One northwestern New Jersey community was in the midst of finalizing its annual budget when COVID-19 surfaced. Several weeks prior, the committee had unanimously agreed upon a small tax increase. Over the ensuing weeks however, the severity and economic impact of the pandemic became clearer. On the night they were scheduled to adopt the budget, one committee member expressed concern about raising taxes on residents who may now be facing economic hardship. This created a stalemate that would have prevented the township from approving the budget by the deadline that evening.
Challenge
The dissenting committee member pointed out that rising layoffs and uncertainty had changed economic circumstances statewide. He was concerned that even a small tax increase could be a blow to residents’ morale and pocketbooks at a difficult time. The other members agreed that this was a valid concern, but with the budget deadline looming, the committee needed to work quickly to find a workable solution to pass the budget that night. The other challenge was to pass the budget while maintaining the Fund Balance (or surplus) amount since depleting it could negatively affect the municipal credit rating.
For help, they turned to John Mooney, CPA, their auditor and trusted advisor. An expert in governmental accounting and audit, John used both his accounting expertise and his strong knowledge of the client to guide members to the desired outcome. With a quick assessment of the situation, John recognized that he needed to accomplish three things.
- Avoid increasing costs to taxpayers
- Maintain the level of the Fund Balance
- Avoid a budget amendment that would trigger a public hearing
Knowing that the members wanted to avoid depleting the surplus, John initially suggested doing exactly that, knowing he would be met with resistance. Once he revealed the rest of his strategy, however, the committee quickly recognized that John’s solution was precisely what they needed.
In an email the next day, one council member wrote: “I think the entire council was happy about your suggestions because they don’t know what you know – not even the attorney. You are the expert and are good at what you do!”
Solution
John recommended using the cash in the Fund Balance initially, to eliminate any increased cost to taxpayers. Then, realizing that the COVID-19 situation would likely result in layoffs and/or service cuts, he suggested that the governing body review the budget over the course of the year and cancel appropriation of those line items equal to the amount of the tax increase. This solution met both the committee’s financial goals AND avoided triggering a budget amendment that would have required a hearing. Once he secured agreement from all parties, John quickly completed an amended budget resolution, changed the key pages in the budget and shared the information with everyone at the meeting from his remote location.
Result
Shortly after the solution and amended documents were presented to the governing body, members unanimously approved the 2020 budget. Residents’ taxes were held steady and the Fund Balance would ultimately remain intact. The committee expressed gratitude for John’s quick action as well as admiration for his knowledge of municipal procedures and auditing expertise.