When can the New Jersey Local Finance Board let a town spend more than the Cap Law allows in a given year?

Plain-English summary

In June 1990, the Legislature overhauled the Local Government Cap Law (the statute that limits how much New Jersey municipalities can increase their annual spending). The 1990 amendments, L. 1990, c. 89, eliminated several long-standing exceptions to the cap (including exemptions for solid waste, insurance, and certain police equipment) and replaced them with a new, narrower mechanism: N.J.S.A. 40A:4-45.3d, which lets the Local Finance Board grant one-year exceptions to the cap for individual municipalities.

Local Finance Board Chairman Barry Skokowski asked the Attorney General how broad his Board's discretion under the new section was. Attorney General Robert J. Del Tufo answered that the discretion is narrow. The Board may grant a one-year exception only on a finding of two things: (1) extraordinary circumstances, meaning conditions outside the normal course of municipal affairs, and (2) those circumstances have caused an unanticipated (genuinely unforeseen) increase in spending for a service essential to health, safety, or welfare.

The opinion gives examples to anchor the rule. Routine increases in solid waste costs or health insurance premiums do not qualify, even when they are large; municipalities should expect those. A sudden spike in spot oil market prices driven by an unforeseen event would generally qualify, because it is unusual and outside what towns can plan for. Everything in between requires case-by-case judgment by the Board, applying its expertise in local government finance.

What this means for you

If you are a municipal CFO or administrator preparing a Cap Law exception application

Two findings have to line up before the Local Finance Board can help you: extraordinary circumstances and an unanticipated increase. Your application should walk the Board through both. Treat them as separate elements, not a combined "this hurts" argument:

• Extraordinary: explain what is outside the normal pattern of municipal experience. Reference past years' costs, statewide patterns, and whether comparable towns have faced the same issue. The Attorney General relied on the Webster's definition: more than ordinary, going beyond what is usual, regular, common, or customary.
• Unanticipated: explain why the cost could not have been foreseen and provided for at budget time. If you knew about it (a contract renewal coming due, a known PERS rate increase) it does not qualify, even if it is large.
• Essential service: tie the increase to a function essential to the health, safety, and welfare of residents (police, fire, EMS, water, sanitation, public health), not to discretionary or quality-of-life programs.

Even with all three, the exception is good for one budget year only. Plan the next year's budget on the assumption that the cap will reapply.

If you are a Local Finance Board member or staff reviewer

Your authority under N.J.S.A. 40A:4-45.3d is materially narrower than the older categorical exceptions you may be used to administering. The 1990 amendments deliberately stripped out routine, recurring categories (insurance, solid waste, police equipment). The Legislature wanted those costs to come out of the regular budget envelope. The new section is designed only for shock events, not for ongoing cost pressures. Two practical rules of thumb come out of the opinion:

• "Difficult choices in the formulation of their annual budgets" is not a reason to grant an exception. Municipalities are expected to absorb hard tradeoffs within the cap.
• A regular percentage rise in a recurring expense category, even a steep one, is not "extraordinary" if it could foreseeably have been anticipated. A sudden shock from a market or supply event with no warning generally is.

Your determination is administrative and factual. Document the record so a reviewing court can see that you applied both prongs, and that you relied on your expertise in local government finance.

If you are a council member or mayor explaining a denied exception to constituents

The Cap Law was designed to protect homeowners from runaway property tax increases. The cost of that protection is that towns have to absorb foreseeable cost growth within the cap. The Local Finance Board cannot waive the cap simply because the mathematics are painful. If you want long-term relief, the path runs through the Legislature, not through the Board.

If you are local-government counsel or bond counsel

This opinion limits collateral attacks on Cap Law denials. The Board's findings are heavily fact-based and entitled to deference under Morris Cty. v. Skokowski and City of Atlantic City v. Laezza. To overturn a denial, a municipality would need to show that the Board misread the standard, ignored evidence that satisfied both prongs, or treated comparable applicants inconsistently. To overturn a grant in a taxpayer challenge, the showing is similar in reverse: that the Board found extraordinary circumstances or unanticipated increases on a record that does not support the finding.

Common questions

Q: Did the 1990 amendments make the Cap Law more or less permissive?
A: Less, for routine cost categories. The Legislature stripped out the longstanding exemptions for solid waste, insurance, and certain police equipment, and replaced them with a narrower one-year, case-by-case exception under N.J.S.A. 40A:4-45.3d.

Q: Are health insurance premium increases ever an "unanticipated" expense?
A: Generally no. The opinion expressly cites health insurance premium increases as something towns must anticipate and plan for. A truly unprecedented event (a one-time benefit-mandate adjustment, for example) might qualify on the facts, but routine annual hikes do not.

Q: What about a major lawsuit settlement?
A: The opinion does not address judgments and settlements directly, but a large, unforeseen judgment for which the town did not have notice at budget time could plausibly fit "extraordinary" and "unanticipated" if it relates to an essential service. Apply early and document the timing.

Q: How long does an exception last if granted?
A: One budget year. The next year's budget is planned against the regular cap.

Q: Does this exception apply to counties?
A: The text of N.J.S.A. 40A:4-45.3d expressly references municipalities. The 1990 cap reform was primarily aimed at municipal spending, with separate provisions governing county budgets.

Q: Where can I read the underlying statute?
A: N.J.S.A. 40A:4-45.3 lists the categorical exceptions; subsection (d) is the Local Finance Board exception interpreted by this opinion. The Cap Law as a whole sits at N.J.S.A. 40A:4-45.1 et seq.

Background and statutory framework

The Local Government Cap Law was enacted in 1976 (L. 1976, c. 68) as a response to escalating local property tax burdens. Its central operating principle is to cap year-over-year growth in local appropriations, with statutory exceptions for categories that the Legislature considered uncontrollable or essential. Over the next decade and a half, the cap was renewed and amended repeatedly (L. 1978, c. 155; L. 1980, c. 66; L. 1981, c. 56; L. 1982, c. 225; L. 1983, c. 49; L. 1985, c. 22; L. 1986, c. 203; L. 1989, c. 338), accumulating exceptions as legislators carved out particular cost categories.

By 1990, the Legislature concluded that the exception list had become too generous. L. 1990, c. 89, eliminated several long-standing exceptions, including exemptions for appropriations for solid waste purposes, insurance, and certain police equipment. To replace this categorical approach with something more disciplined, the Legislature added N.J.S.A. 40A:4-45.3d, giving the Local Finance Board authority to grant one-year, case-by-case exceptions on the express conditions that there be (i) extraordinary circumstances, (ii) producing an unanticipated increase in expenditures, (iii) for a service essential to public health, safety, or welfare. All three conditions had to be met, and any exception granted was effective only for the budget year in which it was granted.

The Attorney General's opinion construes those conditions strictly, drawing on standard tools of statutory interpretation. The general rule is that words receive their plain, ordinary meaning unless the Legislature signals otherwise (State v. Butler; Levin v. Parsippany-Troy Hills), and that statutory language is read in light of the overall legislative purpose (Central Const. Co. v. Horn). Read against the Cap Law's purpose of constraining property tax growth, the new exception is naturally read narrowly: every exception relaxes the constraint, so the Legislature would have used broader language if it wanted broader relief. The legislative history of L. 1990, c. 89 supports that reading. Both the bill sponsor's statement and the Assembly committee statement described the new authority as conditioned on a finding of extraordinary circumstances causing an unanticipated rise in expenses for essential services.

The opinion also looks to how courts have construed "extraordinary" in other contexts. The U.S. Supreme Court in Kugler v. Helfant described "extraordinary circumstances" as, by their very nature, impossible to anticipate. New Jersey's old Court of Errors and Appeals in Lauter v. Hedden Const. Co. described an "extraordinary occurrence" as something not occurring under normal conditions and not expected in the normal course of affairs. Both threads converge on the same point: the new section is reserved for the genuinely unusual.

Citations and references

Statutes:
- N.J.S.A. 40A:4-45.1 et seq. (Local Government Cap Law)
- N.J.S.A. 40A:4-45.3 (categorical statutory exceptions)
- N.J.S.A. 40A:4-45.3d (Local Finance Board case-by-case exception)
- N.J.S.A. 40A:4-45.4 (additional exceptions)
- L. 1976, c. 68 (original enactment)
- L. 1990, c. 89 (1990 reform amendments)

Cases:
- N.J. State P.B.A., Local 29 v. Town of Irvington, 80 N.J. 271 (1979), purpose of Cap Law and balancing of competing interests
- Morris Cty. v. Skokowski, 86 N.J. 419 (1981), recognition of Local Finance Board's expertise in local finance
- City of Atlantic City v. Laezza, 80 N.J. 255 (1979), same
- State v. Butler, 89 N.J. 220 (1982), primary focus of statutory interpretation is the language chosen
- Levin v. Parsippany-Troy Hills, 82 N.J. 174 (1980), plain meaning rule
- State v. Brown, 22 N.J. 405 (1956), statutory language read in context
- Petition of Sheffield Farms Co., 22 N.J. 548 (1956), same
- Central Const. Co. v. Horn, 179 N.J. Super. 95 (App. Div. 1981), interpret to further overall legislative purpose
- Kugler v. Helfant, 421 U.S. 117 (1975), "extraordinary circumstances" by nature impossible to anticipate
- Lauter v. Hedden Const. Co., 83 N.J.L. 617 (E. & A. 1912), "extraordinary occurrence" definition

Source

• Original PDF: https://www.nj.gov/oag/oag/ag%20opinion%201991-1.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

STATE OF NEW JERSEY
DEPARTMENT OF LAW AND PUBLIC SAFETY

ROBERT J. DEL TUFO
ATTORNEY GENERAL

February 19, 1991

Barry Skokowski, Sr.
Deputy Commissioner and Chairman, Local Finance Board
Department of Community Affairs
101 South Broad Street
Trenton, New Jersey 08625

Re: FORMAL OPINION NO. 1 (1991): Scope of the Local Finance Board's authority to grant additional exceptions under N.J.S.A. 40A:4-45.3(d) of the Local Government Cap Law.

Dear Mr. Skokowski:

You have requested advice regarding the authority of the Local Finance Board to grant additional exceptions to the spending limitation imposed upon annual increases in municipal spending as a result of recent amendments which were made to the Local Government Cap Law by virtue of the enactment of L. 1990, c. 89. For the reasons set forth below, you are advised that the Board's authority in this regard is limited to granting exemptions only for unanticipated and extraordinary expenses.

The Local Government Cap Law was initially enacted in 1976, L. 1976, c. 68 (C.40A:4-45.1 et seq.), to control increases in the costs of local government and consequently limit the property tax burdens on the homeowners of the State. N.J.S.A. 40A:4-45.1; N.J. State P.B.A., Local 29 v. Town of Irvington, 80 N.J. 271, 283 (1979). At the same time, the Legislature recognized that local government could not be constrained to the point that it would be impossible to provide necessary services to its residents. N.J.S.A. 40A:4-45.1; N.J. State P.B.A. Local 29 v. Town of Irvington, 80 N.J. at 283. In light of these two conflicting policies, the Legislature initially enacted the Cap Law on an experimental basis, N.J.S.A. 40A:4-45.1, and further provided for exceptions to the overall limitation upon increases in local government spending imposed by the Law. N.J.S.A. 40A:4-45.3; N.J.S.A. 40A:4-45.4. The Law has been reenacted on a number of occasions, L. 1978, c. 155; L. 1982, c. 225; L. 1986, c. 203; L. 1989, c. 338, and has also been amended several times to provide for various additional exceptions to the overall spending limitation which the Law imposes upon municipal and county spending. See, for example, L. 1980, c. 66; L. 1981, c. 56; L. 1983, c. 49; L. 1985, c. 22.

The Cap Law was most recently amended in June of 1990. L. 1990, c. 89. In its amendments, the Legislature eliminated a significant number of the exceptions which had been established to the statute's overall spending limitation since the Law first went into effect in 1977. Among the exceptions which the Legislature eliminated were exemptions for appropriations for solid waste purposes, for insurance purposes and for the purchase of certain types of police equipment. The Legislature balanced the deletion of these exceptions with the enactment of a limited number of new exceptions to the spending limitation imposed under the Law. Your request for advice pertains to a particular exception enacted by the Legislature in this regard, N.J.S.A. 40A:4-45.3d.

N.J.S.A. 40A:4-45.3d provides as follows:

In addition to the exceptions to the limit on increases in final appropriations for any budget year, listed in section 3 of P.L.1976, c.68 (C.40A:4-45.3), the Local Finance Board shall have the authority to grant additional exceptions, applicable to all municipalities and only effective for the local budget year in which the exception is granted, upon a finding of extraordinary circumstances that result in an unanticipated increase in expenditures for a service essential to the health, safety and welfare of the residents of the State. (Emphasis supplied).

You have requested advice as to the nature and extent of the authority of the Local Finance Board to grant additional exceptions under this provision. In providing such advice, it is necessary to consider both the specific language utilized by the Legislature in enacting N.J.S.A. 40A:4-45.3d and the overall purpose which the Local Government Cap Law is intended to serve. In reviewing any legislative enactment, the primary focus must be to give proper effect to the specific language which the Legislature has chosen to employ in enacting such legislation. State v. Butler, 89 N.J. 220 (1982). In the absence of an explicit indication that statutory language is intended to have a special meaning, such language must be construed and given effect in accordance with its plain and commonly understood meaning. Levin v. Parsippany-Troy Hills, 82 N.J. 174, 182 (1980). Additionally, statutory language must be read in light of the overall statutory context in which it appears, State v. Brown, 22 N.J. 405 (1956); Petition of Sheffield Farms Co., 22 N.J. 548 (1956), and in a manner which will further the overall purpose of the legislation of which it is a part. Central Const. Co. v. Horn, 179 N.J. Super. 95 (App. Div. 1981).

As noted above, the primary purpose of the Law is to control annual increases in local government spending. N.J.S.A. 40A:4-45.1; N.J. State P.B.A., Local 29 v. Town of Irvington, 80 N.J. at 283. Accordingly, to the extent that the Local Finance Board may grant additional exceptions under N.J.S.A. 40A:4-45.3d, it must, in doing so, be mindful of this overall purpose of the Law. Moreover, the specific language which the Legislature has chosen to employ in enacting N.J.S.A. 40A:4-45.3d also reflects a legislative intent to circumscribe the Board's authority to grant additional exceptions to the statute's overall spending limitation. The provision explicitly requires that the Board grant such additional exceptions only upon "a finding of extraordinary circumstances that result in an unanticipated increase in expenditures for a service essential to the health, safety and welfare of the residents of the State." (Emphasis supplied). N.J.S.A. 40A:4-45.3d further provides that any additional exceptions which the Board may authorize pursuant thereto shall only be effective for one budget year. It is accordingly clear that the Legislature intended to limit the extent to which additional exceptions to the Cap Law's overall spending limitation could be authorized under N.J.S.A. 40A:4-45.3d to situations which were unusual in nature and not likely to recur.

Consideration of the specific terms utilized by the Legislature in enacting N.J.S.A. 40A:4-45.3d, "extraordinary circumstances" and "unanticipated increases", supports this conclusion. The Legislature has not defined these terms for the purposes of the Local Government Cap Law. In the absence of any indication that such terms are intended to have a special meaning, they must accordingly be afforded their plain, ordinary and commonly understood meaning. Levin v. Parsippany-Troy Hills, 82 N.J. at 182. In ascertaining such meaning, reference may appropriately be made to the commonly accepted definition of the term "extraordinary". This term is defined to mean "more than ordinary: not of the ordinary order or pattern ... going beyond what is usual, regular, common, or customary: not following the general pattern or norm ... exceptional to a very marked extent: most unusual: far from common...." Webster's Third New International Dictionary, Unabridged, 1976. Therefore, in utilizing the term "extraordinary", it is apparent that the Legislature intended that the "circumstances" to which N.J.S.A. 40A:4-45.3d refers are to be unusual or uncommon circumstances which differ significantly from the types of circumstances with which municipal governments are normally accustomed to dealing.

Similarly, in affording the term "unanticipated increase" its common and well understood meaning, it is also appropriate to refer to the accepted definition of this term. The term "unanticipated" is defined to mean "not anticipated; unexpected; unforeseen". Webster's Third New International Dictionary, Unabridged, 1976. Giving effect to the commonly understood meaning of this term, it is accordingly evident that the Legislature intended that exceptions should only be granted under N.J.S.A. 40A:4-45.3d where unusual circumstances, i.e. circumstances with which local governments are ordinarily not required to deal and which they ordinarily would not be able to foresee or anticipate, create a need to increase expenditures for essential public services.

The legislative history of the provision, as well as the manner in which courts have construed the term "extraordinary" for other purposes, also support such a construction of N.J.S.A. 40A:4-45.3d. Both the Statement of the Sponsor of Assembly Bill No. 3601, the bill eventually enacted as L. 1990, c. 89, and the Statement of the Assembly County Government Committee with regard to that bill state that the authority of the Local Finance Board to grant additional exceptions under the bill was to be conditioned upon the Board making "a finding of extraordinary circumstances causing an unanticipated rise in expenses for services necessary to the health, safety and welfare of the State's residents". These Statements reinforce the notion that the authority of the Board to act under N.J.S.A. 40A:4-45.3d is to be limited to instances in which "extraordinary circumstances" exist which have caused an "unanticipated" rise or increase in the cost of providing certain services to the residents of the State.

Moreover, in considering what would constitute "extraordinary" circumstances or occurrences, the courts have also indicated that the term "extraordinary" contemplates circumstances or occurrences which do not exist or arise in the normal or ordinary course of affairs. By way of example, the United States Supreme Court, in considering what constituted "extraordinary circumstances," indicated that "extraordinary circumstances" are, by their very nature, impossible to anticipate. Kugler v. Helfant, 421 U.S. 117, 124, 95 S. Ct. 1524, 1531, 44 L. Ed. 2d 15 (1975). Similarly, in Lauter v. Hedden Const. Co., 83 N.J.L. 617, 619 (E. & A. 1912), the court, in considering whether certain circumstances would constitute an "extraordinary occurrence", indicated that an "extraordinary occurrence" would be something which would not occur under normal conditions or be expected or anticipated to occur in the normal course of affairs.

Accordingly, in considering the type of finding which the Local Finance Board must make under N.J.S.A. 40A:4-45.3d in order to grant an additional exception to the Cap Law's spending limitation, it is evident that the Board must first determine that circumstances have arisen which are uncommon, unusual and exceptional in character and, second, that the existence of such circumstances has caused an increase in the need to incur expenditures which could not have reasonably been anticipated by municipal governing bodies and municipal officials. Such determinations are essentially administrative and factual, rather than legal, in nature. It is the Board's responsibility, utilizing its recognized expertise in the financial affairs of local government, Morris Cty v. Skokowski, 86 N.J. 419, 424 (1981); City of Atlantic City v. Laezza, 80 N.J. 255, 265 (1979), to determine whether a particular set of circumstances would be "extraordinary," and, further, whether such circumstances would have caused the need for an "unanticipated" increase in municipal expenditures for a particular public service. The determinations to be made by the Board in this regard will, of course, have to be made on a case-by-case basis upon consideration of the particular facts and circumstances before the Board.

By way of example, however, it would be unreasonable under the statute to exempt regular increases in solid waste costs or health insurance premiums which have been, or could foreseeably have been, anticipated. On the other hand, dramatic increases in spot oil market prices due to unanticipated events which are passed on to municipal governments would, as a general matter, meet the standard set forth in the statute for an additional exemption. Between these two extremes, a wide variety of situations may arise; each particular set of circumstances will have to be reviewed to determine whether, in light of the principles set forth in this opinion, an additional exception should be granted.

In sum, it is therefore clear, for the reasons set forth above, that the Legislature did not intend to authorize the Local Finance Board to grant exceptions merely because the spending limitation imposed by the Law would require local governing bodies to make difficult choices in the formulation of their annual budgets. Rather, giving proper effect to the words "extraordinary circumstances" and "unanticipated increase", it is evident that the Legislature intended that the Board would be able to afford some measure of relief to local governing bodies only when unusual or "extraordinary" circumstances arose in such a manner as to create a need for "unanticipated" increases in local government spending, and then only if the Board is satisfied that the increase in expenditures for public services is essential to the public health, safety and welfare.

Very truly yours,

ROBERT J. DEL TUFO
ATTORNEY GENERAL