Lawrence officials monitoring impact of financial crisis

By Lea Kahn, Staff Writer
   While the ongoing financial meltdown continues to bring pain to township residents, it may also bring pain to Lawrence Township government — only, the pain won’t be felt right away.
   That’s the word from Municipal Manager Richard Krawczun.
   ”I think the impact won’t be as immediate as it may have an effect in the mid- to long term,” Mr. Krawczun said, as he outlined a laundry list of concerns — mostly financial — facing municipal government Monday afternoon.
   One of the major concerns is the amount of state aid that Lawrence Township may receive for the 2009 budget. The township anticipates receiving $5.1 million in state aid in 2008, but a drop in state sales tax and income tax revenue could have a negative impact on the state budget and a resultant reduction in state aid to municipalities next year, he said.
   The municipal manager also is concerned about a reduction in the availability of state and federal grants. This year, the township expects to receive $592,000 in grants — many of which are small, he said, but the grants fund salaries or operating expenses that would otherwise have to be picked up by taxpayers.
   The amount of money for the Safe and Secure Communities grant had already dropped for 2008, Mr. Krawczun said. Last year, the township received $60,000 but this year, the grant amount was $51,494. The grant goes directly to police salaries, which accounts for $7.7 million in the 2008 budget.
   Economic restraints may also make it more difficult for residential and commercial property owners to pay their real estate taxes, Mr. Krawczun said. Property taxes make up 48 percent of the municipal budget revenue.
   ”One of the biggest concerns is taxpayers’ ability to pay property taxes because of the impact of the market on the finances of businesses and individuals who are dependent on income from various investments, which has been reduced,” he said.
   Mr. Krawczun said he is especially concerned about commercial property owners. If a commercial property becomes vacant and the owner is unable to re-rent it or rents it at a reduced rent, the owner may file a property tax appeal. Commercial property assessments are determined by the income approach — the amount of money generated by rents.
   Residential property owners also may have a difficult time paying their property taxes, he said. Township residents may not be able to pay for permits or licenses or registration fees for activities, which are counted as a source of budget revenue, he said.
   Another concern is the amount of money on hand to be invested in certificates of deposit and other “conservative” instruments, Mr. Krawczun said. Lower interest rates means there will be less interest income. The interest income is applied to the next year’s budget as a revenue source, he said.
   While budget concerns loom large, there are other issues confronting municipal government. One of those concerns is the township’s ability to borrow.
   When a municipality borrows money to pay for capital improvements or other bonds, the amount of interest that it pays is dependent on its credit rating. A town may receive a bond rating of AAA, but sometimes that rating is granted because it purchases insurance on the bond.
   ”Insurance provide us with a triple-A bond rating on debt, which in turn reduces the amount of interest we pay, thereby benefiting the township,” Mr. Krawczun said. “But if the rating of an insurer goes down, your (bond) rating goes down. It could pull our rating down and the cost of the insurance that we buy would go up. It could cause our interest rates that we pay on borrowed money to go up.”
   Mr. Krawczun questioned the financial market’s impact in the mid to long term on the township’s ability to get credit. Difficulty in getting credit does not necessarily mean a municipality is a credit risk — it’s just that there is no money to be loaned, he said.
   There were towns in New Jersey recently that were good credit risks and that sought bond anticipation notes, which are short-term loans until permanent financing can be put in place, he said. Those towns did not receive any bids, because there was no capital in the market to be loaned to them, he said.
   ”I think what this all means is that (the financial crisis) will have some impact on municipal finances, but it may not be felt immediately,” he said. “There are going to be other influences on the budget process which are distinctly separate from Wall Street that may further exacerbate the negative pressure on the budget.”