An Offer Town’s Can’t Refuse

By Mayor Mike Halfacre, Fair Haven

By now, many of you have heard about the “Pension Deferral Bill”, officially known as S-7. However, many may not have an understanding of what it means. The real effect of this bill is to put off some of our fiscal problems until 2012, instead of dealing with them today.

S-7 is intended to help solve our State’s budgetary problems by allowing municipalities to forego payment of a portion of their pension (PFRS and PERS) obligation in fiscal years 2009, 2010 and 2011. Specifically, a municipality could avoid paying 50% of its obligation this year, 40% next year, and 20% the year after that.

Repayment with interest would begin in 2012. Although not set at this time, it is estimated that the interest rate would be 8.25%, although it could be higher or lower. This is like borrowing on a credit card to put food on the table. It may work for a little while, but if you are living beyond your means, it will catch up to you eventually.

You may have asked yourself, “How does allowing municipal pension deferral help the State’s budget problem?”

It doesn’t. It only helps Corzine’s re-election effort.

Allowing (or mandating, it is not clear yet) pension deferral allows Governor Corzine to avoid making any real budget decisions and instead continue to balance his budget on the backs of suburban municipalities. He can say (and has) that the fiscal mess we are in is so dire, that we must again cut state money to municipalities, as that money is needed elsewhere in his budget. But, have no fear, your property taxes won’t go up, since we are going to let you defer your pension obligation.

For example, in Fair Haven, our total Pension obligation will be approximately $340,000.00 this year. Governor Corzine can now cut our state money by up to half of that, $170,000.00, and force us to defer that amount, leaving a net zero effect on property taxes. Then, if property taxes go up, it is not his fault. His actions left a net zero loss in money to the town.

In Fair Haven, as in most fiscally responsible small towns, we are not interested in his budget gimmicks. As a fiscally responsible elected official, I have no desire to kick the can down the road to 2012, in return for nothing in 2009.

Despite our sound fiscal policies, Corzine is trying to force towns to “take advantage” of pension deferral. Towns have four options for their pension:
1) Pay their share to the Division of Pensions, as per usual;
2) Pay their share to the separate Division of Investments and let the State invest it on our behalf;
3) Invest it ourselves;
4) Not pay it at all and therefore not raise it in the tax levy.
Under the first three scenarios, since the money is being raised anyway, there would be no property tax relief.

Under the fourth scenario, the money would not be raised, and would, technically, reduce the tax levy, thereby reducing property taxes.

However, under all four scenarios, the money must be paid back to the Division of Pensions, with interest, beginning in 2012.

Why would an otherwise fiscally responsible municipality take option 4? Two Words:
Cap Relief.

Governor Corzine, with an apparently genetic predisposition to “Do as I say, not as I do” imposed a 4% property tax cap on municipalities. (The State does not have to follow this rule, which is why the State budget has grown by double digits during his Administration) (As an aside, Fair Haven does not have a “Cap Problem”)

During his “State of the State” address, the Governor went out of his way to advise municipalities that there would be no flexibility in obtaining waivers from this cap, which is a change from prior years, when cap waivers were granted routinely.
Towns with “cap problems” will then be left with no choice: they can cut services, layoff employees, engage in other drastic budget measures, or defer their pension payments.

In other words, like Vito Corleone to Johnny Fontane, Don Corzine has made an offer to towns they can’t refuse.

At the same time, Corzine backhandedly protects the jobs of his favored public employees.

No matter how dire the economy, this kind of budget management can not be tolerated.