Rebuilding: Tax Revenue Issues Post-Sandy

The impact of the destruction from Hurricane Sandy has dramatically effected the tax revenues for several towns along the New Jersey coast where the storm made landfall almost one year ago. This has created a scenario where the towns along the Shore have had to resort to borrowing large amounts of money in order to make the necessary repairs to infrastructure as well as provide essential services.

I have written previously on the repercussions of this short term borrowing, often at high interest rates, and the impact it will have on the future for the NJ Shore.

The municipalities in New Jersey derive most of their revenue from what are called “ratables”. The lion share of the revenue they bring in is through property taxes. Hurricane Sandy destroyed so much property along the Shore that these towns have lost considerable amounts of their ratable tax base.

Budget Components

In my professional experience, I learned a great deal about budgets and how they are constructed. A budget for a municipality is no different than some other types of budgets, it has components which are fixed, and other components which are variable.

In a municipal budget, the costs of the school system are largely fixed. They are derived from property taxes and stipends from the government fixed at a certain dollar figure per student. The salaries of the teachers and the administrators are budgeted in as well each academic year.

The other major components are the Police, Fire, and Department of Public Works. In some municipalities, the fire department is made up of volunteers and in others it may be a mix of volunteers along with a few salaried positions.

The rest of the budget is comprised of smaller variable parts which might fluctuate from year to year. Some towns might set aside money to build a community center, repair roads, or make other infrastructure improvements.

Hurricane Sandy and Lost Tax Revenue

The impact of Hurricane Sandy has had a dramatic negative effect on municipal tax revenue along the New Jersey Shore and in the Raritan Bayshore region as well. The loss of property tax revenue has left some towns with major budgetary gaps to fill.

The towns in these areas devastated by Sandy have had to resort to both short term and long term borrowing in order to provide basic services to their respective residents.

According to Bloomberg News, these towns are borrowing at some of the highest 1 year rates since 2011 (www.bloomberg.com). The towns have had to resort to $398 million in short term borrowing to make repairs and provide services following this devastating storm.

In an open record request made by The Press of Atlantic City, the Treasury Department of New Jersey reported that tax assessment ratables are down a total of $4.3 billion (www.pressofatlanticcity.com).

Inside the Numbers

A look inside the numbers reveals that the counties with the highest losses in tax revenues are:

1.     Ocean County - $3.6 billion lost

2.     Monmouth County - $511 million lost

3.     Atlantic County - $72 million lost

4.     Cape May County - $26 million lost

(www.pressofatlanticcity.com)

A look further inside those statistics reveals:

·        Toms River lost the most tax revenue in Ocean County at $2 billion in losses (13%) of their tax base

·        Manasquan lost the most in total dollars of tax revenue in Monmouth County with $82 million of losses

·        Sea Bright lost the most in percentage of its base in all of Monmouth County with 13% of the tax base wiped out after Sandy

(www.pressofatlanticcity.com)

Federal Aid

The federal government aid package which was approved by Congress and is being overseen by FEMA has provisions for $813 million in aid for local governments in New Jersey alone.

However, very little of that money has actually been distributed to the towns in Sandy effected areas. The repairs made were at one point subject to reimbursement by FEMA of up to 75% of the total cost laid out by the town. They have changed the FEMA reimbursement rate on some projects to as high as 90% but they have not allocated much, if any, federal money to reimburse these cash strapped towns.

Manasquan township officials have had to authorize the sale of bonds just to keep the town operational. They were in need of federal reimbursement a long time ago, and it is unclear the role that the federal government shutdown will have on the allocation of the relief money.

I have read some accounts which state that the relief money is not impacted by the federal shutdown because it was already allocated. However, other accounts state that the individual departments in charge of actually approving the designation of the money based on qualifying that the work has been completed have major staffing cuts due to the shutdown.

For instance, the Department of Housing and Urban Development (H.U.D.) has had to furlough a huge number of positions due to the federal shutdown. This impacts housing inspections and urban redevelopment projects in Sandy impacted areas.

Sea Bright

Being a resident of Sea Bright, I witnessed some terrible damage to the town in the weeks and months after Sandy. The town, as mentioned earlier, has lost a huge portion of their tax base.

In order to make the necessary infrastructure improvements, and unable to wait any further for federal aid, the town government voted to use $3.1 million in bonds to make those repairs.

This money will be used to make repairs to roads and the sea wall. It will also be used to repair the damage to the police station, fire station, and the library. These are the decisions facing the municipalities up and down the Shore almost one year after the land fall of Hurricane Sandy.

They are not easy decisions, and the federal government needs to act to distribute the aid money to help offset some of the costs these towns have been grappling with over the past year. A longer term solution will still be needed though, as decisions have to be made on closing the revenue gaps in these town budgets in the years to come.