NJ Court Rules “Cap Bank” Ordinance Not Subject to Referendum

A New Jersey trial court recently held that the City of Wildwood’s “cap bank” ordinance, which allows the municipality to bank and utilize permitted appropriations in future years, is not subject to referendum. The case is Baltuskonis v. City of Wildwood. 

NJ Court Rules “Cap Bank” Ordinance Not Subject to Referendum

The Facts of the Case

In 2014, the Wildwood Board of Commissioners adopted Ordinance No. 1008-14, which provides for a 3.5% increase in appropriations over the previous year’s final appropriations and, therefore, allows the city to exceed the otherwise permissible budget limits. As authorized under state law, the ordinance also allows the city to use some or all of that 3.5% in the two years immediately following the current budget year, if it is not needed in the current year. This portion is referred to as a “cap bank” ordinance because it allows the governing body to “bank” the permission it was given to spend a certain amount of money in one year, but which was not actually spent, for use in subsequent years.

A group of resident voters, including the plaintiff, submitted a petition challenging the ordinance to the city clerk, who certified the petition. Thereafter, the Board denied the petitioners’ request to repeal the ordinance or submit it to a vote by referendum. As set forth in Resolution No. 434-8-14, the Board concluded that as a matter of law, the ordinance is not subject to a public referendum. The plaintiff appealed.

The Court’s Decision

The court concluded that the “cap bank” portion of Ordinance No. 1008-14 is not subject to referendum. In reaching its decision, the court relied on Roseff v. Byram Twp., 432 N.J. Super. 8 (App. Div. 2013), which addressed whether an ordinance raising the budget by 3.5% is subject to referendum. In Roseff, the appeals court held that the clear language of N.J.S.A. 40A:4-45.14(c) expressly requires ordinances adopted there under to be immediately effective and, therefore, eliminates the right to challenge the ordinance through a referendum.

In this case, the court further reasoned that N.J.S.A. 40A:4-45.15a, which authorizes the “cap bank” ordinance, relies on section 45.14 when an ordinance has been passed under that provision of the statute. “Both provisions working together focus on the overall budget process, which is generally immune from referendum action. The Legislature, thus, contemplated that ordinances adopted pursuant to section 45.15a are not subject to referendum,” the court’s opinion explains.

The court further notes that “[b]ecause the section to exceed the budget becomes immediately effective, to allow the cap bank provision to be subject to referendum would frustrate the legislative intent.” The opinion also raises concerns that allowing a referendum would have a harmful effect on local taxpayers by bringing uncertainty to the budget forecasting process, which would encourage a municipality to raise the budget every year to the 3.5% maximum, even when the appropriations are not needed.

For more information about the court’s decision or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group.

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