As Mahwah’s is preparing to set a budget for 2012 that will dictate the township’s tax rate, consideration about the amount of surplus money Mahwah has is “definitely a concern,” Mahwah’s Chief Financial Officer Ken Sesholtz said. According to the CFO, the amount of surplus money the township has to operate with has been steadily decreasing for the past decade.
In 2001, Mahwah had nearly $11M in surplus funds. Last year, the township ended up about $250K shy of the $6 million mark. The decrease, Sesholtz said, is not an uncommon occurrence among area municipalities. “We are still at a good number, especially in comparison to other towns around here,” Sesholtz said. “But, I really don’t think we can dip any lower than where we are now.”
According to Sesholtz, the surplus has several important functions within the day-to-day operation of the township. “We need the surplus to pay our bills,” he explained. Mahwah uses the surplus money, then replenishes it with revenue collected throughout the year. “State aid, for example, doesn’t come through until July or August, so we use surplus money to pay bills, and then put the state aid money back in the surplus fund.”
The amount of money in a town’s surplus fund is also a determining factor in its bond rating, “which is important if we are looking to borrow money or refinance or anything like that,” he said. Mahwah currently has a AA1 bond rating, he said.
, as in past years, some surplus money has been used in the township budget to control tax increases. However, Sesholtz said this use needs to be controlled. “We need to be sure we have enough in the surplus account to operate,” he said.
Surplus money can also be used to pay for ‘emergency’ situations that require immediate funding. Last year, Mahwah used surplus money to pay for cleanup from the freak . Though that money might be replenished by FEMA and other grants and funding, the CFO says the surplus fund is what allows Mahwah to pay immediately to remediate emergency situations.
Surplus money is collected mainly from two sources. First, the township projects in its budget that a certain percentage of municipal taxes will be paid. “If we think we will collect 97 percent of taxes, but actually end up collecting 99 percent, the extra will go into the surplus account,” Sesholtz said. Similarly, if the budget over-estimates what something will cost, or underestimates how much revenue the township will take in from a particular area (like, building permits, for example), the difference goes into the surplus account.
“The general rule of thumb is that you can only use as much surplus as you can replenish during the year,” he said. That rule has not been followed since 2006, the last time the township accumulated more surplus money than it spent. Every year since then, it has taken in less srrplus than its spent.
Sesholtz said he has warned township government officials that he would not advise dipping below the current surplus levels. “[Our surplus fund] is getting low. And while we are not in bad shape now, I don’t want to get there,” he said. “We need to be proactive on this.”
The mayor’s draft of the 2012 budget is due to be delivered to the township council by the end of next week, at which point the council will schedule work sessions to amend it, and pass it by late March or early April.