CITIZEN GUIDE TO THE NEWARK BUDGET

Newark anticipated raising about $590 million in revenue in 2001 (excluding state and federal funds earmarked for specific purposes like community development and lead abatement)¹. It planned to get this money from close to a hundred different sources, most of them very small--restaurant licenses, for instance. Only ten of them are significant enough by themselves to merit some discussion, and these are the ones we'll focus on.

A lot of the money Newark receives it passes through to other kinds of governments. Newark acts like a collection agency because the state gave it an important power that the other governments lack--the power to levy taxes and to take possession of real estate if those taxes aren't paid. In New Jersey, only municipalities have this power.

Newark's largest single source of revenue is the property tax, accounting for about 29 % of the money Newark collects (33 % including delinquent property taxes). The amount of property tax charged is calculated in a special way. Because this tax raises many special issues, like revaluation, we'll discuss it separately in section D.

Table 1 shows the relative sizes of Newark's various major revenue sources for 1993 and for 2001². These are the amounts of money the city thought it would collect when the budget was adopted, not the actual amounts received. This table should give you an idea of the money's sources. For 1993 we corrected for inflation, so you can see how much was anticipated in terms of 2001 purchasing power.

Table 1
Major Revenue Sources -- Anticipated Collections
(millions of 2001 dollars)
Table 1: Major Revenue Sources -- Anticipated Collections

Detail may not add to total because of rounding.

The category "Other" includes all the revenue sources that we don't discuss in this booklet. The largest source of revenue in this category is interest, but it also includes such items as licenses and permits, and payments from the Newark Housing Authority.

1. State Aid

Every year the state government gives money to municipalities to use in their general budgets (this is different from the money it gives directly to the school boards). Some of this money is the result of formulas and longstanding traditions; some of it comes from annual legislative determinations. Because the state government runs on a fiscal year from July 1 to June 30 while the city government runs on a fiscal year of January 1 to December 31, the amount of state aid is not known completely when the city budget is introduced.

The state government funds many different activities in Newark in addition to the aid it provides directly to the city government: transportation improvements, the public schools, the NJ Performing Arts Center, the universities, and possibly the arena, for instance. These funds do not show up in the city budget.

2. Port Authority lease payments

The City of Newark owns Newark International Airport and Port Newark, and leases them to the Port Authority of New York and New Jersey, which operates them. The lease began on March 22, 1948, and runs until December 31, 2031. It's been amended many times, most recently in 1984.

Under the lease, the Port Authority pays the city at least $18 million a year, but if the Port Authority's "profit" from the airport and the port is more than $18 million, it pays the city the full amount of the "profit." "Profit" is defined very carefully under the lease. Basically, it's the revenue the Port Authority gets from the airport and the port, minus an estimate of what it cost them to operate the facilities (including overhead), minus an estimate of their debt and depreciation costs on the very large investments they've made, plus 30%. The idea of the extra 30% is to make sure that there is more than sufficient coverage for Port Authority bonds.

The city's excess profit payments under the lease are very volatile because they're the difference between two big numbers. Small percentage changes in either of these big numbers cause big percentage changes in what the city gets. For example, for 2000, all the excess profit payments would have been wiped out if either revenues fell by 6% or costs rose by 7%.

Since the current lease was put in place in 1984, the city received payments of zero in 8 years, and payments of less than $10 million in 7 other years. With the changes in the airline industry following 9/11, and large construction projects being completed, the future is not likely to bring many of the large excess profit payments that the city enjoyed in 2000 and 2001. In 2002, the excess profit payments are only $17.2 million, less than half the amount in 2001.

3. Water charges

Most customers pay for water at a rate of $13.43 per thousand cubic feet. Senior citizens and large users get discounts. Newark also provides water to several outlying towns.

Water charges constitute liens against the property to which water is delivered, and so people can (and do) lose their homes for not paying water bills. Everybody who gets water has to pay a water bill, even tax-exempt and tax-abated entities.

4. Sewer charges

Sewer charges are more complex than water charges. In theory, everyone is charged based on what he puts into the sewers, but in practice only a minority of sewer users have meters. For most sewer users, the city presumes that their water use is the same as their sewer use--what goes in is what goes out--and so the sewer bill is just tacked on to the water bill. These users are charged $14.40 for sewer use for every thousand cubic feet of water they use.

Large users like factories, however, have separate meters on their sewage outflow, and are billed on their actual use of the sewer system. Their bills depend on the chemical and biological content of their sewage, too, not just on its volume.

5. Payroll tax

Newark levies a tax of 1% on the payrolls of companies located in the city. Government agencies, nonprofit organizations, and certain insurance companies are exempt. No other city in New Jersey collects a payroll tax. The payroll tax is authorized by a special section of state legislation that expires on January 1, 2004. Unless the state legislature acts to extend the authority before then, Newark won't be able to collect payroll tax after that date. The Legislature has extended the authority for this tax many times in the past, however.

Table 1 might lead you to think that actual payroll tax revenues have risen considerably in the past decade. This is somewhat misleading. Remember that table 1 presents data on anticipated revenues, not actual revenues. Actual collection of payroll tax in 2001 was considerably less than anticipated, only slightly more than $30 million.

6. Tax abatement payments

Newark has a variety of programs that exempt new construction and substantial rehabilitation from property taxes for a period of years. These are called tax abatement programs. Tax abated properties, however, are not totally off the hook. They're required to make "payments in lieu of taxes," according to various different formulas, during the time that they're exempt from regular property taxes.

Within broad rules set by state statute, tax abatements are discretionary--the city government decides which individual properties receive them, and it decides what each will pay in lieu of taxes. There's usually no judicial appeal if you don't like a decision the city makes about a tax abatement. Tax abatement terms are generally negotiated by the Deputy Mayor for economic development, and approved by the City Council. The state statutes say what kind of entities can receive tax abatements, and they set limits on how generous tax abatements can be, but they never require tax abatements or prohibit terms less generous than the maximum. State law also leaves many important technical procedures and definitions up to the city government.

Measured by payments in lieu of taxes, the two biggest categories are commercial abatements (48% of total abatement payments in 1998) and limited dividend abatements (36%). Commercial abatements go to office buildings and factories; the Blue Cross/Blue Shield building on Raymond Boulevard is the biggest active commercial abated property. Limited dividend abatements are for the large, federally subsidized housing developments that were built mainly in the 1970s and 1980s--for instance, Georgia King Village, St. Mary's Villa, 1060 Broad Street, and most of the New Community housing. The abatement programs for condominiums and owner-occupied homes are smaller, but have grown rapidly.

7. Surplus

"Surplus" means the money the city has on hand at the beginning of the budget year. This is like the balance you have in your checking account on January 1--it's something you have available to spend in the next year, in addition to whatever income you receive. That's why the city's checking account balance, or "surplus" on January 1, 2001 counted as "revenue" for 2001--its money that's available to support expenditures during that year.

8. Municipal court fines

These are primarily for traffic and parking tickets, but there are other fines, too, such as for housing code violations. Like payroll taxes, actual municipal court revenue was well below anticipated in 2001. Real actual revenue was about the same in 2001 as it was in 1993.

9. Parking lot taxes

Newark levies a 15% tax on the receipts of parking lots. While a considerable amount of these funds come from parking lots downtown, most come from the airport and the private lots surrounding it (thus in years when Port Authority is making excess profit payments, a good deal of parking lot revenue in one year is offset by lost excess profit payments the following year, since the parking lot taxes the Port Authority pays reduce its profits). Since some airport parking is in Elizabeth, parking lot revenue is somewhat sensitive to the construction and parking practices the Port Authority engages in. As with the payroll tax, the authority to collect the payroll tax will expire on January 1, 2004 unless the state legislature extends it.

B. HOW THE CITY SPENDS MONEY

Of the $590 million in revenue the city anticipated collecting in 2001, $163 million had to go directly to other major government agencies (whether the full $590 million was actually collected or not); the city was just a collection agency for these funds. (These other agencies are discussed in section D.) The remaining $427 million was paid for running the city government, including the water and sewer utilities. This amount was budgeted for running city government, but a budget is a plan, and it wasn't all spent. The difference between the amount the city plans to spend and what it actually spends in any year is one source of the next year's surplus.

Table 2 compares the major types of planned city operating budget expenditures in 2001 and 1993, once again correcting for inflation. The expenditure side of the budget is more an administrative tool than an analysis of benefits, and so categories of spending are lumped together by who is authorized to spend funds, not what purpose they serve. Thus, for instance, the fringe benefits of police officers are not included in the police budget, fuel to heat recreation centers is not part of the recreation budget, and repairs to fire trucks are not part of the fire department budget.

Table 2
Major Newark Operating Expenditures -- Budgeted Amounts
(millions of 2001 dollars)
Table 2: Major Newark Operating Expenditures--Budgeted Amounts

*Net of pensions, debt service, and payments to the general fund.

"Other" includes a multitude of smaller purposes: health and inspections, recreation, employee fringe benefits, maintenance of city facilities, legal and financial services, sewers, and general administration, for example.

One convenient way to divide up the city government is, roughly, between those departments that serve the public directly, and those that help those departments do their job. The major agencies that serve the public directly are police, fire, water, sewer, traffic and signals, sanitation, recreation, parks and grounds, health, welfare, and the regulatory agencies--code enforcement and inspections, municipal courts, zoning and planning, rent control, alcoholic beverage control. The major agencies that primarily serve other parts of city government are law, motors, budget, public buildings, city clerk, and most of the finance department. Finally, there are the elected officials--the mayor and council. This breakout isn't perfect--some people in the City Clerk's office, for instance, issue marriage licenses, and the Internal Affairs Bureau of the Police Department deals primarily with police officers rather than the public--but the division between "line" and "staff" is reasonably helpful.

In this section we'll discuss the four largest line agencies and three other areas of expenditure--pensions, debt, and the compensation of elected officials. These last three are relatively small amounts in most budget years, but they have broader implications for the operation of city government: the first two, because they link budgets across time and affect future generations; the third, because it has symbolic value and because only citizens can monitor it .

Relative to the governments of most large U.S. cities (New York City especially), Newark has very little responsibility. Education, all the way from pre-kindergarten to Ph.D., is currently a state responsibility (although it is possible that in the near future some control over primary and secondary education will be returned to a local body separate from city government). The county operates the major parks and major welfare and homeless assistance programs; it also maintains many of the major roads. The state runs the public hospital and takes the lead in public health. Independent agencies treat Newark's sewage, incinerate its garbage, and supply a portion of its water. Even in law enforcement the city's role is circumscribed. Newark relies heavily on the county jail for prisoners. The county prosecutor's office handles many types of investigation and the county sheriff's office has its own narcotics and bomb units. The Port Authority, the colleges and universities, the county, New Jersey Transit, and New Community Corporation all operate sizeable police forces within city boundaries.

1. Police

The Newark Police Department has grown considerably in the last decade. Counting the number of police officers at any moment is difficult because some are always on various kinds of administrative, disability, and retirement leaves, and the exact number is always changing rapidly. On April 1, 2001, the NPD had 218 superior officers (deputy chiefs, captains, lieutenants, and sergeants) and 1044 police officers on the payroll, but because of leaves, suspensions, long-term sick leaves, and so on, only 208 superiors and 977 officers were available for duty.

The largest numbers of officers--about 750--are assigned to the Patrol Division. These are the officers who work in the four districts--North, East, West, and South--that cover the city. These districts have the same names as some of the wards but the boundaries of the police districts are different from the boundaries of the wards. Aside from the Patrol Division, there are many central units like detectives, communications, motorcycles, and internal affairs.

With days off, vacation, and sick days, Newark police officers work about 1700 hours a year. Since a year has 8760 hours, it takes about 10 officers to keep a single patrol car going for a year (a patrol car has two officers and so 2 x 8760 = 17,520 hours of police time are needed to operate it for a year; since one officer contributes only 1700 hours, 10 are required).

2. Fire

The Newark Fire Department has about 730 employees, 485 of them firefighters and 137 of them fire captains. The Firefighting Division is stationed in the firehouses, where some firefighters work in ladder companies (they drive the long fire trucks and concentrate on rescuing people from burning buildings) and some in engine companies (they drive the shorter fire trucks and concentrate on suppressing fires). Each company has a captain. The central squads include fire prevention, community relations, investigation (arson), the fireboat, and fire signal systems.

3. Water utility

About 180 people work for the water utility. Over three-fourths of them are concerned with water supply, the rest with billing. Most of Newark's water comes from the Pequannock watershed, a 64-square-mile expanse of Passaic and Sussex counties owned by the city (the city itself, by comparison, is only 24 square miles). Newark also gets water from the Wanaque reservoir, run by the North Jersey District Water Supply Commission (NJDWSC). It pays the NJDWSC about $11 million a year. Newark supplies water to several suburban towns--about a fifth of the water that Newark gets from the Pequannock and the Wanaque goes to these towns. Around 70% of water used inside Newark itself is for industrial purposes--mostly for those who use over a half-million cubic feet a quarter.

The current drought makes clear how crucial the water supply is for the well-being of Newark citizens. The watershed is also Newark's most valuable asset--at prevailing land prices in North Jersey, developers would probably be willing to pay between $5 and $10 billion for it. Citizens should therefore watch with a great deal of interest any bill or legislation that involves the Water Authority such as the bill currently pending in the Legislature (S533-A1902) that would allow the city to lease the water system (and the sewer system) to a nonprofit corporation for a 40-year term.

4. Sanitation

The Sanitation Division has two chief responsibilities: disposing of residents' solid waste, and cleaning the streets. It employs 277 workers, and also has several major contracts: for disposal of solid waste ($7.1 million in 2001), for basic removal service and street sweeping for a major portion of the city ($1.9 million), for recycling, and for snow-plowing ($650,000 with an added $260,000 for materials). Newark doesn't pick up refuse from businesses, just residences. Snow-plowing is an example of a line item where the anticipated expenditure in the budget doesn't mean much--if snowfall is light, the city will spend a lot less than the amount budgeted; if snowfall is heavy, the city will plow the streets anyway and overspend this line. In addition to the regular employees, this year the Sanitation Division hired 200 additional "seasonal" workers to work from January to June. This sort of hiring is an extremely rare occurrence.

5. Pensions

Most current city employees are eligible for defined-benefit pensions from one of two pension funds operated by the state. Police and firefighters are in the Police and Fire Retirement System (PFRS), where the basic pension is half pay after 20 years' service. Most other permanent city employees are in the Public Employees Retirement System (PERS) where the basic pension is 5/12 pay after 25 years' service.

Both pension systems are supposed to be "fully funded" meaning that the city and employees pay in enough while the employee is still working that the fund has enough money to cover his or her pension, without any help from future members or future taxpayers. In a fully funded pension system, on the day you retire there is enough money sitting in the pension fund to cover all your expected payments. PFRS members contribute 8.5% of their salaries and PERS members contribute 5%. This is not enough to keep the system fully funded, and so for the rest of the money, the state sends the city a bill every year. Since the early 1990s the city has been contributing very little to these funds because the state decided that because of the stock market boom, very little money was needed to keep these pensions fully funded. This windfall is not likely to continue much longer. To give you some idea of the size of the windfall, if the city were contributing to PFRS the same proportion of police and fire salaries that it contributed in 1988, pensions would cost the city an additional $20 million a year, approximately.

Also included in the pension line is the money the city provides for several old pension funds that were not fully funded, and which collapsed. These pension funds have very few assets, and very few, if any, active members, but they still have many retired members--people who worked for the city a long time ago. Their pensions are paid by current taxpayers.

6. Debt service and the capital budget

The city government borrows money for many different purposes: to pave streets and buy fire trucks, build police precincts and water filtration plants, replace sewers and spark economic development projects. Borrowing is done by selling bonds.

The money the city borrows and spends on long-lasting projects like these doesn't show up in the city budget. When you get a car loan and buy a car with it, you don't consider it as part of your income. For the city, these projects show up in a different document, the capital budget, where the city plans the projects for which it intends to borrow money over the next several years.

The capital budget is linked to the regular budget (properly called the "operating budget") through the repayment of the money borrowed. The operating budget pays off the bonds that were sold under the capital budget. Once again, this is just like your car loan: its impact on your personal budget comes from the monthly payments you have to make. (The city operating budget is also responsible for a small amount of old school debt.)

7. Compensation of elected officials

Direct compensation of elected officials accounts for a tiny fraction of the city budget--less than a million dollars out of several hundred million. But it has symbolic importance, and voters are entitled to know what rewards those who are seeking their votes will receive. Even in the private sector, publicly held corporations are required to disclose top management's compensation.

The pay checks that elected officials get depend on three amounts: their basic salaries set by ordinance, a payment in lieu of expenses, and longevity payments. For 2001, the basic ordinance salary of the mayor was $142,089; the basic salary of a council member was $64,766, with the council president getting 10% more.

Putting all three sources together, compensation for elected officials are somewhat unusual for a city of Newark's size. Of major U.S. cities, only Chicago and New York paid their mayors more in 2001.

The position of council member is "full time as required," and several council members hold jobs in addition to their council position. The position of mayor is full time, although the mayor may hold an additional part time position. Currently, the mayor also serves as state senator.

C. CITY CONTRIBUTIONS TO GOV'T AGENCIES

The major government agencies for which Newark city government collects money are the Newark school board, Essex County, the two sewerage commissions, and the Newark Public Library. (The city also provides the Newark Museum with about $5 million a year.) As table 3 shows, the money going to these entities declined considerably in real terms since 1993. Except for the library, Newark doesn't supply the majority of funds for any of these organizations.

Table 3
Major Contributions to Other Government Agencies
(Millions of 2001 dollars)

1. Newark School Board

The school board's budget is considerably larger than Newark city government's--about $629 million in school year 2000-2001. The school board employs about 7500 people. Almost all of this money comes from the state government. The share contributed by Newark taxpayers is less than 13%. (Federal grants account for about 6%.)

Funding for the Newark school board is driven by the state Supreme Court's Abbott v. Burke decision. This decision capped the city's contribution to the school board at approximately its 1991 level of $81 million a year. (Adjusted for inflation this shows up as $97 million in 2001 dollars in table 4.) The state was ordered to make sure that the Newark schools provided "thorough and efficient education," but wasn't allowed to use any additional local resources to do this. (The budget shows the city contribution to the school board varying by a few million from year to year because a few small forms of state aid to the schools are occasionally channeled through the city budget.)

In keeping with this mandate, the state contributes two different kinds of funds to the Newark schools. The most important is called "parity aid." This is for the basic operations of the schools that all pupils experience--regular classroom teachers, principals, janitors, maintenance, and so on. To calculate parity aid, the state finds the average per pupil expenditure for regular education (excluding, for instance, special education) in the 120 richest districts in the state. It multiplies this average by the number of pupils in Newark schools (around 42,000 recently), to get the amount Newark needs for regular education. To make sure the Newark school board has this amount, it subtracts the city's $81 million contribution. What's left is the amount of parity aid the state gives the Newark school board.

In addition to parity aid, the state provides operating budget money for a variety of distinct purposes: special education, early childhood education, bilingual education, and so on. These amounts are determined by specific formulas, and don't involve any city contribution.

Two major means of state assistance don't appear on the school board's operating budget at all. Teachers' pension and social security contributions are part of the state budget. The funding for new and rehabilitated schools will come from a state Economic Development Authority bond issue. This capital funding will amount to well over a billion dollars.

Notice that with these formulas, what happens in the schools financially is pretty much independent from what happens in the rest of the city. For instance, new housing with more kids doesn't raise the city's school costs, or cut per pupil expenditures; it just increases state aid. Whether a new office building is built or not built, abated or not abated, has no effect on either what school board can spend or what the city government pays.

If the city were to contribute less than $81 million to the school board, it would be sued and would probably lose. If it were to contribute more, parity state aid would be reduced dollar-for-dollar.

2. Essex County

Essex County is comprised of Newark and 21 other municipalities to the west and the north. County government, like city government, relies on property taxes for a large portion of its revenue, but lacks the power to collect property taxes. Instead, it asks municipal governments to collect from their taxpayers the amount the county would have collected if it could collect property taxes, and to pass it on. Estimating what the county would have collected in a particular town is a complicated process of reconciling the municipalities' differing tax assessments. We discuss this more fully in our Essex County booklet. Newark collects about 15% of the county's property tax.

Probably the major issue concerning Newark's contribution to the county government is the proposed secession of Millburn from Essex County. Millburn voters overwhelming approved the principle of secession in a referendum last November. If Millburn were to secede, Newark's share of county government expenses would rise from 15% to 17%--an additional $4 million, less 17% of whatever reduction in the cost of running the county that Millburn secession would cause.

3. Sewerage commissions

The Passaic Valley Sewerage Commissioners (PVSC) and the Joint Meeting of Essex and Union Counties (JMEUC) treat Newark's sewage. PVSC does over 90% of the work; the JMEUC handles only those sections of western Newark that drain to the Elizabeth and Rahway Rivers. Newark pays 26% of the cost of running the PVSC, 6% of the JMEUC. PVSC bills Newark based on the volume and content of the sewage that reaches its plant from Newark. By volume, about half of Newark's sewage is "inflow and infiltration"--storm water runoff and groundwater seepage. Remember that Newark's sewers are "combined"--the pipes carry everything together. Since Newark covers the PVSC and JMEUC bills through sewer charges, households and industries in Newark pay in sewer charges for both the use they make of the sewers (household and industrial sewage), and the use they don't make (inflow and infiltration). The JMEUC, on the other hand, bills towns on the number of "equivalent houses" it serves; Newark's share has been falling since 1995.

4. Newark Public Library

The Newark Public Library maintains a main library on Washington Street and ten branch libraries (Branch Brook, Clinton, First Avenue, Madison, North End, Roseville, Springfield, Vailsburg, Van Buren, and Weequahic). It employs about 190 workers, and spends about a million dollars a year on new materials. In addition to the city funds, the library gets between $1 and $2 million in grants from the state and federal governments, as well as variety of foundations and individual philanthropists.

D. THE BOTTOM LINE AND THE PROPERTY TAX

By state law, Newark's budget must balance: anticipated expenditures have to equal anticipated revenues. To make two sums of disparate elements come out the same, you need some item you can adjust. Traditionally, the property tax has been the item that gets adjusted to make revenues equal expenditures.

Thus, each year's property tax rate is set so that anticipated total revenues equal anticipated total expenditures. You add up all the expenditures to operate city government and to pass through to other governments, subtract what you expect from other revenue sources, and you get the amount of property tax that has to be collected. In 2001, this amount was $172 million: city operating costs ($427 million, table 2), plus contributions to other governments ($163 million, table 3), minus non-property-tax revenue ($418 million, table 1).

Knowing the amount to be collected isn't the end of the line. Next you have to figure out how much to bill for--the property tax levy. This is a different and bigger number because everything that gets billed doesn't get paid--only about 85%, plus or minus a few percent, in Newark's case. Thus in 2001, to anticipate collecting $172 million, the city had to send out bills for $202 billion.

The property tax levy is then turned into the property tax rate by dividing it into the total assessed value of (taxable) real property in Newark--$810 million--to a year 2001 tax rate of $24.95 per $100 of assessed value. Then individual tax bills are generated by multiplying individual assessments by the tax rate. So if your house was assessed at $10,000 in 2000, your property tax bill was $10,000 x $24.95/$100 = $2495.

This procedure guarantees two things. It makes the individual tax bills add up to the property tax levy, and it makes tax bills proportional to assessments. If my house's assessment is twice your house's assessment, my tax bill is twice your tax bill. The procedure produces feasibility--it makes the budget balance--and a particular kind of "fairness," if assessments are fair.

1. Assessments, tax appeals, and revaluation

Assessments, both individually and in the aggregate, thus determine how the property tax burden is distributed. Under state law, assessments are supposed to equal market value. Because Newark's assessments have not been updated in over 40 years, they don't reflect market value.

The state has set up two mechanisms to keep people from getting taxed more than their proportionate share of the market value of a city--tax appeals and revaluations.

A tax appeal lets an individual taxpayer who thinks her assessment is unfair ask to have it reduced. "Unfair" in this context doesn't mean inaccurate, because the distribution of taxes would still be fair if every property were assessed at twice its market value or if every property were assessed at half its value. Instead, "unfair" means that the assessment is so high that it makes the taxpayer's share of taxes significantly higher than her share of the true market value of the whole city. If a taxpayer can persuade either the County Board of Taxation or the state Tax Court that her assessment is too high in this sense, then her assessment will have to be reduced and in some cases, some of the taxes she paid will be refunded.

Tax appeals are the major reason why the assessed value of taxable real property in Newark fell from $1,014 million in 1990 to $810 million in 2001 and $797 million in 2002. Successful appeals always cause assessments to go down, not up. (City and state acquisition of property for a number of projects has also reduced the tax base.) Major property owners file tax appeals quite frequently to make sure they don't pay more than they must.

The other mechanism the state has established to keep assessments in line is called revaluation. In a revaluation, all the old assessments are wiped off the books, and a company is hired to figure out from scratch what every property is worth. Their estimates of market value become the new assessments (if they withstand appeal by property owners).

Newark is undergoing a revaluation now. It's a big job (costing a little over $6 million under a contract that the state has with a private revaluation firm), and won't be finished for a while. Then there will be legal and political fights. It's possible, also, that revaluation will be "phased in" over several years, but the way the "phase-in" law is written, this process would be extremely messy, with many counterintuitive consequences.

Revaluation will shift the property tax burden around; it won't increase it or decrease it. Your assessment will go up, but so will everyone else's, and so the property tax rate will come down. Revaluation will raise your taxes if your assessment goes up more than average, in percentage terms; otherwise it will cut your taxes.

Here's a very rough rule of thumb to guess whether you'll win or lose from revaluation. Think about what you could get for your house on the market--your best guess. Then take your 2001 annual property tax bill and multiply it by 30. If this product is a lot less than the market value of your house, revaluation will probably drive your taxes up. If this product is a lot more than the market value of your house, revaluation will cut your taxes. If the product is close to the market value of your house (within 20-30%), then it's hard to say whether your taxes will go up or down, but the change is likely to be small, whatever it is (although the current phase-in law will probably hurt you).

2. Tax-exempt property

A significant volume of property in Newark is tax-exempt. The airport and Port Newark cover one-third of Newark's land area. The state government has many important institutions in Newark: the universities, the train stations and railroad lines, Northern State Prison, the Turnpike, Parkway and numbered highways, the Performing Arts Center. The city and county governments own public buildings, jails, a baseball stadium, roads, schools and parks; all of them are tax-exempt. The PVSC plant on Doremus Avenue takes up hundreds of acres, and the Newark Housing Authority controls almost 10,000 apartments. There are several major cemeteries, hundreds of churches, a number of nonprofit organizations, and a major private university.

No one knows the market value of tax-exempt property in Newark. Many tax-exempt properties such as Branch Brook Park bring great benefits to the citizens of Newark. The state and the Port Authority control other properties, which contribute considerable sums to the city government and the school board.

On the other hand, the losses that other taxpayers incur when the stock of tax-exempt property is expanded need to be considered in the debate over other possibly worthwhile projects. The major projects of the 1990s--the PAC, the baseball stadium, the county jail--all took valuable taxable land and made it tax-exempt. Several of the big projects under discussion for the next decade--the arena, new schools, and new parks--would do the same.

3. Tax-abated property

Tax-abated properties are technically tax-exempt, but they make payments-in-lieu-of-taxes. When their abatements end, properties generally see their taxes double or triple, and so the property tax rate would probably fall 10-20% in the absence of abatements, if the same buildings had been built. Proponents of abatement would argue that less would have been built in the absence of abatements. Opponents would question the magnitude and point out that taxes have incentive effects on taxable properties, too, and that fewer of them would have been abandoned and some of them would have been more valuable in the absence of abatements.

E. EXPECTATIONS AND REALITY

F. TIMETABLE, PROCEDURES, AND CITIZEN PARTICIPATION

State law sets out a strict timetable for cities to adopt their budgets, and requires that citizens have ample opportunity to learn about the budget and comment on it. This is the timetable:

By January 15 Mayor submits proposed budget to Council.

No later than February 10 Council passes resolution "introducing" the budget after receipt of financial statements for the previous year. Introduction means the budget is available for public consideration and comment.

At least 10 days after Budget is advertised in Star-Ledger, printed almost in full, and budget hearing is held, where citizens can speak about the budget. Council either adopts the budget or amends it. If it's amended in a major way, the amendments must be advertised and another hearing held before a final vote.

March 20 Statutory deadline for final adoption.

The council can't adopt a budget until the state's Division of Local Government Services approves it. The Division of Local Government Services would reject a budget if it included wildly optimistic revenue projections--since once a budget is adopted the city is going to be spending against those projections, whether they happen or not--or if it didn't add up. Council staff is usually in close contact with Local Government Services during this process.

The statutory timetable has two serious problems. The first problem is that even if it's followed, the budget won't be adopted until the year it covers is almost a quarter over. If major adjustments like layoffs have to occur, they either happen so early that citizens have no chance to see why they're happening, or so late that they must be very drastic.

The second problem is that the timetable is almost never followed. The state can grant extensions. Final adoption is usually in September or October. This causes cash flow problems for the city and for taxpayers, because state law on property tax procedures presumes that a budget has been adopted before the third quarter property tax bills are mailed on August 1. More seriously, adopting a budget when the year is almost over is more like receiving a report than deciding on a plan. It makes any serious legislative or citizen involvement impossible.

Another problem with late adoption of the budget is that it allows the city to operate for a long time without ever facing up to the question of whether the revenues it has been anticipating to fund its operation are realistic. On January 1, the city starts operating as if the mayor's proposed budget had been approved. If that budget contains revenue projections so unrealistic that Local Government Services disallows them, well over half a year can pass before the city has to come to terms with the fact that it has been spending too much. At that point, serious financial problems can be inevitable.

G. RECOMMENDATIONS TO SIMPLIFY THE BUDGET PROCESS FOR CITIZENS

How could it be done better? Several different reforms might improve the timeliness of budget adoption and to provide more meaningful opportunities for citizen involvement:

1. Eliminate duplicated information. The simplest and least drastic change would be to revise the format used for the budgets the public sees. This format is prescribed by the state, and is usually referred to as the "Trenton budget." The Trenton budget is what appears in the newspaper advertisement, and what you will get if you ask for a copy of the budget.

Several defects make the Trenton budget confusing to the general public. One problem is the emphasis on the "CAPS" law. This is a requirement, inspired by the passage of proposition 13 in California in 1978 that restricts the rate at which certain types of appropriations can increase from year to year. The CAPS law almost never makes any difference, because sophisticated budget-makers know how to shift appropriations from one category to another. Nevertheless, the CAPS law provides the framework that governs the listing of appropriations in the Trenton budget, so that categories of expenditure are grouped by whether or not they are covered by the CAPS, not whether or not the serve the same purpose. Making the calculation that the CAPS law requires a separate part of the Trenton budget format would make the budget easier for the public to understand.

The way the Trenton budget reflects the state and federal grants also makes it hard to understand. Every grant is reflected twice -- once as a "special item of revenue offset by appropriations," and once as a "special appropriation offset by revenue." Thus a large part of the Trenton budget is consumed by two long, identical lists of the same grants -- which make no difference at all to the real questions of budget making. The public has a right to know about grants, but listing them twice in a document primarily devoted to other questions is not the best way of informing the public. A separate listing at the end of the budget would do just as well, and remove a lot of the confusion.

2. Post the budget on a website. Another easy change to the budget process would be to require the budget to be posted on a website, both when it is introduced and when it is adopted. Websites are, after all, the modern way of giving notice. Aside from allowing a wider spectrum of the population to study the budget at their leisure, an electronic format also allows a much more useful presentation of the information in the budget. Consider, for instance, the problem of what level of detail to provide. In a paper format, this problem has no good solution -- if you provide too much detail, the document will be so big and forbidding that no one will read it or understand it; if you provide too little, no one will learn anything even if she reads it. The web can go a long way to resolving this dilemma. The site, for instance, can start with a listing at a high level of aggregation -- only department totals, for instance. But each department on this listing can be linked to a page with a lot more detail about that specific department. The website can also provide the CAPS calculation for those who want to see it, but let those who don't want to see it ignore it.

3. Anticipate state aid. Another improvement would be to anticipate state aid the same way most other revenues are anticipated, and let the surplus adjust for the inevitable differences between anticipations and realities. This would remove one important excuse for budget delays. Similarly, cities could anticipate the amount of money they would have to pay the county -- just like they anticipate other types of bills -- and adopt their budgets before the exact amount is known.

4. Adopt multi-year projections. Much more fundamental would be the adoption of multi-year budget projections, so that citizens could see the long-term implications of various decisions, not just the immediate. The federal government and many large private enterprises budget this way.

5. Change the city fiscal year to coincide with the state fiscal year. A final possibility is to change Newark's fiscal year so that it coincided with the state fiscal year, which starts on July 1. The advantage is that with this fiscal year, the city would know state aid and the county appropriation precisely when the budget was introduced, and would not have to wait until its fiscal year was almost over before adopting its budget. All three of the other large cities in New Jersey -- Jersey City, Paterson, and Elizabeth -- operate on a state fiscal year, and they adopt their budgets considerably more quickly than Newark does. This last year, for instance, Elizabeth adopted its budget two months into its fiscal year, and Jersey City adopted its budget four months in -- despite the interruptions caused by the events of 9/11. As of this writing, more than four months have gone by in Newark's fiscal year, and the budget has not even been introduced.

Many other more sophisticated approaches to budgeting are also possible now because of advances in information processing technology in the last few decades -- ideas like reporting on forgone revenues (from tax abatements, for instance), off-budget items and activities, and personnel utilization, for instance. Having a bare-bones budget that actually gets adopted in a reasonably timely manner is only a first step.