When the city of Bayonne changed its budget year from a calendar to a fiscal year in 1991 to coincide with the state’s budget schedule, most local officials secretly knew that it was largely an election year stunt by then-Gov. Jim Florio to lower the state’s expenditures and make it look like the state spent less than it actually did.
Twenty years later, the City Council has turned back time, reverting to a budget year that starts on Jan. 1 and ends on Dec. 31 instead of July through June. They said taxpayers will be able to better evaluate the year-to-year fluctuations in taxes and the city will be better able to manage its budget this way.
The argument made for the original change largely centered on when the state authorized aid to municipalities. In the mid 1980s, the state began awarding aid later in the year in order to improve its own revenue situation. Florio said towns could budget the aid at the beginning of the year rather than wait until mid-year.
The state budget year runs from July 1 to June 30.
‘Once the transition year is complete, mailing out tax bills next summer, it will include a full year of taxes.’ – Terrence Malloy
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“The stated logic was that towns would be able to adopt their budgets sooner, and it didn’t work,” he said. “The real logic – from the state’s point of view – is that it allowed them to move state aid from one fiscal year to the next fiscal year so that they achieved savings for that one year.”
Robert Sloan, city clerk, said the move in 1991 allowed the state to hold off paying aid to municipalities so that the Florio administration could go into a re-election cycle with more money in the state coffers. But voters turned Florio out of office anyway, and municipalities like Bayonne, who changed to the fiscal budget cycle, soon found out they were in worse shape than before.
While the state may have budgeted aid by July 1, municipalities generally didn’t find out the amount of that aid until the following March or April, and wound up adopting their budgets 10 or 11 months late.
Calendar budget will improve operations
The change back, Malloy said, will allow the city to pass its municipal budget in a more timely fashion.
Instead of introducing the budget in August or September and not adopting it until the following May or June, the city will introduce the budget in February, with state aid revenues included, and hopefully adopt the budget in March barring any unforeseen problems.
This, Malloy said, will make changes to the budget more effective. In the past, budget cuts and other changes done to reduce spending were largely ineffective in the year they were made because City Hall – with a budget 11 months late – had already spent the money operating the city.
He said with the city adopting the budget sooner, short-term borrowing – called tax anticipation notes – will be drastically reduced.
When the city doesn’t have a budget in place, it must sell tax anticipation notes based on the previous year’s budget in order to raise money to run operations. This short term borrowing means the city has to pay interest on the money when it repays it after tax revenues are raised.
Going back to a yearly budget cycle will also eliminate estimated tax bills that the city currently has to use for two of the tax quarters. Once the city gets through the transition period and the first two quarters of next year, the tax bills will largely reflect the current year. In fact, for the first time in 20 years, the city will issue a full four-quarter tax bill so that taxpayers can compare this year’s tax bill with the previous year, something not possible under the fiscal year system.
“One of the most consistent complaints we had since we went to the fiscal year was that people did not receive that one bill for four quarters, making it very difficult for them to compare one tax bill with another,” Malloy said.
It will take time
The change back, however, will require a six-month transition period from July 1 to Dec. 31 in which taxpayers will receive estimated bills for municipal taxes.
Malloy said the city cannot borrow any money to pay for the costs of the transition period.
“We’re not allowed to issue debt during the transition, unlike we did when we went from calendar year to fiscal year when the city – in order to change – had to borrow during the transition time,” he said.
The change back to a calendar year will, however, reduce costs for operating government.
“It will reduce our need for tax anticipation notes,” Malloy said. “Once the transition year is complete, mailing out tax bills next summer, it will include a full year of taxes.”
The city will issue an estimated bill in August for that quarter. In November, the city will issue estimated bills for the November, February and May quarters. After that, what taxpayers see will be current, not estimated tax bills.