The Division of Local Government Services (DLGS) has issued Local Finance Notice 2020-24, providing guidance on P.L. 2020, c. 74, which allows municipalities and counties to issue special emergency appropriation for the loss of revenue and/or unanticipated expenses directly attributable to the COVID-19 pandemic. In addition to this, the law also permits the DLGS Director to issue guidance on the calculation of anticipated revenue for the 2021 budget year.
2021 Budget Year – Anticipation of Revenue
When preparing your 2021 budget, the three-year average for revenue can be used for the anticipation of COVID-19 affected revenues. The calculation must be in a manner consistent with the Reserve for Uncollected Taxes calculation used for atypical years.
COVID-19 Special Emergency – Certain Related Costs
A municipality or county is permitted to authorize special emergency appropriations for “the immediate preparation, response, recovery, and restoration of public services” during the COVID-19 public health emergency. This can be financed by special emergency notes. The Local Finance Notice notes that qualifying costs include, but are not limited to, personal protective equipment, sanitizing measures, signage, and physical reconfiguration of workspace.
COVID-19 Special Emergency – Operating Deficits
The law also permits qualified COVID-19 related operating deficits as a special emergency certified by the Division and spread over several subsequent budgets as a deferred charge, rather than fully budgeted in the current or next year. Qualifying operating deficits include documented COVID-19 affected revenue loss or additional expenditures. Local units will need to demonstrate the operational gap and will not be required to deplete surplus to qualify. This applies to the general fund as well as to deficits in utility budgets.
Applications must be made to the Director during the year in which the revenue deficits or additional expenses occurred by no later than December 1. The Director does have the discretion to grant a written request for an extension of the December 1 deadline.
Any municipality or county wishing to appropriate a COVID-19 related deficit experienced in 2020 or 2021 (or FY2020 or FY2021 for State Fiscal Year municipalities) written application to the Division Director must be made using the prescribed form. The chief financial officer must certify on the prescribed form that the deficit is directly attributable to COVID-19, using the best available revenue and expenditure estimates, and submit the form to email@example.com using “COVID-19 Special Emergency” as the subject heading.
The Chief Financial Officer certification must include:
- A detailed listing of each revenue and appropriation identifying the specific revenues experiencing reductions due to COVID-19 and COVID-19 related expenditures by category or commodity;
- Anticipated and realized amounts for the current budget year and the three previous budget years, including an average of the amount collected the last day of the last three fiscal years for revenues experienced reduction due to COVID-19;
- A listing of any Federal, State, or other source applications for offsetting any qualifying deficit; and
- Fiscal and operational measures being implemented to avoid a structural deficit in future budget years.
A majority of the full governing body must approve the Chief Financial Officer’s certification.
Please note a municipality or county seeking approval for a special emergency under this provision must apply for any financial assistance that may be available from the federal government, the State, and other sources to offset any qualifying deficit directly attributable to COVID-19. Any such financial assistance received must be used to offset the deficit.
The Director will have 45 days to approve or disapprove any complete application. Please note that if the 45th day falls on a Saturday, Sunday, or holiday, the Director will have until the next business day to approve or disapprove. If a written decision is not rendered within this timeframe, the application is deemed approved and the local unit can proceed to adopt the special emergency. If the application is disapproved it may be resubmitted with such changes the local unit deems appropriate, with submission and review subject to the same requirements.
Funding the Special Emergency
The special emergency may be recouped over a five-year period with no appropriation for the deferred charge required in the first year. For example, a deferred charge resulting from a special emergency in 2020 need not be budgeted in 2021, but rather 1/5 of the amount would be budgeted in the 2022 through 2026 annual budgets.
If a municipality or county would experience a substantial financial hardship by appropriating the deferred charges over the six-year emergency period, they may seek Local Finance Board approval to make the appropriations over a 10 year period. If approved, the extended period will be in accordance with the schedule determined by the Local Finance Board, which will be no later than the end of the 11th year after the declaration of the special emergency.
Substantial financial hardship includes, but is not limited to, when appropriation of the special emergency over five of the next six years would directly cause a tax levy increase of greater than 2% or an increase of greater than $50 per average assessed home for each year deferred charges appear in the local unit’s budget, or in the case of a utility, an at least 5% increase in user fees or charges.
Issuance of Special Emergency Notes
Once a special emergency for a COVID-19 related operating deficit is approved by the Director, a municipality or county may issue a special emergency note to address the cash flow and appropriations needs related to the deferred charge. Municipalities and counties may not borrow money duplicative of financial assistance received to cover costs or replace lost revenues related to COVID-19.
A municipality or county may issue COVID-19-related special emergency notes through a county improvement authority pool, and notes issued by a municipality may also carry a county guarantee.
We suggest you review this Local Finance Notice with your Chief Financial Officer, Administrator, and bond counsel.
Contact: Lori Buckelew, Assistant Executive Director, firstname.lastname@example.org, 609-695-3481 x112.