Council Grapples with the Budget; Will They Force the State to Take Control?
At Tuesday night’s City Council meeting, the first and most anticipated item on the budget was the introduction of the 2023 municipal budget. The budget was due to be introduced, with an extension from the state, on May 2nd but that didn’t happen. With the city already running late, it was important that something at least be introduced at the May 16 meeting. Initially, it looked like even introducing a budget might end in failure, with three councilors - Gibson, Latona, and Sadrakula - voting no to this necessary first step to adopting a budget for 2023. Councilwoman Rosemary Pino was running late, which left the vote three to three. City attorney Matt Priore recommended redoing the vote once Pino arrived.
If the City Council cannot adopt a budget at the meeting on June 20, which requires at least four votes, the budget will be turned over to the Local Finance Board. Councilors may be personally fined $25 for each day that there is no adopted budget in place and if there is still no adopted budget by August, the State of New Jersey will take control. If this happens, the State could opt to raise taxes by a full 12 points to properly balance the budget.
While they waited the Council moved on to other action items, including a request to pay salaries and some benefits to Power of One. Clifton resident Kim Castellano runs this non-profit, which provides food and other necessities to hundreds of Clifton residents who are not food secure. In addition to the other work Power of One does, Castellano has been preparing and delivering food and household needs to approximately 417 housebound seniors. Until December, the money to support this had been paid by the city through a grant.
Councilwoman Mary Sadrakula asked some questions about how this was being funded and whether Castellano has been providing the city with all required tax forms and expenses. After some discussion, five members of the council voted to fund this endeavor. Sadrakula abstained as did Pino, who arrived at the tail end of the discussion.
A second item addressed expenses related to needed firehouse renovations, specifically a roof replacement. $26,400 for an architect seems unnecessary, Sadrakula said. “Who is going to prepare the design documents?” City Manager Nick Villano asked. He said that for government projects, engineers and other professionals are hired to prepare the specifications. The money will come from a capital account. The motion carried with five affirmative votes. Latona and Sadrakula both voted no.
Jeffrey Bliss, an independent auditor, was present to answer any remaining questions Council had regarding the budget. Latona asked about interest income, which he felt was being underestimated in the 2023 budget. Bliss answered that we can only anticipate what we received the year before, which was a little over $1 million. “That’s incorrect,” Latona said. The auditor again explained that we cannot, by law, anticipate more than we actually brought in last year, regardless of the current interest rate. The city is budgeting the same million it brought in last year and under state law, that is the maximum that can be budgeted.
Latona also had questions about revenue from taxes and the amounts budgeted for various trust funds. In both cases, state law dictates how a municipality handles this. Clifton CFO Joe Kunz explained that the levy formula doesn’t allow the city to include anticipated revenue in excess of what was realized in the previous budget, even if the expectation is that the city will bring in more in 2023.
The trust funds lost $3.6 million last year and those reserves need to be replenished to protect the city from unexpected catastrophic expenses which cannot be anticipated. Latona wanted to know why the budget needed to include a larger trust fund balance than it carried last year and Bliss explained that health insurance costs and general liability insurance costs went up significantly, requiring additional funds to be kept in reserve. Villano explained that the city’s credit rating can be affected if there isn’t enough in those trust funds. “The budget changes; when we draw down on it, we have to put that money back.”
Previous councils have been relying on dipping into the Fund Balance to create the budget, using more than 50% of that surplus, Councilman Joe Kolodziej said. He reminded the Council that they are also relying on American Rescue Plan (ARP) money in this budget, which is not a continuing revenue source, and asked the auditor if a six-point increase was going to leave the city needing another six-point increase next year. Bliss agreed that it’s a very challenging budget and pointed out that just six line items total about $8.7 million of increased expenses. The city has maxed out its revenue sources and by law cannot budget for more. This means that the city can’t make up the surplus that it’s intending to spend in this budget. Next year, when we may not have the ARP money or the $10 million that this budget is using in surplus, there will be a $1.3-2.3 million shortfall for 2024, without even accounting for increased expenses.
Bliss cautioned that in 2024, the city will have an even worse problem than it has now. “There’s a lot of pressure on this budget,” he said. The surplus goes very fast when you max out the revenues, he added. Next year the city will be starting with those six line item increases and costs are going to continue to rise. “This budget is a difficult budget. It’s going to be challenging next year to balance this budget just the way it is now.”
Addressing Latona’s questions about using more surplus money, Bliss said that yes, the city could use even more of the money held in reserves, but the Council would be creating a much more difficult year next year where services may need to be cut and they may need to layoff personnel. The inflation rate is 6% and the proposal is to only raise taxes by 3.7% or six points. “Do you want to tap everything out and roll the dice for next year?” he asked.
After nearly an hour of discussion, the vote to introduce a budget narrowly passed four to three, with Gibson, Latona, and Sadrakula remaining as no votes. Mayor Ray Grabowski reminded the Council as he delivered his yes vote that several experts, including their Chief Financial Officer, the City Manager, and the auditor all explained the need for this tax increase in order not to dig an even deeper hole for next year. If those three Councilors also vote to oppose adoption of the budget in June, the city will be in danger of a State-controlled budget.
The agenda is HERE and you can watch the full meeting HERE.
The next City Council meeting will be held on Wednesday, June 7 (Tuesday is Primary Election Day) at 6:30 for the work session and at 8:00 for the regular meeting. All meetings are held at City Hall at 900 Clifton Avenue.