WEST ORANGE, NJ — After addressing several factors related to second-and third-quarter taxes during last week’s West Orange Township Council meeting, Chief Financial Officer John Gross also updated the governing body on the status of the 2020 municipal budget.
Since township has not yet adopted its municipal budget, Gross said the administration is looking to postpone any burden on taxpayers by not increasing the tax rate until the fourth quarter.
According to Gross, this would be advantageous to the majority of residents since 75 percent of West Orange Township’s taxes come in through mortgage companies that would have already calculated bills for the following year.
However, Councilman Joe Krakoviak expressed concern that the approximately 4,000 residents who pay their mortgages directly would be negatively impacted by an increase in their fourth-quarter taxes, which are due on Nov. 1.
“Even if they have a good third quarter with the August taxes under this plan, they’re going to get hit with a rather significant increase in their November taxes,” said Krakoviak.
He added that because there is no guarantee that this year's tax rate will be held to 2 percent or lower due to the potential revenue drop, it might be more beneficial to spread a tax increase over the next two quarters rather than waiting until the fourth quarter.
Gross acknowledged that both options—either providing immediate relief during the third quarter (Aug. 1) or spreading the tax increase over two quarters—are “poor choices,” but stated that Mayor Robert Parisi felt “very strongly” about wanting taxpayers to get immediate relief.
“Maybe 18-to-20 percent of our residential taxpayers would see a significant increase in the fourth quarter [while] the 75 percent remaining would likely see a significant savings over a year and a half,” said Gross.
All council members agreed that neither option is ideal, and the majority agreed with Council President Michelle Casalino’s suggestion to distribute a letter to residents explaining the situation so that they know what to expect.
“I think it’s important that people are aware that they’re going to get hit,” said Casalino. “They’re getting a little relief on the third quarter, but we’ll get hit on the fourth quarter. I think it’s important that they could pace themselves out, especially if they’re able to pay their third quarter.”
Gross recommended sending the letter to residents by mid-June, which is also when the council is currently scheduled to introduce the budget.
At the previous council meeting, Gross projected that the Township of West Orange would be behind in revenue by approximately $15 million due to the possibility of taxpayers being unable to pay their second quarter on time.
As of last Tuesday, about a week prior to the June 1 deadline, Gross said the township was approximately $9 million behind in revenue. Although he did not expect to receive the full amount by the new deadline, Gross was optimistic that the township would ultimately land somewhere around $6 million behind in revenue compared to his original projection of $15 million.
“Right now, the breakdown of the $9 million is about $2.5 million in commercial and $6.5 million in residential,” Gross said last week, adding that certain small businesses might not be able to pay their taxes due to shutdowns. “What that tells you is that the residents are either strategically holding back or they don’t have the money to pay.”
In anticipation of this loss in revenue, Gross explained that the municipality would have two options moving forward.
“If taxes don’t come in, we can sell tax anticipation notes,” he said, explaining that these are similar to bond anticipation notes. “Basically, we can borrow the money for the shortfall to help us with cash flow. Now, that money has to be paid back by next year, so if we do not catch up on our revenues we will then have to raise that money in next year’s budget and it’ll impact the tax rate for next year.”
The second option is for the council to look at a bill recently adopted by the state assembly that would allow the township to sell coronavirus bonds or refunding bonds. According to Gross, these bonds would be used in the same way as a tax anticipation note, but that the township would have 10 years to pay it back.
“In that situation, instead of having to come up with the shortfall next year, that shortfall would be spread out over 10 years,” said Gross.
If the township does not find either of these options acceptable, Gross explained that “draconian cuts in the budget would be necessary.”
In terms of expenditures, Gross said that the township saved approximately $300,000 in personnel costs due to reductions in overtime and employees not being able to take vacation days during the pandemic. He noted, however, that these savings will likely be eaten up when regular schedules resume.
Over the next two weeks, Gross said he expects the budget discussion to become significantly clearer.
The next West Orange Township Council meeting will be held virtually on June 9 at 6:30 p.m.