Under the U.S. Bankruptcy Code, the State of New Jersey cannot file for bankruptcy, but municipalities can. Towns do need the approval of the state which in the past has made it clear it wouldn't approve such a filing by a municipality. Towns are subject to a yearly budget and audit review by the State Division of Local Government Services and the Local Finance Board requires a financial recovery plan if a municipality runs a deficit of 4% or more for two consecutive years.
Local governments are struggling as never before or at least at a level not seen since the Great Depression. The state has chronic structural budget deficits and that has led to Draconian cuts in aid to towns. Municipalities are also buried under the weight of massive contractual obligations such as public employee pension and health care costs as well as having to pay out accrued sick and vacation time to some retiring employees.
New Jersey State League of Municipalities (NJSLOM) associate counsel Edward McManimon writes in this month's League magazine that the topic of municipal bankruptcy is, "creeping into conversations more and more."
Bill Dressel, executive director of the New Jersey State League of Municipalities says, "We've seen the reductions in state aid and there's lots of demands on the local property tax dollar and decision makers at the local level……Municipalities cannot continue to provide the same level of services with less revenues coming in. Hard choices have got to be made."
McManimon writes, "There seems to be a lack of critical awareness and political will to recognize the severe financial obligations municipalities face. Few have considered the necessary and, in many instances, immediate and drastic cuts in services and costs needed in view of legal and financial limits to raising taxes and other revenues. The public seems inconsistent in demanding tax decreases but insisting at the same time that the services and programs it can't afford should, nevertheless, be maintained."
Dressel says local government officials are trying their best to figure out how to, "do less with less." Still, with all of the difficulties municipalities are facing he doesn't think municipal bankruptcy filings are in the offing citing that fact that he knows of no such filings as of yet.
"There's more tension in the municipal circles on these kinds of issues, but it has not become at this point in time a viable option for municipalities," explains Dressel. "The state in working with the municipalities are exploring all options to prevent a bankruptcy proceeding."
We are still in bankruptcy denial, and I agree that muni bankruptcy NJ is not in the cards.......................quite yet.
The comment that's hilarious: There seems to be a lack of critical awareness and political will to recognize the severe financial obligations municipalities face!
It's 99.9% political will, which is why we have bankruptcy denial.
The fact that political leaders keep looking for options, options that do not exist or are more short term solutions masking the real problem tends to confirm political will is a major issue.
Unless we get a robust economy lasting 2-4 years, something that puts America to work, there's just no way many municipalities, especially smaller towns and counties don't end up in bankruptcy.
Hope all is well.
J.D. Rosendahl, Rosey