Stormy economy batters town budgets

In a region where a mere rumor of slippery roads can induce panic, David Brill is hoping for a mild, uneventful winter.

Brill, finance director of Tredyffrin Township, has budgeted $700,000 or so to remove snow and ice from the hilly, often-congested roads of the Main Line suburb.

He would be delighted not to spend it.

Like other town business managers throughout the region - and all over the country - Brill is confronting the economic storm that has battered bank accounts, stock portfolios and municipal budgets.

The ripple effects of a declining real estate market, tight credit, and the lower interest rates that have reduced yields on investments are likely to spell budget cuts and higher taxes for hundreds of thousands of property owners in the region in the new year.

Nationally, for the first time in at least 20 years, three major sources of municipal revenue - income taxes, sales taxes and property taxes - are down, said Christopher Hoene, director of policy and research for the National League of Cities.

It may be years before the full impact of the crisis hits town halls. "We've only begun to scratch the surface of what those implications are," says William G. Dressel, executive director of the New Jersey State League of Municipalities. "Everybody's suffering, and it's the calm

before

the storm."

However, some consequences already are apparent as business managers assemble their 2009 budgets. Schools, which operate on fiscal-year cycles, will start feeling the pinch in the spring.

In the meantime, town managers warn that their budget drafts won't be pleasant reading when they are presented to the public this month.

In Tredyffrin, one of the region's wealthier municipalities, revenue from the real estate transfer tax, one of the largest components of its $49 million budget, is tumbling. The township collected $2.97 million in 2007 and is projecting $2.25 million for this year, about a 25 percent drop.

The township collects the 1 percent levy on the sales of all properties, so the tax is a decent barometer of the real estate market - and it is falling. Brill said the township had expected some drop-off, but only about 8 percent to 10 percent.

"We're all feeling it," said Dean Dortone, chief financial officer in Lower Merion Township.

Lower Merion's transfer-tax revenue is down more than 20 percent from a year ago, he said, and other evidence of the real estate slump is pervasive.

Based on recent figures, levies collected on real estate sales are off 25 percent from last year in New Jersey and 17 percent in Pennsylvania.

In Cherry Hill, officials are warning that municipal taxes for property owners might go up 20 percent, or about $150 on average, in the new year. The municipal tax is 13 percent of the property-tax bill.

Towns all over New Jersey are feeling the aid cuts from Trenton, but Cherry Hill officials say it already is clear that the economic crisis is adding to the sting. Reduced building and permit fees and lower investment income from fallen interest rates have cost the township about $1.4 million, spokesman Dan Keashen said.

As in other municipalities, he said, Cherry Hill is scrambling for ways to lower costs. However, Keashen estimated that 80 percent of the township's costs were locked in as salaries, benefits packages, debt service and capital expenditures. The situation is similar elsewhere.

He said Cherry Hill, which has budgeted $5 million this fiscal year for debt service and operations for the $22 million library approved by a previous administration, has tried to save some money by cutting staff and having township employees pay a share of their health insurance.

Tredyffrin is pinching pennies by deferring new-vehicle purchases, with the exception of patrol cars. It's one thing to take dump trucks to the shop, said Brill, but "on the police side, you don't want to do that."

In Lower Merion, Dotrone is seeing disturbing signs that the downturn's effects won't be short-lived. Each year, he said, Lower Merion has added about 1 percent to its taxable real estate base from new construction, which translates to about $250,000 in additional property taxes. That hasn't happened in the last year. The real estate levy accounts for about 30 percent of the township's revenue of about $86 million.

Dotrone also worries that by next year the township will feel a drop-off in business-tax collections, which lag economic conditions. Lower Merion collected more than $5 million in gross-receipts taxes in 2005, the most recent year for which figures were available.

Dressel said that in the months and years ahead, other shoes are likely to drop.

"It doesn't take an economist or a wizard looking into the crystal ball to be able to see that if things don't turn around soon, things are going to get considerably worse," he said.

"We may look back and see these as the good old days."