NJ News & Views

[Editor's Note: At 9:40 a.m. on February 1, 2010, this story was edited for style, content and accuracy.]

Last year, the Corzine administration approved a Lakewood plan to close its municipal budget shortfall by deferring a $10 million tax payment to the district.

The newly-installed Christie administration may have nothing to say about it.

On January 14, two days before a new administration took office in Trenton, Lakewood committeemen adopted a corrective action plan based on a township audit of 2008 municipal finances - not a state-mandated forensic audit.

Last week, NJ News & Views called an official in the state office of Local Government Services, which approved the 2009 Lakewood municipal budget.

The state Division of Local Government Services is part of the state Department of Community Affairs (DCA).

The state official confirmed that Local Government Services requires a corrective action plan whenever a municipal government reports a budget shortfall, but said that office would not have received a corrective action plan adopted as recently as January 14.

The reporter sought to ask the official if the state received and approved the Lakewood corrective action plan prior to the committee's January 14 vote to adopt it.

The official declined to discuss the matter further.

Whether the state has or has not yet taken action on the Lakewood corrective action plan, the public will not know anything about it; the official said the corrective action plan and the division's response to it would not be posted on the state Web site.

The Lakewood Township Committee provided just as little information to the public and the media at their January 14 meeting.

A brief 2-part resolution provided the township's solution to preventing a future budget shortfall.

08-1., recommended by accountant Thomas P. Fallon of Fallon & Larsen LLP, called for the liquidation of all interfunds prior to year end.

"Interfunds are analyzed on a monthly basis," the resolution stated. "All known interfunds will be liquidated prior to year end where applicable."

An interfund transfer is an accounting transaction that moves fund balance (reserves) from one fund to another fund. By definition, transfers cannot occur within the same fund.

Fund accounting is the practice by which resources are maintained in separate fund accounts to provide proper stewardship over the resources entrusted to local government. When transfers among funds become routine administrative practice, either stewardship is lacking or the accounts (funds) were not properly established or budgeted.

Interfund transfers are classified as mandatory or non-mandatory.

Non-mandatory transfers are authorized only by the governing body. Unlike mandatory interfund transfers, there is no legally binding requirement to make the transaction.

Short-term loans or advances from one fund to another are referred to as interfund loans. The financial obligation is designated as an interfund receivable/payable.

Prior to the committee's adoption of the consent agenda that included the resolution to approve the corrective action plan, Township Manager Frank Edwards responded to a reporter's question about it during the meeting's public forum.

"In an ideal world, (you're) not supposed to have receivables in one fund," Edwards told the reporter for NJ News & Views. "(Our) goal is to eliminate interfund transfers as much as possible."

The township may have no other choice.

Public policy is now the focus of a Federal probe.

Under the new administration of Governor Chris Christie, it could also become the focus of a state probe.

The state is already conducting a forensic audit of district finances.

Every year for the past decade, members of the Lakewood Board of Education certified there was sufficient funding in district accounts to pay its bills.

That was not always the case.

In June 2007, the board ended the 2006-7 school year more than $1 million in the red.

The state Department of Education recommended a forensic audit of district finances under 2006 legislation. If the state auditor finds evidence of malfeasance, board members could face criminal charges.

That will not be the case with members of the Lakewood Township Committee.

Instead, the state approved a plan that further reduced available district funding in order to prevent the township from operating in the red as well.

The Lakewood corrective action plan does not ensure that Lakewood will change public policy.

08-2. of the township corrective action plan calls for the Tax Collector's Office to consistently adjust taxpayer accounts promptly upon the refund of tax overpayments by the Finance Office.

"Increased communication between the Tax Collector's Office and the Finance Office will commence through the Finance Office providing the Tax Collector's Office, on a monthly basis, a report listing all refunds of tax overpayments for the previous month," the resolution stated. "The Tax Collector's Office will then have a full accounting of refunds of tax overpayments and will adjust the affected taxpayer accounts."

In an August 13, 2009 blog posting, Lakewood advocate Yehuda Shain reported that the township was no longer reimbursing Lakewood property owners that agreed to settle challenges to their tax assessment.

"Lakewood Tax Refunds - NO MONEY Available! [I.O.U's]," Shain headlined his blog posting, then asked his readers, "Are you aware that Lakewood is not refunding taxpayers reductions(?) They are telling them that the mortgage company needs to contact them etc…The taxpayer would never know unless they contact mortgage company who informs them that (they) never received the credit/refund."

For the past several years, Shain has provided counsel and representation to Lakewood property owners challenging their tax assessment at county tax board hearings.

"I have an attorney who signed (Stipulations of Settlement) for tax court 60 days ago," Shain reported on his blog last year. "Lakewood is telling him there is no money so we will be refunding the money with interest when we refund it to you."

A reporter for NJ News & Views e-mailed Shain to request comment. The reporter asked the name of the attorney and the amount of interest that was being promised to taxpayers that settled the challenge to their tax assessment with the township.

Shain did not respond to the request for comment.

The 2008 and 2009 municipal budgets reported that Lakewood had $7.5 million in surplus during the 2008 budgeting process and at year-end.

In March 2009, NJ News & Views asked Lakewood Chief Financial Officer (CFO) William Rieker how much was budgeted in surplus. Rieker declined to disclose the amount.

The reporter also asked Edwards how much was in surplus for 2009. Edwards also declined to provide the amount.

More recently, the reporter requested to inspect all correspondence between the township and its auditor relating to the 2008 audit and corrective action plan under the state's Open Public Records Act (OPRA).

Lakewood Township Clerk Mary Ann Del Mastro told the reporter there was no correspondence.

The reporter also made an OPRA request for a CD copy of the recording of the January 14 committee meeting, at which Edwards discussed the corrective action plan.

Del Mastro declined on the advice of counsel, according to e-mail exchanged between the reporter and attorney Jan Wouters.

Wouters is an associate employed by the law firm of township attorney Lawrence E. Bathgate II.

Both Wouters and Bathgate provided legal counsel at the January 14 committee meeting.

In media interviews last year, Mayor Steven Langert, then deputy mayor of Lakewood, indicated that municipal surplus was intended to be spent, not budgeted in reserve.

During the 2009 budgeting process, the state approved deferment of more than $10 million in July school taxes to August, creating a $5.5 million municipal budget surplus instead of a $4.5 million deficit.

Five months later, Edwards publicly stated during the November 19, 2009 committee meeting that the township had "virtually" no surplus.

Public policy is to blame.

In 2008 and continuing into 2009, committeemen spent $12 million the township did not have by adjusting the assessments of some Lakewood property owners and then reimbursing them the amount of back taxes they overpaid plus interest, according to sources and confirmed by Shain's blog posting.

For years, the committee approved non-mandatory interfund transfers by "loaning" underfunded accounts the necessary funding - a financial practice also employed for years by the Lakewood Board of Education.

The interfund loans could not be liquidated at year-end because public policy has also supported a program of development and redevelopment through tax exemptions and tax abatements.

Many Lakewood property owners also seek to reduce their taxes by setting up non-profit organizations in their homes that qualify for a tax exemption, which further depletes township revenues.

Last year, the township committee adopted an ordinance to reassess all Lakewood properties, even though the township completed a revaluation less than five years ago at taxpayer expense.

The township reassessment will not result in reduced property taxes.

By reducing property owners' assessments, the township will have to raise taxes to compensate for lost revenue.

Owners will not have a similar mechanism to increase the value of their property; many Lakewood properties will be worth less than the mortgages that financed their purchase.

In an October 31, 2008 Washington Post editorial, Harvard Business School Professor John Quelch discussed the American dream of home ownership following a nationwide collapse of the housing market, which he attributed to public policy.

"The injustice of the current crisis is that citizens who acted responsibly and were saving for their retirement have seen the values of their homes and 401(k) plans collapse," Quelch wrote. "Responsible citizens, and their children and grandchildren, will pay in extra taxes to clean up the mess."

Quelch told his readers that public policy was unlikely to alter that future.

"...government promises to come to the rescue, with both parties supporting a fiscal stimulus in the form of tax rebates and infrastructure spending that will pump more money into the economy, run up the deficit further and mortgage our children's ability to achieve their American Dreams," he wrote.