NJLM - Joint Legislative Committee on Government Consolidation and Shared Services

Position Statement of the New Jersey State League of Municipalities
October 4, 2006
Joint Legislative Committee on Government Consolidation and Shared Services

Good morning, Mr. Chairmen and members of the Committee. I’m Bill Dressel, Executive Director of the State League of Municipalities. I’m joined by Gregory Fehrenbach, who is the League’s advisor and consultant on interlocal services.

Today, we have been invited to comment on pieces of legislation:

A-50 – Creates Municipal Efficiency Promotion Aid Program in DCA
A-5252 – Moves fire district elections to November general election date; revises budget approval procedures and imposes spending cap
S-864 – Establishes program to promote consolidation of municipalities, regionalization of school districts and shared services through enhanced homeowners' rebates.
SJR-47 – Establishes “Municipal Alignment, Reorganization and Consolidation Commission” to develop plan to consolidate pairs and groups of municipalities.

In a moment, I will ask Greg to provide comments on each. But I would first like to present to you an overall position of the League of Municipalities. We commend the efforts of each of the Special Committees in undertaking an objective analysis of the property tax crisis. This is surely the most important work you will have as legislators, and your efforts can have a significant, positive impact on the everyday lives of our citizens.

In doing so, however, the League would advise this Committee of the following:

We urge you not to diminish state aid that has failed to match inflationary increases in governmental goods and services for the past decade;
Respect the constitutional rights of the state’s citizens to choose the local government in which they wish to live; and
Clearly and honestly examine the true costs of government and reasons therefore. Do not increase the cost of government services because of preconceived solutions that are not supported by research or educated experience.
Municipalities have been engaged in interlocal services for decades, and the research you have had presented to you reflects what has been the case in New Jersey. Shared services offer an opportunity for modest savings and should be encouraged. Shared services and consolidation, however, are not the solution to the property tax dilemma. It can be a part of the solution, but much more must be done.
Much has been said about the reluctance of local governments to embrace shared services. Perhaps this reluctance is because of the first-hand experiences. The reluctance is not the cause, but the effect.

At this point, I would like to ask Mr. Fehrenbach to present specifics comments regarding the legislation on today’s agenda. He serves as the Coordinator of the League’s Interlocal Cooperation and Management Advisory Service. He has in excess of 35 years of municipal management service in New Jersey and Pennsylvania serving most recently as the County Administrator of Sussex County. He is also a former President of the New Jersey Municipal Management Association which represents professional municipal managers and administrators throughout New Jersey. For those of you and your colleagues who know him and his work, you know that he has never been characterized as a “spend-thrift.”

Regarding Assembly Bill 50:

The legislation’s intent of using performance standards to increase the productivity and efficiency of providing governmental services should be applauded and supported. The International City and County Management Association has been working on this for the past 15 years as a method to achieve just these purposes. However, do not mistake a developing science for a proven one. This science needs more development before it can become the basis for determining which governments deserve state assistance.
The Division of Local Government Services should be provided with the financial and technical resources to develop these performance standards and test their validity in real world experiences. Only when this has been accomplished, meaning that the measures actually identify efficient performers, should consideration be given to providing rewards for proven accomplishments.
The League opposes the elimination of formula based state aid as the failure of the state to fully fund these aid programs over the past decade has been a significant contributor to the rise in the property tax.

Regarding Assembly Bill 52:

The League supports the inclusion of fire and school elections with the general election. Not only does it reduce unnecessary duplicative costs, it will also increase the participation of the electorate in the process.
The League supports the utilization of the budget development, consideration and adoption process for fire districts as is now utilized by municipalities. While the League believes that the CAP is an arbitrary and artificial method of attempting to control budgets, inclusion of fire districts in the same process at least achieves the objective of uniformity and equity.

Regarding Senate Bill 864:

The League does not concur with an assumption included in the preamble of the bill that states: “One of the greatest impediments to the consolidation of municipalities has been difficulties between property tax rates and assessment of market value ratios of the municipalities that might be logical candidates for consolidation.” How was this determined and based upon what data and analytical techniques?
The League also does not concur with another assumption included in the preamble: “The regionalization of school districts also benefits property taxpayers by reducing the administrative costs of education and making the delivery of educational services more efficient.” This has been clearly and unequivocally derided in testimony before this very committee.
Unlike A 51, this bill provides offsetting state payments for increase in the property tax resulting from consolidation to only those residents eligible for the homestead rebate and does so by integrating the payment with the rebate program. The latter has been decried by both side of the political aisle here in Trenton of late.
The bill does not provide any stable funding for this program nor for the supplemental payments it suggests be made to the same eligible recipients of the homestead rebate.
That said, we do support incentives for consolidation, which lie at the heart of this bill.

Regarding Senate Joint Resolution No. 47:

This resolution seeks to alleviate the property tax without addressing the issue of school costs, which represent the clear majority of the property tax.
Under the Municipal Consolidation Act, not only do the municipal governments need to consolidate but so do the school districts. A more comprehensive understanding of the problem is needed before a solution can be designed.
How would the affected citizens and voters be participants in the process? The resolution appears to ignore these most important of stakeholders. What role do the duly elected representatives play in the process? In many cases they are the most knowledgeable of the impacts of various potential alternative actions.
Current law permits the voluntary consolidation of municipal governments, but it contains elements that make it difficult to use. Open a dialogue with DCA, local officials and others who have gone through the process to facilitate improvements that will make the process more workable and desirable.
Current law permits the voluntary cooperation of local governments to share services. Voluntarily many municipalities have sought increased economies through this mechanism.
Regarding these last two point, Speaker Roberts A 51 seeks to improve these last two methods of achieving economies. Work with him and improve the bill so that it is the best that it can be. Further economies will occur. Voluntary consolidations will also occur as is now being attempted in Maplewood and South Orange.

What are the Principal Drivers of Local Government Increasing Costs and Rising Property Taxes?

Any one who has been working in local government finance since the CAP law became effective will highlight the following budgetary elements as being the essential reasons for rising property taxes:

Expense Side of the Budget:

Personnel and related costs comprise about 70% of municipal budgets
Legislated collective bargaining enhancements such as binding interest arbitration and removal of school boards’ ability to impose contract terms.
External health insurance increases
External pension contribution increases

Revenue Side of the Budget:

Lack of state aid to match inflation and fund direct and indirect mandated increases as those identified above.
A mathematical necessity: If the property tax comprises 50% of revenues and costs increase 3% and other revenues do not change, property taxes must rise twice as much as the budget or 6%.

Suggested Committee Actions:

The League encourages the Committee to seriously and conscientiously consider the following perspectives and actions in their final recommendations to the leadership of the Legislature and the Governor:

Support changes embodied in A-51, as modified by League recommendations to the Speaker. This will increase the ability of municipalities to further cooperate in the provision of municipal services. It will remove many though not all legislative barriers that now inhibit cooperative efforts. It will ease and facilitate the process of voluntary consolidation as is now occurring in Maplewood and South Orange under the current difficult statutory provisions.
Acknowledge and respect that the citizens and voters of each municipality have the constitutional right to choose the government they want and reasonably may have justifications other than financial ones to reject the idea of consolidation and/or sharing services.
Acknowledge that larger does not always mean more efficient, noting that many smaller municipalities strive daily to provide services at a lower unit cost than some larger municipalities are able to do and succeed. They do without services. They use part time employees and volunteers. They do not provide enviable salaries and benefits to their employees. They scavenge older vehicles and equipment for parts to keep better vehicles operating, foregoing the purchase of new vehicles and equipment. They take donations.
Recognize that personnel represent the greatest cost of government to the people of New Jersey.
Amend the laws that increase the cost of personnel services such as binding interest arbitration and the removal of the right of school districts to impose contractual terms and conditions of employment. Since 1977 when it went into effect, binding interest arbitration of public safety labor contracts has accelerated the growth of all local government personnel costs. .
Consider the findings of the Cahill Commission that studied this question many years ago and from the testimony of Mary Clapsaddle of the State of Maryland. The State DOE should establish the appropriate number of teachers and aids and fund the total costs of these for each school district in the State. The State should control the cost of these elements of the service by negotiating the terms and conditions of employment. In this way the State controls its expense and funds the expense that they have created. The property tax would only fund those items over which the school district has control, such as supplies, utilities, buildings and support services, much of which could be contracted through an Educational Services Commission, New Jersey’s potential equivalent to Pennsylvania’s Intermediate unit about which Dr. Bailey testified.

The League appreciates the opportunity to provide these comments, and we thank you for the opportunity. The task ahead of us all is a daunting one, and there is no magic solution. Evidence has shown that, at best, shared services are just a small part of a potential solution. We encourage all four of the Joint Committees to consider the impact of labor costs on local budgets as well as the effect of stagnant local aid. For too long, local officials have been forced to do more with less, while maintaining the effective quality of services. There’s no one cause to the crisis we find ourselves in, and there is certainly no one or easy solution. You should know, however, that the locally elected and appointed officials the League represents are the greatest resource you have in tackling the so-called 800 pound gorillas.

Thank you.