Memorandum from Mayor Hsueh on the 2012-2013 proposed municipal budget

To: Township Council

From: Shing Fu Hsueh

Date: April 11, 2012

Re: Supplemental 2012 Budget Information

In anticipation of the upcoming final deliberations on the 2012 Municipal Budget on April 161h 1 have conferred with our Business Administrator, Chief Financial Officer, and Department Heads regarding some of the proposed amendments outlined by several Council members in the area of anticipated revenues, use of fund balance, use of one-time liquor license receipts, as well as proposed expenditure reductions.

Expenditures

Although I am satisfied that the budget originally proposed to Council in February is the tightest budget we have developed in my tenure as Mayor, I am willing to cooperate and collaborate with Council on minor amendments in certain areas. Specifically, in the area of expenditures, we can agree to a reduction in the 2012 line item appropriation for the Planning Board attorney (reduce by $10,000) provided we closely monitor expenditures throughout the year. Since the expenditures portion of the budget is already down $ 13, 000 from last year’s total, I am opposed to making any additional reductions other than as noted above. In addition, any line item expenditures reduced by more than 10% would result in a delay in budget adoption.

Anticipated Revenues/ Fund Balance

With regards to increasing the anticipated revenues for Construction fees by $100,000 and the proposal to use an additional $100,000 from fund balance, I am deeply concerned that we need to remain cautious in these areas. Construction Code fees, for example, at the levels we experienced in 2011, will not be sustainable in the future. For the first two months of this year, we are already down over 400,000 from last year’ s totals.

In the area of fund balance, we continue to manage these reserves with the objective of maintaining a sound long term financial plan and preservation of our AAA bond rating in the future in order to ensure the most competitive rates on debt for capital projects and infrastructure improvements.

Nonetheless, if the revenue portion of the budget is to be modified, it is most advisable that the fund balance be utilized rather than modification of anticipated Construction Code fees due to the anticipated inconsistency in these revenues going forward.

Liquor License Proceeds

Any proposal to utilize one time revenues such as proceeds from the sale of a liquor licenses in order to

balance an operating budget is contrary to what we have instituted as a policy of my Administration since I took over the Mayor’ s Office in 2001. It is my strong belief that utilization of any one-time revenue in annual operating budgets is a non-sustainable and dangerous practice for the long-term financial health of West Windsor Township.

Please note that, in accordance with Local Finance Notice 2011-37, which was distributed to Township Council in the 2012 Municipal Budget Booklet (blue book), the Division of Local Government Services has added a new for 2012 disclosure requirement in conjunction with the filing of the annual budget. Pursuant to the notice, as outlined on Page 3, the Division expresses concern that municipalities rely heavily on short-term solutions. It is important that local officials understand the structural imbalances their communities may face, and it is extremely important for these imbalances to be communicated to the public, financial markets, and the State. While budget messages often contain the “good news,” the challenge of one-time solutions to structural imbalances are not often disclosed. Proceeds from liquor licenses clearly fall under this category.

For these reasons, the Budget Message section of the annual budget, sheet# 3(b)(2) has been revised by the State this year to include good faith explanations of budget issues related to structural imbalance.

The one of most concern for West Windsor Township is the ” Revenues at Risk” category for revenues that will not recur in 2013, are known to be declining over time, temporary in nature or not reasonably expected to continue. Identified in the introduced budget are 1) Interest on Investments and Deposits,

2) Rents from Lease— Post Office, 3) General Capital Fund— Fund Balance and 4) General Trust Fund— Reserve for Recreation and Open Space.

The use of the Sale of the Liquor License proceeds as an anticipated revenue to support the budget would require that sheet# 3(b)(2) be amended to disclose this action. As the Township is under state review for the 2012 budget, any budget amendment will require approval of the Division of Local Government Services in order to adopt. I

Therefore, as you can see from the above, currently, the New Jersey Department of Community Affairs not only frowns upon this practice, but requires disclosure should a municipality proceed down this slippery path.

Summary

As you know, I have consistently advocated a message of sustainability and long term financial planning for West Windsor Township. When formulating annual operating budgets, we never think solely of the current year, rather we are planning for the next 5 years and beyond.

In my discussions with individual Council members, some have expressed a strong desire to amend the introduced 2012 budget in several potential areas, as outlined above. Should it be a consensus of Council to make amendments, it would be my strong recommendation to reach a compromise by making minor reductions in appropriations coupled with limited use of additional fund balance, as follows:

My proposal is to amend the budget by $150,000 which will reduce the tax rate increase down to one half penny (.005), representing a 1. 36% increase on the tax rate. This would be accomplished by agreeing to reduce Planning Board attorney expenditures by$ 10,000 coupled with the use of an additional $140,000 of fund balance. This reduction would result in a 2012 tax increase of only $26.20 to the average household assessed at $523,950.

If you agree, I will support this modification at next Monday evening’ s meeting and look forward to working with Council to move West Windsor Township forward in a continued positive financial position in the coming year and beyond. Thank you for your consideration.