings that house are employees and programs. These decisions will not be popular, but the alternative is steady tax increases that make living here less attractive. We need to be prepared to lose elections in the interest of putting Middletown on a course that ensures its financial well-bring for the foreseeable future.

Other Post Employment Benefit - The Ticking Time Bomb

Many of us have heard the warning cries over the condition of our State's pension system. Estimates suggest we are $50 billion in the hole. Governor Whitman's actions to revalue the pension system's assets and subsequent failures to provide funding have created a canyon-sized shortfall. I am hoping that Governor Christie will act swiftly to end our system of defined benefit pensions and move us to a defined contribution pension system where employees fund their own pensions. We cannot continue to promise employees fixed amounts of money in retirement with no legitimate system for funding these obligations.

But our State's failures when it comes to employee benefits have not been limited to pensions. I recently received Middletown's audit for 2008 and noticed a comment section dealing with Other Post Employment Benefits ("OPEB"). I had not previously seen this term. As it turns out, many employees are counting on OPEB; namely, health benefits during their retirement. And, of course, our State and local municipalities have been promising generous benefits.

Statewide, estimates by PEW show New Jersey at the bottom when it comes to funding these benefits. New Jersey has the highest unfunded actuarially accrued benefit liability (UAAL) among all states. It also has the highest per capita debt with a value of $7,947, which reflects a UAAL of 139.66 as a percent of the state budget and an Annual Required Contribution toward these accrued benefits of 11.85 percent. In terms of real numbers, New Jersey should be contributing $1.88 billion each year toward these benefits, but actually contributes $310 million.

Unfortunately, Middletown's numbers are worse. Middletown promises health benefits for life to those employees who earn a pension. I will confess that I did not have a full understanding of where Middletown stood when it came to funding retiree health benefits. Returning to the Comment in the 2008 audit, I noted that Middletown's "Annual Required Contribution (ARC) for the year ended December 31, 2008 was $10,196,400 of which $1,659,200 was funded by the amount expended for these benefits." I was astounded. If I was reading this correctly and understanding it, we underfunded our OPEB obligation by $8,537,200.

Why has this obligation flown under the radar? Until recently, local entities made these commitments without any requirement to show this obligation on their balance sheets. It has been "pay as you go", meaning that you pay the health benefits as they come due, but you don't set aside funds in advance. But the reporting requirements have changed. Government Accounting Standards Board Statement 45 (GASB 45) now requires disclosure. While these substantial financial commitments remain off the official books of local governments, municipalities must now provide actuarial estimates of what these accrued liabilities amount to. Staring in 2008, municipalities with more than 100 employees were required to provide information concerning their OPEB liability. Local Finance Notice 2009-13R outlined this requirement:

Local authorities are required to recognize the OPEB liability in Statements of Revenues, Expenses and Changes in Net Assets (balance sheets) and Notes to the Financial Statements in accordance with GASB Statement 45.

I recently learned that Middletown had contracted for this required study. We received it in November 2009. Through 37 pages, it reviews Middletown's obligations and explains how the annual required contribution (ARC) of over $10 million is calculated. While someone might quibble with some of the assumptions, there seems to be little question that Middletown's taxpayers have a growing financial obligation that remains severely underfunded.

Budget Woes in Middletown

For anyone interested, the budgetary challenges that Middletown faces this year are formidable. A perfect storm of events makes tax increases almost inevitable. But the cycle of tax increases need not continue indefinitely. Unfortunately, apathy toward what's happening in local government guarantees continued increases.

Local government is broken. Taxes take somewhere between $6,000 and $7,000 on average from every household in Middletown, but few pay attention to how that happens. Sure, schools are expensive, but that's a lame excuse for high taxes. Our locally elected officials continue to follow a governance model that will ensure financial deficits for the foreseeable future. It's time to trash that model. It's time to think outside the box. It's time to view the tax money collected as a resource that must be spent wisely with an eye toward the entire Township, not just one public entity's corner of it.

What I mean by that is we need to consolidate our operations and thinking. The Board of Education maintains property and the Township Committee maintains property. The Board of Education buys supplies, the Township Committee buys supplies. We provide benefits to employees and so does the Board of Education. We support artistic and cultural activities and so does the Board of Education. We hire lawyers, engineers and other professionals, and so does the Board of Education. Are you seeing a theme here? These two public entities operate in the same town completely separately from one another. Worse than that, they barely get along. And anyone who tells you that they cooperate on certain issues and work together is missing the point. The weak efforts to meet occasionally and discuss some common areas of interest produce almost no savings for the taxpayer. And, oh, we also have a Township Sewerage Authority that has its own lawyers, auditors, engineer, etc. Last year that the Sewerage Authority spent approximately $800,000 on one engineering firm. If that sounds like alot of money, it is.

To be fair, state statutes make consolidation efforts challenging. These distinct public entities are governed by different statutes. But that's really no excuse. Locally, we have the ability to work together and share services. The Sewerage Authority, which also pays salaries, health benefits and pension benefits to its very part-time Commissioners (all seven of them) could be assimilated by the Township. In a Township with vacant land and lots of new construction, a Sewerage Authority might be necessary to deal with the activity associated with new neighborhoods all connecting to a sewer system in quick succession. We're beyond that in Middletown. Our Public Works could take over the operations of the Sewerage Authority and save hundreds of thousands of dollars just in the costs associated with professionals. It's time to do this.

That's just one example of consolidation. Here's another. We have an Arts Center that cost somewhere around $7.0 million to purchase and build. We spend hundreds of thousands of dollars every year to keep it open. (We also spent tens if not over a hundred thousand dollars to clean up the property because it was contaminated when we purchased it -- and we knew it). Did we really need to take on this expensive capital project? Did the Township Committee look into leasing space at other local theaters, or working with the County, which already has arts programming taking place in close proximity to Middletown? Nope. A small group of influential elected officials wanted it, and they got it. Almost $7.0 million borrowed to get it done. It has been running at a deficit ever since, even when you don't count the yearly payment on the bonded debt. Meanwhile, our Library, which reports to its own Board of Trustees, offers arts programming. Check out the calendar on their website. Performances, readings, movie discussion groups, teen art, cooking classes, "cartooning in clay". Do we need two separate groups running two very expensive buildings who have nothing to do with each other? It is insane. Consolidate them. The Art Center is underutilized. How about offering some daycare there for all the commuters who jump on trains right next door every working day. You can still do Arts programming, but how about generating some revenue.

Here's a real crazy idea. How about we make engineering firms bid for the capital projects we do every year, like roads, flood remediation, etc.? What do we do? We appoint one engineering firm every January (it just so happens that the same firm gets appointed every year, if you like, you can see them every election night at Republican Headquarters celebrating another victory with local Republicans). For any of you that have been on this earth more than a few years, here's a question. Do you think the Township will get its best price by guaranteeing one firm all the engineering work? Or do you think we might do a bit better by making 5 or 6 firms compete for every one of these projects? I proposed just that at our Reorganization Meeting in January, but could not get any of my four fellow Committee members to second my motion. (I also had the nerve to try and limit our Township attorney to $15,000 per month flat fee retainer [which is on top of the $50,000 he gets as a salary] and that too died for loss of a second to my motion -- by the way, the $15,000 per month I proposed equates to almost 1800 hours of legal time per year, that's our attorney working all year on nothing but Middletown's work!).

But I've lost my way in this blizzard we're having, we were discussing shared services and consolidation. If this State (and this Township) has any prayer of recovering from the budget disaster we are all facing, we need real change. In addition to the proposals outlined above, we should consider consolidating the police departments of Middletown, Keyport, Union Beach, Highlands, Atlantic Highlands and maybe even Keansburg. No good reason for all those separate departments, separate municipal courts, separate judges, prosecutors, public defenders, etc. Ditto on the school systems. Red Bank, Shrewsbury, Little Silver, Rumson, Fair Haven, Sea Bright should all be one school district. Ok, if that's too radical, why not make the grade school districts match up with the high schools. The County should take control of all major parks. They have more resources, more people and a good track record for running parks.

These ideas are just for starters. We don't really have a choice in my opinion. The wealthiest among us are changing residency or simply relocating, and they are taking the tax revenues with them. We have way too many public employees and all taxpayers are carrying their salaries, top of the line health care plans, both during their careers and during retirement. (Middletown currently owes approximately $106 million in accrued benefits to employees and retirees and we have no trust account or plan for how we pay for that -- it's pay as you go). In 2008, we should have set aside $10 million for these benefits, we paid $1.6 million. And that's separate from our pension obligation. We only paid half of our required payment last year and face a staggering payment this year. Meanwhile large commercial tax appeals from prior years will drive down revenues as property values plummet.

It's time to wake up. What has our Township Committee done in response to this? Layoffs? No. Shorter weeks? No. Forced professionals to take less money? No. Special meetings to discuss the looming financial crises? No. Consolidation? No. Reorganization? No. We haven't even had a CFO for almost 8 months! Our 2008 audit found material problems. We ran out of money for health claims in 2008 to the tune of $1.4 million and had to push those payments into 2010. You can't make this stuff up. We need to make hard choices and fast, or we will be facing substantial tax increases in 2010. I've proposed a finance committee at just about every meeting I've attended since my swearing in in January 2008. Large corporations have them, non-profits have them. It makes sense.

But I'm over that. I just want action. I don't care what organizational structure produces that action. We need residents to swarm our meetings and demand change. I fully expect that the wave of conservative sentiment sweeping this Township and C0unty will escort me from my seat on the Township Committee this November. And my world will not end when that happens. But I will leave frustrated; frustrated that I could not effectively deliver my message to residents. Frustrated that I was unable to convince my fellow Committee members that our current system for delivering services is broken and that bold, courageous steps are necessary to protect our residents from additional taxes that they can ill afford.

Ideas for Middletown

I welcome ideas from residents for improving Middletown, especially how we deliver our services and program to the residents.

Hope for the Future

Yesterday, as the news of more job losses and further deterioration in the economy came over my car radio, I became hopeful. Crazy, I know. Nothing in the dire financial news provided any reason for optimism. The anchors and experts served up a pervasive, unyielding barrage of bad economic news. So why hope? Let me try and explain.

Arguably, we have had a good run. Like everyone else, I enjoyed the escalation of asset values that took place over the last couple of decades. Relying upon "equity" in our homes, we accumulated things; kids with hand-held video games, fancy cars, the latest Xbox or big screen TV. Houses grew in size and so did mortgages. But somewhere deep inside me I heard this faint, troubling voice questioning how this could be so. This run up in asset values seemed to defy simple economics, but I rationalized and figured that the world had become more efficient; there were new, emerging markets to sell to, and maybe an age of ease was truly upon us. Of course, we now know that the economic rules that applied to our parents and grandparents still apply to us; and when you spend more than you have, there is a price to pay. Like kids who eat too much candy, our stomach ache has now begun.

I think we all must share some small measure of blame. In laying blame at all of our doorsteps, I don't mean to overlook the conduct of those who should have known better. The legislators, ratings agencies, investments bankers, Fannie and Freddie bosses; they all should have known better. This collective lack of accountability and diligence points to a failure of ethics that seeped into our culture. We idolized those who accumulated vast wealth, rather than men and women who followed simple principles that allowed our parents and grandparents to build this country. In the debate over stimulus packages and credit loosening, I have heard little about this collective, societal departure from ethical behavior. In business and in government, there needs to be a re-education of our leaders that emphasizes each person's duty to their community and their country. We need to remind one another of what it means to work with honor and to make decisions that consider the societal consequences of our actions.

But I am meandering a bit. I was speaking of hope. Our hope lies in our freedom. At our core, we love the liberty that has inspired much of the world to seek self-government. Living in a free society has its price, but it also leaves a deep, indelible impression on our souls. We grip our freedom tightly. Unfortunately, enjoying the right to decide how we conduct our lives and our society leaves us vulnerable when we go on the kind of tear that we did over the last two decades. But even when we stray into excess, this love of freedom burns like a small furnace deep within us. I would suggest that our collective conduct in recent years has walled up that furnace, so that its warmth is difficult to perceive, and in some cases, forgotten.

But crises like the one we must now overcome have a way of tearing down those walls. Facing the difficulties that a crisis brings compels us to return to those basic ideas and beliefs that matter most. People will work as hard as is needed to retain their liberty. Though things appear bleak, the people of this country have begun their awakening. The walls around their freedom furnaces are being torn down with each wave of bad news. In communities throughout our nation, we will remember how much we love our liberty. We will lace up our boots, strap on our helmets, and begin the hard work of re-building our economy. Self-sacrifice must replace the self-indulgence that landed us here. In short, our economy will recover, because our freedom depends on it.