Tag: budget

Hightstown is going to take advantage of the state pension holiday — but only because the state is holding towns like the borough hostage.

The state has tied the pension deferral to extraordinary aid, the pot of money the state sets aside for cash-strapped towns. The aid is designed as tax relief, but requires towns essentially to exhaust all other means to bring their tax rates down.

The aid, however, functions like an addictive drug that forces them to keep coming back for more every year.

Consider what happens to municipal surplus use. Towns are forced to use 95 percent of their surplus balance as revenue in their budget to qualify for the aid. When towns do that, they often find themselves scrambling the next year if it cannot find enough revenue to offset the amount of surplus used. That forces towns to repeat the mistake, to go back to the state for aid and spend down their surplus again, creating a never-ending downward spiral.

Towns can only reverse this trend by hoping the state provides them with more money than they have received in the past (fat chance) or by experiencing ratable growth. The problem is that many of the towns that seek extraordinary aid are built out like Hightstown or Jamesburg, leaving them with few opportunities to expand their ratable bases.

The pension deferral will only exacerbate this problem next year. Hightstown estimates that the pension deferral will save it $159,000 this year, which then has to be repaid over 15 years at 10 percent interest beginning in 2012. That means the borough is facing a minimum spending increase next year of $159,000 and then another hit in excess of $40,000 in 2012 when repayment of the deferral hits.

That’s a lot of cash, but it is understandable why Hightstown would go down this road. Not doing so would cost the borough $200,000 this year — money that would be impossible to replace in the budget. Plus, Hightstown is not alone. Manville also is deferring its pension payments, primarily for the same reason.

While Plainsboro Mayor Peter Cantu says that, because of the current economic climate the program makes sense, it is just another example of the state’s dysfunction when it comes to budgeting. After nearly four years of criticizing past practices that essentially kicked fiscal problems down the road, the state is doing the same and asking municipalities to join in the fun.