What a municipal budget is
A municipal budget is a yearly plan for how a local government will raise and spend money. In New Jersey, most municipalities operate on a calendar year or a state fiscal year, depending on the type of government, and adopt a budget early in the year. The document lists expected revenue, planned spending by department and function, and the amount that must be raised through local property taxes.
The rules come from state law, which also limits how a municipality can raise and spend money. This article is a general explanation, not advice. Rules, rates and deadlines change, and readers should confirm current requirements with the municipality or the state Division of Local Government Services.
The main parts of a budget
A typical municipal budget has two broad sections.
- The operating budget covers day-to-day costs: salaries and benefits, police and fire, public works, utilities, insurance, debt payments and the like.
- The capital budget covers longer-lived projects such as road reconstruction, buildings and vehicles. These are often paid for by borrowing, so the cost is spread over years. It connects to the larger topic of infrastructure investment.
Revenue is shown alongside spending. Common sources include state aid, fees and licenses, fines, interest, miscellaneous local revenue, reserves from earlier years, and the local property tax levy.
How a budget is drawn up
The exact calendar depends on the form of government, but the general steps are similar.
- Departments submit requests. Department heads estimate their needs for the coming year.
- The finance office and executive compile a draft. In a strong-mayor system, the mayor often presents a proposal, while in others a business administrator or committee prepares it. The differences follow the form of government.
- The governing body introduces the budget. It is introduced at a public meeting, and a summary is typically published.
- A public hearing is held. Residents can comment before adoption.
- State review. The state reviews municipal budgets for compliance with the law, and the local finance officer certifies certain items.
- Adoption. The governing body adopts the budget by resolution. Later in the year, transfers or amendments can adjust it.
Because notices and hearings are required, the process is meant to be visible to residents. Practical tips on attending these sessions are in the guide to public meetings.
Limits on spending and taxing
New Jersey places caps on how fast many local tax levies and appropriations can grow, with exceptions for categories such as certain debt, pensions or emergencies. These limits do not mean taxes cannot rise, and they do not mean the total tax bill cannot change, since school and county portions are set separately. They do shape the way budgets are built, since officials plan around the cap and around which costs sit outside it.
Municipalities are also required to have yearly independent audits, and the results are public.
What property taxes pay for
A property tax is a tax based on the assessed value of real estate. In New Jersey, a single bill usually combines several levies:
- the municipal portion, for city services
- the school portion, for the local school district
- the county portion, for county services
- sometimes smaller special district items, such as a fire district or special improvement district
The municipal share funds things like local police, public works, trash collection, administration and debt service. The school levy supports the district, and the county portion supports the services described in the article on county government. The split varies widely between places, and in many New Jersey communities the school levy is the largest piece.
Property taxes are not the only revenue, though they are often the largest locally controlled source. Cities with large amounts of tax-exempt property, such as government buildings, hospitals, universities and nonprofits, often have a smaller taxable base, which can put pressure on budgets and make state aid more important. Debates over payments in lieu of taxes and abatements are part of this story, and views differ on their costs and benefits.
How a tax bill is calculated
The basic idea is simple. The municipality, school district and county each decide how much money they need from property taxes. That total is divided across the taxable property in the area to produce a tax rate. Each owner’s bill is the rate applied to their property’s assessed value.
A simplified example, with made-up numbers:
- Suppose a town needs to raise $10,000,000 through property taxes.
- Suppose the total assessed value of all taxable property is $1,000,000,000.
- The rate is $10,000,000 divided by $1,000,000,000, which is 0.01, or 1 percent, or $1.00 per $100 of assessed value.
- A property assessed at $200,000 would then owe $200,000 times 0.01, which is $2,000.
If the town needed more money but property values stayed the same, the rate would rise. If values grew while the amount to be raised stayed the same, the rate could fall. Real calculations are more detailed, include several levies and involve equalization and other adjustments, so this should be read only as an illustration.
Assessments and appeals
A municipal assessor values properties, and periodic revaluations aim to keep assessments in line with market values. Owners who believe their assessment is wrong can usually appeal through the county tax board within a deadline, and there are also state programs offering property tax relief to some homeowners, seniors and veterans. Eligibility and amounts change, so current details come from state and local sources.
Where to find budget information
Municipal websites typically post the adopted budget, budget summary, audit and meeting notices. The state publishes data on local finances. When a city’s finances are under severe pressure, the state may step in, a topic covered in the discussions of state oversight and municipal distress. Reading a budget alongside the annual audit gives a fuller picture than either alone.
Opinions differ about the right level of taxes and spending, and about who benefits from particular choices. A budget is best understood as a record of those choices made in public.