2020 January Reading - So Much To Know

MUNICIPAL BUDGET DEFICIT - A decade of zero tax increases in a rising cost environment has caught up with us. " I have repeatedly asked that the administrations to provide five year projections each year to no avail. After last year’s scrutiny over the budget and tax increase I would not have been surprised to see another increase this year, but a gap of this magnitude was not expected at all."

We have heard from the administration that the City is facing a significant operating deficit going into the City’s 2020 municipal budget. Current estimates are $7M+ but I expect the number will grow given our recent reliance on using surplus to fund operations. It’s not pretty. By order of magnitude our total budget is about $117M and our tax levy (the portion of the budget that taxpayers are responsible for funding) is $55M. As the City Council learns more, I will provide much more information including the specific causes and what the implications will be to our community.

What we’ve been told so far is that the bulk of the deficit is driven by increased cost of labor - mainly multi-year increases and under-budgeted amounts relating to union contracts as well as increased healthcare and pension costs (some of latter being outside of the city’s control). These increases were apparently magnified by lower than expected revenues from various sources including our municipal courts.

I have re-reviewed the annual budgets and financials for the years since 2015 and it is clear that labor related costs – which represent approx. 75% (give or take) of our total municipal costs – rose at over 3% annually - which is difficult to sustain with no meaningful increases on the revenue side (including taxes).

Filling any size budget gap can come from a variety of sources including reducing operating costs, layoffs, increasing revenues and increasing taxes. The city is considering all of the above.

To give you an order of magnitude the following are some bookend/ extreme scenarios:

If the city were only to lay off employees to fully address the shortfall: as noted by the Business Administrator during recent City Council meetings, this would be approximately 80+ people. And according to conversations I have had with the administration, anything beyond 20-25 would negatively impact the provision of city services to Hoboken residents.
If the city were only to increase taxes to fully address the shortfall: this would be a municipal tax increase of 13%+ (all else being equal would translate to a 4%+ overall tax increase). Take heed that due to state laws, the city cannot increase your taxes this much – according to the administration 12% is the max allowed.

How was this not expected / planned for? That is the question we will be working to understand better and will revert back when we know more. I have chaired the Revenue, Finance and Infrastructure subcommittee for the past four years and will be co-Chair with Councilwoman Jabbour this year. I have repeatedly asked that the administrations to provide five year projections each year to no avail. After last year’s scrutiny over the budget and tax increase I would not have been surprised to see another increase this year, but a gap of this magnitude was not expected at all. More to come…

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