Tiger Team : The Financial Advisory Committee has serious concerns that Ridgewood is on an unsustainable fiscal path

money may no longer grow on tress for the Village

Tiger Team : The Financial Advisory Committee has serious concerns that Ridgewood is on an unsustainable fiscal path

The Financial Advisory Committee has serious concerns that Ridgewood is on an unsustainable fiscal path. The EAC report from 1991 provides some historical perspective.In 1980, the portion of Ridgewood property taxes related to the Village budget was $5,526,000. In 2011, 31 years later, it was $32,065,472…more than a 480% increase or a compound annual growth rate of over 5.8%.Similarly, the Village budget grew over 410% from $8,707,000 to $44,484,000 during the same period.Importantly, taxes have grown at a significantly faster rate than the budget. In 1991, the EAC observed that both of these figures had increased over the previous decade much faster than the rate of inflation. The same is true from 2001 through 2011. The EAC noted that the second most important driver of the budget and property tax increases was Debt Service (due to a large amount of variable rate debt at high rates in the 1980s) andthe “largest single budgetary growth item has been Salaries, Wages & Benefits”, adding that this item

“represented 46.6%” of the total Village expenditure growth in 10 years. To this point they went on to say “There may have been a time, a decade ago or more (1960s -1970s), when municipal employees were paid less than comparable workers in the private sector…In those days, we presume many municipal employees accepted modest pay for job security. The intervening decade of the 1980s has seen the closing of the private vs. public wage gap. A continuation of a mentality thatsupports ‘catch up’ employee compensation and benefit type agreements is no longer reasonable or warranted.”

The EAC made several recommendations including, the necessity of “thorough re-evaluation of existing salary step scales” and a “thorough re-evaluation of existing benefit packages.” Their opinion was that Village labor costs are the single most important fiscal responsibility of the Village Council, and the development of a long-range labor relations and compensation strategy was needed. Interestingly, they observed that collective bargaining agreements were being negotiated against more skilled professional union negotiators, “without clear, comprehensive objectives and a long – range strategy—that is, the Village’s approach was ‘ad hoc’ in character.” Although these observations were made 21 years ago, they are the same observations that our committee is making today , with regard to employee compensation and benefits.

As the previous chart illustrates, the total compound annual growth rate of Village property taxes over the past ten years (2001–2011) was over 4.8%. The portion of this related to the Village budget grew at a compound annual rate of over 5.6%, almost unchanged from the rate over the past three decades.If we do nothing to alter the course of the Village ’s finances, the average property tax bill in Ridgewood is on track to increase over 60% from $15,606 to $25,035 in the next 9 years, based on the growth rate since 2001.

The committee believes that the overall efficiency and effectiveness of the Village can and must be improved and that Village management must make this and the reduction of municipal expenditures its primary objectives, with the ultimate goal of stabilizing property taxes and reducing them over time. What our committee fou nd was startling. The Village Council must implement bold structural policies that dramatically improve fiscal awareness, transparency, accountability and sustainability on a permanent basis across all departments throughout the Village. As the EAC also concluded, over many years Village management has made overly generous promises on compensation, pensions and healthcare.Taxpayers have tolerated these promises
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This appears to have fostered a belief among many Village employees ,some in Village management and union leadership that Ridgewood taxpayers will always pay the resulting tax increases. In 2010, the Village was forced to implement emergency lay offs to address financial shortfalls, affecting 10% of its workforce. In our meetings with Village management, it was noted that contractual union policies led to the dismissal of some of the Village’s most
productive young employees and retention of many senior employees , who werehighly compensated
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Without significant annual property tax increases, Ridgewood cannot meet its future liabilities and will likely be forced to enact further lay-offs, despite its pledges to the contrary . Under the status quo, we believe that it will be impossible to avoid a reduction in the Village service we enjoy today. In recent years, the Ridgewood News has documented the beginnings of the erosion in our quality of life on several occasions.The Village’s multi-year collective bargaining agreements drive growth in expenditures on wages, pensions and healthcare far in excess of the 2% annual property tax cap enacted in 2010. In fact, pension & healthcare benefits for Village workers are exempt from the 2% cap. Property taxes related to the Village
budget have actually risen by a compound annual rate of more than 5.6% a year since 2001. The following chart details the primary budget categories. Ridgewood’s top three municipal budget expenses- Public Safety, Insurance (Health, Workman’s Comp & Other) and Pension & Social Security have increased at a compound annual rate of 6.0% since 2001. This compares with overall Village budget growth of 4.0%, and an annualized inflation rate (CPI) of only 2.47%. In the 2011 adopted budget, these three costs were $22,586,882 constituting 50.8% of total Village expenditures.

The previous chart clearly shows most of the growth coming from Pension & Social Security and Insurance.These two budget categories have combined to grow at an astounding compound annual rate of 10.8% since 2001. Further, 10 years ago, Pension & Social Security ranked as the 8th larges t budget category at only 3% of the total budget. In just 10 years, it has exploded by 441%(over 5X) to become the 3rd largest category at 11%. At the projected pace, Pension & Social Security will become the 2nd largest budget category in 2013 and will surpass Public Safety by almost 12% to become the largest budget item in 2018, at over $16,000,000 . The growth of Pension & Social Security is a function of many variables, including the number of employees, the current compensation structures, the number of retirees, the ability of the pension system to achieve its investment return objectives, the percentage of salary granted in pension benefits and the pensionable portion of compensation, to name a few. However, the ability of the Village Council to control this growth is extremely limited and is most effectively addressed through changes to the employee compensation structure, limiting pensionable compensation and developing a long-term staffing strategy.

The current size and growth rate of the top three categories require that all three be addressed in a coordinated manner. If these three items continue to grow at their current rate (Insurance at 99% and Pension & Social Security at 441%) , the required funding for them will grow to $54,319,000 in 10 years (see chart below), which would require massive tax increases over the adopted 2011 Village budget. In fact, Pension & Social Security costs are on pace to be almost $26.9MM by 2021, which is equivalent to over 60% of the 2011 budget. These three items together are projected to be 122% of the entire 2011 budget by 2021.

In simple terms, by 2021, future Village Councils and Village Managers will have less flexibility for discretionary spending. From a property taxpayer’s perspective, the annual increases in our property taxes will not go to improve the quality of life and services for residents. Instead they will be required to fund mandated salary and benefit obligations.

Village employees are not to blame for the generous agreements between Village management and union negotiators. However, since the global financial crisis in 2008, few private sector employees have seen rising salaries. In fact, many Village residents have experienced decreasing incomes, or worse, have lost their jobs and/or homes. We have reached a critical juncture. If we don’t make significant changes to the terms in uture collective bargaining agreements, our property taxes will continue to spiral beyond residents’ ability to afford them, with no improvement in our financial condition or Village services.

A significant number of Village employees are nearing retirement age in the next two years. Several collective bargaining agreements are a lso expiring through 2014/15. The path forward is clear. Taxpayers must insist on union concessions in future collective bargaining agreements. Hard choices are required and the Village Council must have the political will to make them.

Report of the Finance Advisory Committee
https://mods.ridgewoodnj.net/pdf/manager/2013FinancialAdvisoryReportFINAL.pdf