Municipal Finance Administration
MUNICIPAL FINANCE ADMINISTRATION
Introduction
Municipal Finance Administration is the first of eight required courses in New Jersey for the Certified Municipal Finance Officer (CMFO) designation.
A ninth course, Introduction to Accounting, was added to improve student performance lacking necessary skills.
Course materials have evolved since the initial offering in 1950, leading to multiple revisions to ensure accuracy.
A committee was formed, including representatives from key organizations like the Division of Local Government Services, the Municipal Finance Officers Association of New Jersey, and the Rutgers University Department of Government Services, to redesign the course manual.
The original text was written by Robert L. Benecke and revised by other experts over the years, with significant revisions in 2008, 2017, and 2020.
Users are advised to stay updated with changes in laws and regulations, as information presented is accurate as of September 2016 but may become obsolete due to legal obligations and practical changes.
Table of Contents
Introduction to Local Government in New Jersey
Overview of local government structure and finance
Key laws and sources of municipal finance information
The State's Role in Supervision and Assistance
Overview of state agencies and their functions
Municipal Budgeting
The budgeting process, techniques, and laws governing municipal budgeting
Local Government Bonding for Capital Needs
Procedures for authorizing debt and types of bonds
Treasury Management
Cash flow, management of idle funds, and general treasury practices
Public Purchasing and Procurement
Procurement laws, processes, and ethical standards
Financial Accounting, Reporting, and Auditing
Principles of accounting and requirements for financial reporting
School Finance
Structure of local school districts and financing regulations
Financial Administration of Self-Liquidating Municipalities, Utilities, Special Districts, and Public Authorities
Overview of municipal utilities and their finances
Local Government Ethics Law
Overview of ethical standards and financial disclosure requirements for local officials
Appendices
Additional resources on municipal finance administration and compliance
Chapter 1: Introduction to Local Government in New Jersey
Overview
Purpose: Provide essential public services that affect citizens' daily lives (e.g., police, education, zoning).
Five types of local government in NJ: counties, municipalities, school districts, local authorities, and special districts.
No inherent authority for local governments without state law; local authorities must be approved by the Local Finance Board.
County Government
Historical Context: First established counties in 1776; current structure classes counties by geographic location and population density.
Classes of Counties:
Class 1: >550,000 population with >3,000 persons per sq. mile (e.g., Bergen County).
Class 2: Pop. between 200,000 and 550,000
Class 3: Pop. between 50,000 and 200,000
Class 4: Pop. less than 50,000
Class 5: Pop. over 125,000 bordering the Atlantic Ocean
Class 6: Pop. up to 125,000 bordering Atlantic Ocean
Structure: Government traditionally managed by a Board of Chosen Freeholders. Optional County Charter Law allows different forms of governance.
Municipal Government
New Jersey's 565 municipalities derived from colonial organizations; categorized into cities, towns, townships, boroughs, and villages.
Optional Municipal Charter Law provides flexibility for municipalities to change governance through referendums (e.g., Mayor-Council or Manager forms).
No financial authority or structural differences across types of municipalities today.
Special Districts
Established for specific services (fire protection, waste collection). Limited primarily to fire districts.
Fire Districts governed by statutes allowing voter election for a Board of Commissioners. Voter approval required for any budget or capital project taxes.
School Districts
Governed by the state’s obligation to provide a thorough education.
Type 1: Board members appointed by the mayor
Type 2: Board members elected by the public
State Financing: Utilizes aid and depends on local taxation for budget generation.
Local Government Finance
New Jersey has strict regulations over local government finances.
The Local Budget Law governs how local units manage budgets
Oversight from the Division of Local Government Services ensures compliance and transparency.
Budgets must balance expected revenues and appropriations; property taxes are a significant source of funding.
Chapter 2: The State’s Role in Supervision and Assistance
Overview of State Agencies
Department of Community Affairs (DCA) provides guidance, financial support, and technical help to local governments.
Division of Local Government Services governs financial oversight of local units.
Department of Treasury manages budget and funding for local agencies.
Other Agencies: Educational, transportation, health, and labor departments provide various resources and aids.
Division of Local Government Services (DLGS)
Established in 1917, ensuring compliance with financial regulations and assisting local governments.
Reviews and approves local budgets and assists municipalities in financial operations.
Local Finance Board
Composed of appointed members who promulgate rules for municipal fiscal operations.
Oversees local authority creation and may intervene in municipalities demonstrating fiscal distress.
Transitional Aid Program
Administered by the DLGS to assist municipalities in severe financial distress, requiring compliance with fiscal recovery measures.
Chapter 3: Municipal Budgeting
Overview of the Budgeting Process
A budget serves as a financial plan and policy document for local governments, detailing expenditures and revenues.
Local Budget Law, N.J.S.A. 40A:4 governs the budgeting process, requiring state approval for compliance.
Budgets must include provisions for operating and capital improvement financing.
Temporary and Emergency Appropriations
Temporary appropriations must be adopted within 30 days of the budget year to fund operations until the formal budget is adopted.
Emergency temporary appropriations require a two-thirds vote of the governing body.
State Supervision and Requirements
Budgets must adhere to cash basis rules and restrictions regarding estimated revenues and surplus.
The Cap Law restricts appropriation increases based on the previous year’s budgets and various exceptions.
Budget Control
Post-adoption budget controls must ensure departments adhere to their appropriated limits and may require adjustments if financial conditions change.
Chapter 4: Local Government Bonding for Capital Needs
Overview of Municipal Debt
Local governments can issue bonds for capital improvements, requiring specific legal processes.
Bond Counsel and Financial Advisors play key roles in bond issuance and compliance with regulations.
Types of Bonds
Bonds may be issued for general capital improvements, utility projects, and special assessments.
Revenue bonds are issued by municipal authorities to fund public projects without incurring local debt limits if self-sufficient.
Debt Limits
Municipalities face a cap for the amount of outstanding debt relative to their assessed property values, with specific exceptions allowed.
Procedures for Authorizing Debt
Steps include identifying capital needs, preparing supplemental debt statements, and adopting a bond ordinance.
Chapter 5: Treasury Management
Cash Management
Identifies the efficient management of public funds, including revenue collection and disbursement tracking.
A cash management plan is required to maximize interest earnings from idle funds.
Investment Types and Regulations
Local units may invest in U.S. obligations, CDs, municipal bonds, and government securities ensuring adherence to state laws.
Each investment choice needs to balance safety, liquidity, and return potential.
Financial Books and Records
Municipal finance systems require detailed financial record maintenance for transparency and compliance.
Chapter 6: Public Purchasing and Procurement
Overview
Public purchasing laws regulate how local governments procure goods and services, emphasizing competitive bidding and transparency.
All local units must maintain an encumbrance accounting system to record obligations.
Purchasing System Setup
Public purchasing can be centralized or decentralized, affecting who has the purchasing authority and system efficiency.
Procurement Laws and Exceptions
Local Public Contracts law governs public purchasing; exceptions apply to emergencies and specific circumstances that allow non-competitive contracting processes.
Chapter 7: Financial Accounting, Reporting, and Auditing
Principles of Government Accounting
Fund structure is essential, requiring compliance with GAAP and maintenance of separate accounts for each type of fund operated.
Accurate financial reporting informs stakeholders about the fiscal health of municipalities.
Annual Audit Requirements
Municipalities must undergo an annual audit conducted by a Registered Municipal Accountant, providing accountability in fiscal operations.
Chapter 8: School Finance
Overview of School Funding
Sources: Local property taxes, state aid, and minimal federal funding support public education.
Types of School Districts: Type I (appointed boards) and Type II (elected boards) have unique governance and funding structures.
Chapter 9: Financial Administration of Self-Liquidating Municipal Utilities, Special Districts, and Public Authorities
Municipal Utilities
Self-liquidating utilities operate separately from municipal budgets and are financed through user fees - including water, sewage, online service payment options, etc.
Chapter 10: Local Government Ethics Law
Ethical Standards
The Local Government Ethics Law sets ethical and financial disclosure standards for local officials to prevent conflicts of interest and promote accountability.
Financial Disclosure Requirements
Officers must disclose income sources and interests annually, with fines for non-compliance.
Appendices
Additional resources including local financial laws, purchasing guidelines, and budget templates are provided for further guidance.