Title

FINANCES 

Introduction

It has taken three years of depression to make taxpayers semi-conscious of the fact that the finance of a municipality are the heart of the municipal problems.  Even yet perhaps the majority of taxpayers judge their local government by some small type of service which is, or is not, performed, rather than by the underlying financial conditions.  The average taxpayer still becomes much more excited over the response he gets from a call to police headquarters concerning perhaps a stray dog, or the time when a snow plow arrives on the street, than he would over a bond  default.

Of all the subjects to treat in a report, that of finances with all its complications, implications and ramifications, is the most difficult.  On the surface it seems rather strange that this should be so in a subject dealing with certain definite figures and the comparison of these with other definite figures.

The primary question is, of course, not necessarily whether the financial condition of the township is excellent, good or poor, which after all are relative terms, but as to whether the financial condition is improving or not.

If any yard stick to determine this were used the most satisfactory one might be a comparison of gross debt at the beginning of 1934 with the gross debt, in 1930.  That is, ascertain for each date how much money it would have taken at these times, above cash actually in the banks, to have cleared up all possible obligations of the Township.  The following table does this:

  January 1, 1931 January 1, 1934
Gross Debt $6,211,131.64 $4,534,315.67
Cash in Banks $298,834.86 $164,043.69
Additional cash needed to pay off all Township Debts $5,912,296.78 $4,370,271.98

That is, in this period the Township's gross debt has been reduced 26%.

Township as a Collection Agent

It must be well realized by now that the Township of Teaneck is the collecting agent for the State, County and School board, and that the taxes levied by these bodies are added to the local tax levy to produce the total shown on the tax bills.  The relative proportions of these taxes vary from years to year.  An average figure for the Township is as follows: Out of each $1.00 paid in taxes to the local collector, forty-two cents are retained, forty-one cents are paid to the school boards, fifteen cents to the County,  and two cents to the State.  As of January 1st the Township had paid to these three taxing organizations their demands in full to date, though $184,000 of 1933-1934 School Board tax due before July 1st, 1934, is being paid as demanded by the School Board.  The first quarter of 1934 County taxes were paid in proportion to the amount collected.

Apportionment of Taxes
  1930 1931 1932 1933
State Road Tax $21,899.14 $22,718.58 $25,876.34 $26,155.85
State Institutional Tax 10,949.57      
State School Tax 56,692.68 61,982.43 70,293.24 72,621.45
Soldier's Bonus Bond Tax 2,890.81 3,102.78 3,526.20 3,542.65
Local Hospital Tax 11,050.06 11,880.84 12,938.17 13,077.92
County Tax 165,850.81 175,316.25 194,958.25 176,730.13
District Court Tax 1,167.32 1,145.07 1,261.90 1,334.92
Local School Purposes 461,713.75 442,421.25 469,063.25 427,548.00
Township Budget (Dept. service & operation) 592,038.58 508,990.96 508,479.68 486,271.20
Total Amount apportioned for all purposes $1,324,252.72 $1,227,558.16 $1,286,397.03 $1,207,382.12
Amount of Bank Stock Tax Due Taxing District 524.62 488.47 337.37 358.70
Net Taxes to be Raised $1,323,728.10 $1,227,069.69 $1,286,059.66 $1,207,023.42
Tax Rate (dollars per hundred) 6.08 5.46 5.06 4.64

The forty-two cents retained by the Township are distributed among the different functions of the Township about as follows: Twenty-two cents, or more than half, for debts and deficiencies, eleven cents for public safety, three and one-half cents for general government, and two and one-half cents for health and recreation. Compared with national averages these figures show considerable variation. For instance, public safety consumes a much greater percentage of the local dollar than the average, while "health, recreation and library" a much smaller proportion. Care should be exercised, however, in using any such general average as criteria. The proportional part of the Teaneck dollar might be brought more into accord with the national average by increasing the health, recreation and library appropriations, as well as by decreasing the public safety item.

A recent tabulation compiled by the New Jersey Department of Municipal Accounts, shows that New Jersey municipalities as a whole levied by taxes in 1934, 4.8% more than they did in 1930, while Teaneck levied 14% less. This also is interesting, but unless the reason for the increased taxation and the manner in which the money was spent were definitely known, the comparison is inconclusive.

Divisions of Municipal Accounting

Municipal accounting is divided into three general divisions--1. Current Account. 2. Trust Account. 3. Capital Account.

In the Current Account are recorded those transactions having to do primarily with the collection and expenditure of tax money. In this division also falls all the accounting concerning the operating expenses of the Township.

The second division of great importance to Teaneck, is that covering assessments, the accounting for which is required to be entirely separate from the current accounts, except that the ultimate responsibility for the repayment of debts created in the assessment account lies with the general taxpayer, who might be called upon to make good any deficits through the imposition of taxes.

The third division is that of the capital accounts. In this division is kept all the accounting pertaining to bonds and notes, generally long term, issued for the purpose of making capital improvements to the Township. For instance, bonds issued for the erection of the Town Hall fall in this division. Had the sewers been laid at the Township's cost and not by assessment, the accounting therefor would also appear in this division.

Delinquent Tax Problem

In common with every other municipality, the most serious problem which Teaneck faces is the delinquent tax problem, even transcending in importance the problem of delinquent assessments, though these are greater in amount. The ultimate solution is a general refunding program with a new State Budget Act. Budget retrenchments, cushions, tax sales, foreclosures, and collection drives are more poultices than they are cures.

The magnitude of the problem in Teaneck is shown by the following table:

Taxes and Tax Titles More Than One Year Old
End of Taxes One Year Old (Inc. Int. to Date of Sale) Total Yearly Increase
1933 $479,928.30 $691,174.86 $1,171,103.16 $219,697.70
1932 530,245.34 421,160.12 951,405.46 99,968.30
1931 484,683.96 366,753.20 851,437.16 106,484.57
1930 495,461.42 249,491.17 744,952.59 185,750.97
1929 462,289.72 96,911.90 559,201.62 171,398.40
1928 341,751.64 46,051.58 387,803.22  

Perhaps another comparison will be permitted here. At the end of 1933, when outstanding taxes were $1,171,103.16, the current account had outstanding obligations of about $900,000 composed of tax notes, amount due schools until July 1, 1934, and budget reserves. If then 77% of the outstanding taxes and tax titles are collectible, the current account would be able to wipe its slate clean. On January 1, 1931, when the outstanding taxes were $744,952 the current account owed approximately $650,000. That is, 85% of the then outstanding taxes would have had to be collected. The value of this comparison as a yard stick to measure the gain or loss in the financial status then resolves itself to a question of judgment as to whether it is easier now to collect 77% of outstanding taxes than it would have been to collect 85% of the amount outstanding in 1930.

All of the palliatives for this situation are being tried or will be tried.

Reductions in budgets, always of course desirable, are not the ultimate answer, for they have a distinct limit and only decrease the delinquency proportionately. For instance, an assumed budget reduction of $100,000 does not mean that delinquent taxes that year will be $100,000 less.

Cushions help (the 1934 Teaneck budget contains them). They are not the answer, for they will return in cash only a proportional part, and they mean an extra present burden on those who pay.

A system of proportional payments of funds as received, has much to commend it, but it would mean almost immediate default in interest if only the correct proportional part of the incoming dollar were used for debt service.

Similar statements could be made concerning each of the suggested palliatives. Practically the question of what to do reduces itself to one of relative fairness to three groups. First, the taxpayer (particularly those who are paying), second, the municipality's creditors, and, third, the Township employees.

Tax Title Liens and Assessment Titles

The Township at present holds approximately 1,600 tax title liens involving, roughly, 5000 parcels of land, and totaling around $385,000. All but 160 of these liens were accumulated in the 1932 and 1933 sale. They include all properties on which taxes up to 1931 were delinquent, though the amount above stated includes subsequent accrued taxes.

They include about 111 homes owned by the persons residing therein, and 48 additional improved properties. The great mass of them represent the remains of the developments of the exuberant era.

They must be cleaned up. A tentative method has been adopted, which provides for redemption or foreclosure without the outlay of additional money by the Township. That is, bids for doing the work will be requested under a contract whereby the person or firm selected will be compensated only to the extent of the interest that may be paid to the Township during the process. Since this accrued interest is not carried on the books of the Township as an asset, the use of it for this purpose will not affect the financial condition of the Township. The contract proposes suitable safeguards to prevent the agent from skimming off the cream.

The policy has been established that no inducements for payment, such as abatement of interest or principal, would be offered to any property in tax sale. If the Township must suffer a loss, the loss should be taken at the resale of the property. To offer such inducements would--

1. Lead to charges of discrimination.

2. Be unfair to those who, often with considerable hardship, have paid their taxes and assessments.

3. Encourage delinquencies. That is, if those persons who have permitted the Township to act as their bankers, are relieved of a percentage of the charges, they will only too naturally try it again.

Such property as finally comes into the hands of the Township will be disposed of by public sale. Naturally such tracts as can be used for public purposes will be retained.

The solution of the problem of tax delinquencies in New Jersey requires many changes in the fundamental laws of the State. One of these is to completely revise the present tax laws so as to shorten and simplify foreclosure proceedings and to make them less costly.

More than three-quarters million dollars of delinquent assessments have been involved in the tax sales and are now in the form of assessment title liens. Although this amount is considerably larger than the amount of delinquent taxes, it is not the cause for as much immediate concern as is the tax title situation, for the reason that a delinquent assessment is a fixed amount which does not increase in arithmetical progression each year by the imposition of a new levy as do tax title liens.

Surplus Revenue

During the past few years the "surplus revenue" of the Township has accumulated at the following rate--1930--$19,700, 1931--$59,100, 1932--$59,200, 1933--approximately $40,000. These amounts added to the $78,000 existing at the end of 1929 give a total of $256,000. "Surplus revenue" is the balancing figure between the asset and liability side of the current account. It results in general from collecting more than the budget anticipated, from under-expending the budget or from both. Some, all, or none of it may be in cash. Generally it is none. Many municipal troubles have arisen from appropriating this surplus to meet the payment of cash bills, thereby effecting a transitory budget "reduction."

In Teaneck $216,000 of the surplus has been "appropriated" but not spent. It is held in an account known as "Reserve for Tax Titles and Taxes more than three years old." Here it, serves its proper purpose with no danger of future unconscious misapplication.

It is the existence, of this surplus which is primarily the reason that the Township could wipe clean its current indebtedness by the collection of only 77% of the outstanding taxes.

Interfund Indebtedness

Briefly, this arose during a period of years ending in 1930, when rather than go to the banks and borrow at high interest rates, cash paid for assessments was transferred to the current account and used for the payment of operating costs and debt service. The total amount so borrowed was $550,000. Undoubtedly this procedure did save interest charges on money which would otherwise have had to be borrowed. Another way of accomplishing practically the same purpose would have been the purchase of assessment bonds before maturity. Still this interfund loan had various other advantages.

The first repayments were made last year through refunding operations, when $184,000 of tax revenue notes were exchanged for a like amount of maturing assessment bonds, the net effect being a corresponding reduction of the interfund indebtedness. This in turn led to the $50,000 "cushion" appropriation in the 1934 budget for the payment of tax notes. The remaining $366,000 should be worked off gradually. Arrangements are now being made with bond holders to take an additional $100,000 of tax notes. To attempt more than this in any year would produce a serious disturbance at the time of the maturity of the tax notes. Last year's $184,000 was made to mature in two years.

Assessment Debt

The tremendous growth of Teaneck since 1925 is a matter of pride, but it has not been accomplished without bringing in its train serious financial problems. Naturally the development of woods and farmlands into modern home sites for perhaps fifteen thousand people required extensive public works, particularly in sewers and paving. To what extent these improvements were too extensive is not the question now. The primary problem is paying for them. Undoubtedly improvements were necessary, and undoubtedly the existence of these improvements has been a factor in the continued growth of the Township.

A table is appended showing the inception, rise and gradual decline of the debt from $189,000 in 1922 to a maximum of $5,183,250 in 1929, from which maximum it has decreased to its present total of $3,168,561.95.

Year Gross Assessment Debt Total Gross Debt (all divisions)
1922 $189,000.00  $1,089,867.95
1923  350,000.00  1,025,447.84
1924  493,000.00  1,396,416.03
1925  555,000.00  1,993,603.18
1926  1,035,000.00  3,637,330.48
1927  2,594,000.00  5,956,313.87
1928  4,105,'000.00  6,845,794.78
1929  5,183,250.00  6,098,007.63
1930  4,805,472.63  6,211,131.64
1931  4,165,464.19  5,494,675.55
1932  3,673,742.72  4,997,926.82
1933  3,168,561.95  4,534,315.67

The problem of payment is considerably complicated by the dates and maturities of the obligations which were issued to pay for this debt. Such maturities were fairly equal until the issue of June 1, 1927. Since that time the maturities show an exceedingly uneven distribution. For instance, the total bonds coming due and payable in 1933 amounted to $832,000 and in 1934, $1,595,000, after which they again drop to $535,000. Since these issues are designated temporary improvement bonds, the conclusion is that the plan was to refund them. Had normal conditions remained, this could probably have been done, and in effect it is what is now being done, as described in the refunding section of this report, though in a compulsory and not voluntary manner. The following table shows maturities of assessment bonds from 1930 to 1938 when, under the original set up, the last of them mature--

Temporary And Assessment Bond Maturities

1930 $337,000.00
1931 387,000.00
1932 387.000.00
1933 832,000.00
1934 1,595,000.00
1935 535,000.00
1936 534,000.00
1937 429.000.00
1938 142,000.00

During the course of making these improvements and since, a considerable share of the cost has been thrown on the Township at large. This must be finally met by taxation. At the beginning of 1930 this Township's share was approximately $806,000. This amount originated from different sources. For instance, certain definite amounts were levied against the Township rather than against the property owners, either by the Assessment Commission or by action of the Governing Body. Other amounts were found impossible of immediate assessment because the benefits were prospective. Other assessments were cancelled by the court, and still others were modified by being postponed, cancelled or partly remitted by action of the Governing Body, these latter arising from the property being able to show either no present benefit or errors in assessment such, for instance, as duplicate assessments. Recent budgets have contained each year items for paying off the Township's share. The amounts in detail have been as follows:

1930  $71,725.24
1931  90,000.00
1932  106,515.30
1933  106,209.86
1934  25,488.73

Current receipts have been sufficient, with the exception of the year 1933, to permit the actual payment in cash by the current account to the trust account of each of these amounts. The balance of the Township's share remaining was taken care of during the refunding operations, thereby distributing the load over a greater period of years and permitting the charges for other delinquencies to be taken up in the budget without materially affecting the total amount of money to be raised in any one year.

From time to time the assessment account has had considerable cash in excess of the immediate requirement for the redemption of bonds. This cash could have been permitted to remain in the banks until the increasing maturities demanded its use. The objections to this were that it was unprofitable, and secondly that in the hazardous years immediately past caution demanded that bank balances be kept as low as possible. Consequently, during the last three years a total of $436,000 bonds have been purchased before maturity. No bonds, however, with maturities subsequent to 1934 were purchased. Aside from the security gained in so investing the funds, the operation was profitable to the Township, not only by the amount of interest saved, but also because the bonds were purchased below par. A conservative estimate of the resultant saving to the Township is $40,000.

Refunding

With maturities of temporary assessment bonds of $832,000 in 1933 and $1,595,000 in 1934, it was early realized that they could be met only with refunding, and that because of conditions this refunding would necessarily be an exchange of bonds with the present holders, rather than an open market proceeding.

Existing laws were used in the refunding operations, and so far the Township has not taken advantage of any of the emergency legislation. After conferences with the auditor and the bond attorney, it was determined that a bond issue for $505,000 could be prepared which would cover practically all remaining costs assessable against the Township. Most of this cost was already temporarily funded, being part of the outstanding bonds, but for some of it no bonds had ever been issued. It was also determined that there were $74,000 of assessments already levied, but for which bonds had never been issued, and consequently another bond issue was prepared for this amount.

The maximum life the smaller issue could have was eight years. The larger issue could have had a life of at least twenty years, but this was cut down to fifteen years. Maturities were fixed so that the demands of the two issues would be equal throughout the life of the issues, or from $39,000-$40,000 a year.

In accordance with statutory requirements, the issues were several times offered for public sale, without any bids being received. Consequently they were disposed of at private sale, that is, exchanged for maturing assessment bonds, except that the holders of bonds were paid 20% in cash out of assessment funds in hand. The details of the exchange, really a sale and redemption, were handled in accordance with the legal requirements. In this manner a total of $583,000 bonds were refunded of the 1933 maturities, and, up to the present, a total of $223,000 of the 1934 maturities. All bonds to June 1, 1934, are at present refunded. Total 1934 maturities of $1,242,000 still remain. For this purpose, there are still available $221,000 of last year's new issues, plus tax revenue notes, of which not more than $100,000 should be issued this year. There are sufficient statutes in existence at present to permit the issuance of other refunding bonds, but action on this is postponed while waiting for the Legislature to determine the general question of refinancing. That is, it does not seem wise to do our refinancing under present laws when much broader and more favorable powers may be given by the Legislature in the near future.

The refunding work with all its details, large and small, has been handled by the Township direct, thereby avoiding heavy charges and commissions to agents or advisors.

The total costs of the refunding operations to date have been:

Advertising  $544.02
Printing bonds  604.50
Attorney's fees  927.71
Clerical  300.00
Total  $2,376.23

As to the question of discounts and interest rates, the following comment is repeated from the budget explanation:

There is no question or argument but that in the refunding operations the Township should seek to obtain the lowest possible interest rates securable. Up to the present this has been 6%, plus a legal l% discount in connection with some of the refunding operations. During the year the Township has offered its refunding bonds for public sale at least three times, without any bids being offered. It has also, from time to time, bought in small quantities of its bonds in the open market, at prices yielding return of 15% or more.

"It must also be borne in mind that the Township of Teaneck has not yet defaulted on its bonds, and is not yet in a receivership. Consequently it is unable to deal with its bond holders as a mass and to enforce upon them conditions which might be possible if a municipality were bankrupt.

If default had been resorted to in order to force lower interest rates, subsequent results would have been serious. The most immediate one unquestionably would have been refusal of P.W.A. funds to the School Board. Also a default would make for higher interest rates on any financing which the Township might do for years to come.

Cash Basis

Though much is heard about municipalities operating on a "cash basis" there does not seem to be any agreement as to just what a "cash basis" is. If it means not spending any more in any one year than the actual cash receipts, exclusive of borrowing or drain on cash in hand, during that year, Teaneck has not been on that basis for years. If it means being able to meet all cash demands in cash, Teaneck is still in that fortunate class.

The Township has been able to meet its interest charges, salaries, material bills, and to pay to County, School Board and State their moneys in spite of a constantly increasing tax delinquency because of the following combination of factors:

1. Through budget under-expenditures and miscellaneous revenue over collections amounting approximately to $178,000.

2. Use of "cushions" amounting to approximately $100,000.

3. Reducing current cash in hand, amounting approximately to $90,000.

4. Borrowing on tax notes in the amount of approximately $95,000.

All of the above figures are for the years 1931 to 1933 inclusive. "Borrowing" it will be noted accounts for only 20% of the total. Elsewhere it is indicated that proportionately to taxes outstanding, the current debt has decreased. During the three years preceding 1931 the current account "borrowed" $492,000, in the past three but $95,000. This is the net amount above repayments for both periods.

School, County and State demands were met in full at the first of the year although the taxes levied for these payments had not been collected in full. Consequently these bodies may be said to have been 64 overpaid." In normal times, such is the normal condition, the municipality being expected and required to borrow to pay for the debts. In abnormal times there is a limit to the ability of a municipality to continue this procedure.

The "cushion" items referred to were principally the appropriations for Township's share of assessment costs, plus other miscellaneous appropriations for deferred assets and deficiencies. Had not enough cash been collected in any year, these items would have been set up as a "budget reserve," the same as this year's "cushion," earmarked for the payment of tax notes. Except in 1933, cash payments were actually made.

 

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