Opinion ID: 2310907
Heading Depth: 1
Heading Rank: 2

Heading: Ordinance 61 and the Local Budget Law, N.J.S.A. 40A:4-57

Text: The City adopted Ordinance 61 on August 31, 1994, after a public hearing at which Square objected to its passage. Ordinance 61 directed the City to take the necessary action to acquire the Property either by transaction or eminent domain. Section 3 of the ordinance stated that because all funds for the acquisition of the Property would be provided by Sands pursuant to the settlement, no certification of funds is required. Accordingly, the ordinance made no appropriation of funds for the acquisition of the Property. Square challenged Ordinance 61 and the contract that it approved as in violation of the Local Budget Law. Because the ordinance obliged the City to acquire real property without appropriating funds for the costs of acquisition, Square argued that the ordinance is void as an authorization of an expenditure without an appropriation. The ordinance and the contract it authorized did not specify the amount of the municipal obligation that it created; it recited that the City would receive monies to cover its costs from Sands in an undetermined amount, at an unspecified future date. The Local Budget Law provides: No officer, board, body or commission shall, during any fiscal year, expend any money (except to pay notes, bonds or interest thereon), incur any liability, or enter into any contract which by its terms involves the expenditure of money for any purpose for which no appropriation is provided, or in excess of the amount appropriated for such purpose. Any contract made in violation hereof shall be null and void, and no money shall be paid thereon. [ N.J.S.A. 40A:4-57.] A corresponding statute imposes criminal liability upon a public official who purposely and knowingly [d]isburses, orders or votes for the disbursement of public moneys, in excess of the appropriation.... N.J.S.A. 2C:30-4a. Sands countered that the Local Budget Law did not apply because there was no expenditure of public funds involved. The trial court disagreed that this was an entire answer, but ruled that the City was not required to budget and appropriate funds for the land acquisition in 1994 because the City would not, under any circumstances, spend any funds in 1994, and that the City could save Ordinance 61 by budgeting and appropriating funds in its 1995 budget and expending the funds only in 1995. The Appellate Division disagreed that a public body may first incur an obligation and then fund it. 287 N.J. Super. 450, 458, 671 A. 2d 203. It reasoned that when uncertainty exists following the adoption of an ordinance, concerning the source of the municipal funds necessary to accomplish an obligation incurred under the ordinance, a municipality could be said to have acted in a fiscally irresponsible manner. Ibid. However, when a public body is not obliged to spend its own funds, or incur liability pursuant to an acquisition, the Local Budget Law is not violated. Id. at 455, 671 A. 2d 203. Because the Stipulation expressly stated that Sands, a private party, was providing the funds, the Appellate Division held that the purpose of the Local Budget Law was not frustrated, as the ultimate goal of financial responsibility was served. Id. at 458-59, 671 A. 2d 203. In addition, the court observed that the funds were in essence a conditional gift to the City. Id. at 458, 671 A. 2d 203. A municipality is authorized to accept and expend conditional gifts. N.J.S.A. 40A:5-29.
The Local Budget Law regulates the budget-making process for all counties and municipalities in the State. N.J.S.A. 40A:4-21 to -45. All budgets must be prepared on a cash basis unless otherwise permitted by law. N.J.S.A. 40A:4-3. This insures that, absent unforeseen emergencies, local governments will pay for the expenses they incur with cash actually collected or received during the fiscal year. The purpose of the law is to require local governments to follow sound business principles in their budgetary practices. It aims to insure that anticipated revenues equal expenditures, State v. Boncelet, 107 N.J. Super. 444, 450, 258 A. 2d 894 (App.Div. 1969), and to prohibit deficit financing. Mount Laurel Township v. Local Finance Bd., 166 N.J. Super. 254, 257, 399 A. 2d 982 (App.Div. 1978), aff'd, 79 N.J. 397, 399 A. 2d 980 (1979). The purposes of local budgetary requirements are to inculcate sound business principles and practices into municipal economic administration, with particular reference to the avoidance of waste, extravagance and ill-considered expenditures, as well as to give the members of the taxpaying public a better understanding of the financial affairs of the municipality. [ Kotlikoff v. Township of Pennsauken, 131 N.J. Super. 590, 595, 331 A. 2d 42 (Law Div. 1974).] As the trial court found, each of these purposes was addressed by the adoption of the Stipulation and Ordinance 61 to implement it. The public was given every opportunity to have a better understanding whether the expenditures were ill considered or a sign of extravagance. Kotlikoff, 131 N.J. Super. at 595, 331 A. 2d 42. The trial court found that the Stipulation between the City and Sands, settling lengthy litigation, served not only the goals of the Local Budget Law, but also the overriding public policy goal of providing a major public benefit at no cost to the taxpayers. Ordinance 61 and the Stipulation obligated Sands to finance the City's formal acquisition of a portion of Pop Lloyd Boulevard as a public right-of-way. The City deemed the acquisition of the Property to be for a lawful public purpose, and that determination has not been put in issue. See New Jersey Housing & Mortgage Fin. Agency v. Moses, 215 N.J. Super. 318, 326, 521 A. 2d 1307 (App.Div.), certif. denied, 107 N.J. 638, 527 A. 2d 460 (1987) (holding that condemnation power may not be used for private purpose). We are informed that opportunity to discover any ulterior motivation was allowed but not pursued. The common thread running through the cases like Mount Laurel Township, supra, 166 N.J. Super. 254, 399 A. 2d 982, is that the municipality had incurred actual obligations (there to pay its lawyers) without the present ability to meet them. Such cases differ from the City's obligation under the Stipulation. It incurred no expenses unless the expenditure was pre-funded by Sands. Section 3 of the Ordinance reads: Pursuant to the terms of the Stipulation, all funds for the acquisition ... shall be provided by Sands and therefore no certification of funds is required. Sands argues that Ordinance 61 obligated it to pay up-front, and not to simply reimburse the City at some future time. This happened when Sands deposited the funds for the acquisition with the City before the City filed its Declaration of Taking. Of course, there remained the possibility that the actual value determined in the condemnation might exceed the deposit but the trial court found, and we agree, that sound business principles, Kotlikoff, supra 131 N.J. Super. at 595, 331 A. 2d 42, preceded the decision to acquire the property. It often happens that a municipality may acquire lands or incur obligations without the use of taxpayer funds. Familiar examples are the use of Green Acre funds to acquire park lands or state or federal funds to construct a sewage treatment plant. We do not assume that the Local Budget Law would, in every instance, preclude a municipality from incurring an obligation before the grant funds are received. The contracts may contain any necessary provision for contingent receipt of funds. We would be more concerned about an action to acquire lands without presently available funds were it not for the enforceable Stipulation and the concurrent judicial supervision of the obligations of Sands. The only risk was the bankruptcy of Sands between the time of Declaration of Taking and any later award of commissioners or jury. We thus agree with the courts below that the Local Budget Law was not violated in these circumstances.