PATERSON, NJ – The Paterson City Council is set to mull whether it wants to revert back to using a standard calendar fiscal year, a move that Mayor Andre Sayegh’s administration believes will help improve the city’s overall bottom line.
Paterson is one of only eight cities in New Jersey that operates on the state’s fiscal year, which begins on July 1 and ends on June 30 of the following calendar year.
During a special meeting set to begin at 6:30 p.m. on Friday, the council will consider introducing an ordinance to change back to a calendar that runs from Jan. 1 to Dec. 31. If approved, the city would apply to the Local Finance Board, which would grant the request if it is in the best interest of taxpayers, according to state law.
The change was an objective identified in Sayegh’s transition report, a list of priorities put together as he took office two years ago. Doing so, the report said, will “make budgeting easier” and align Paterson with how most other municipalities and counties in the state operate.
“I have advocated for this since I was a councilman because I believe it will give us some budgetary breathing room,” Sayegh said. “Moreover, it may even create a surplus for our cash-strapped coffers."
If the ordinance passes on second reading, the city would begin a six-month transition period known as “TY20” and then cycle into a 12-month calendar at the start of 2021.
During that 18-month timeframe, city officials would anticipate two infusions of standard state aid - $32 million during the transition year and during the calendar year, but only have one large pension payment next spring, according to Paterson’s Business Administrator, Kathleen Long.
“This will help the city manage potential decreases in tax revenue, and in the best case scenario will lead to the creation of a surplus for a reserve fund in the calendar year,” she said. “Paterson would still also be able to apply for transitional aid from the state during the calendar year.”
Paterson is one of a handful of municipalities in New Jersey that can seek transitional aid, which is special aid to a handful of the state’s largest post-industrial urban centers beyond what is given to towns under consolidated municipal property tax relief, the largest portion of formula aid.
Transitional aid can be used to fill structural deficits and the gap between what a city spends and what it brings in from other revenue, which is the sum of all taxes, fees, fines and investment income collected annually by the city.
The adopted 2020 municipal budget calls for $285 million in spending and plans for $256 million in revenue.
Of that figure, $57,841,868 will come from state aid, including: $8,104,367 in consolidated municipal property tax relief, $24,650,000 in transitional aid and $200,000 in supplemental transitional aid.
The city’s surplus, which can be used to offset large increases in budget items that a municipality doesn’t necessarily control, was $0, according to the adopted budget.
“You won’t find transitional aid cities that have a surplus. The state comes in and fills the gap,” Long said.
In Paterson, Long said, one of the challenges to banking surplus is that “the city doesn’t have an incredibly large tax base.”
“Compared to the city of Newark, we have similar challenges – wanting to provide city services. But Newark has Verizon, Prudential and Audible, which really provide to the tax base. We have a lot of small businesses and mid-sized ones.”
If the change moves forward, it’ll enable Paterson “to receive more revenue than expenses and allow us to build up a surplus,” Long said. “The goal is to build surplus during the transition year period of July to December.”
She can’t predict how much reserve they’d be able to build up, but said it could be “anywhere from a few million up to $10 million.”
“Even if it’s just $2 million, it’s helpful for the city to use when necessary and to help cash flow any time of year when expenses may run over revenue,” Long said.
“That would give us the ability to use extra revenue to prevent layoffs,” she said. “Our budgets are so lean that if we don’t get tax revenue, we have nothing to protect us and we have to make up for lost revenue.”
Despite the ongoing COVID-19 pandemic – and the possibility of a second outbreak later this year – Long said the administration believes it “seems like a good time to do it, even with all the uncertainty.”
The city’s tax collection rate was “pretty good” in June, said Long, who estimated it was around 90%. However, they are unsure what to expect in August.
“During the first quarter, we cut our spending and froze hiring. We saved $8 million in spending, which helped us offset any losses,” she said.
Long said there are also “tangible benefits” for taxpayers associated with the switch. Property owners would still receive two tax bills a year, but they would be created using one set tax rate and would be easier to compare and understand, she said.
It also helps officials because it would align their calendar with the Passaic County’s, so they wouldn’t have to guesstimate how much to anticipate in terms of county taxes when it comes to determining what the tax levy could be.
“It makes the flow easier for government,” she said. “We’re still so reliant on the state, but if there was more in the reserve then we’d manage cash flow easier. It’s a change that can lead to a whole bunch of cascading good financial policies.”
Council President Flavio Rivera agreed that the city needs to generate more surplus, but said that’s only part of the issue. “We have to be more mindful of how funds are being spent,” he said. “A budget is a plan and you have to stick to the plan. We need to find additional revenues and be more conservative with spending.”
The council has not yet discussed the ordinance with the administration and expects that will occur during Friday’s meeting, according to Rivera who added that he’s supportive of moving from the state’s fiscal year to a standard fiscal year as long as “the benefits outweigh the negatives.”
“We can’t throw more wood into the fire when we’re struggling with the pandemic and put a bigger burden on residents,” he said.
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