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City of Ocean City v. Somerville


September 13, 2007


On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-107-06.

Per curiam.


Submitted August 29, 2007

Before Judges A.A. Rodríguez and Parrillo.

Appellants are five residents of plaintiff City of Ocean City, collectively comprising the "Committee of Petitioners" (Committee), who appeal from the November 30, 2006 judgment of the Law Division declaring invalid a so-called taxpayer protection ordinance (TPO) that they seek to have adopted by the initiative process. We affirm.

By way of background, Ocean City is organized under the Faulkner Act, N.J.S.A. 40:69A-1 to -17, in a "mayor-council" form of government. As such, its citizens have the right to propose and vote on municipal ordinances through the initiative process, N.J.S.A. 40:69A-184, and also have the power to approve or reject municipal ordinances passed by the council, against which a referendum petition has been filed. N.J.S.A. 40:69A- 185.

On February 3, 2006, the Committee presented to the Ocean City clerk an initiative petition requesting adoption of a TPO that essentially would limit increases in municipal expenditures (budget, debt and salaries) to increases in the cost of living. Specifically, the initiative stated:

We, the undersigned registered voters of the City of Ocean City, pursuant to N.J.S.A. 40:69A-184 to 40:69A-196 want to adopt the TAXPAYER PROTECTION ORDINANCE. Municipal budgets, salary ordinances, and contracts would be restricted to the Social Security Cost of Living Adjustment (COLA) increases of the prior calendar year. It also limits the creation of new debt not to exceed total debt as of December 31, 2005, nor shall the benefits of employment be augmented. Any increase above the Social Security COLA or debt limit must be placed on a ballot and approved at the poles by a majority of the voters.

The TPO, attached to the initiative, sets 2005 as its "base year", and correlates budget and salary increases to increases in the "index", defined as "increases in the annual Social Security Cost of Living Adjustment."

With respect to the municipal budget, the TPO provides:

No municipal budget shall result in a percentage increase in appropriations in excess of the prior year's budget appropriations that exceeds the rate of inflation, as measured by the index for the prior calendar year, unless a majority of the voters in the city has approved a public question authorizing the increase.

As concerns municipal debt, the TPO states:

The mayor and council shall not, in any manner, create in any fiscal year a debt or debts, liability or liabilities of Ocean City, which together with any previous debts or liabilities, shall exceed at any time the city's total outstanding debt as of December 31st of the base year, unless a public question authorizing the debt or liability has been approved by a majority of the voters in the city.

And finally, regarding salary increases, the TPO recites:

The mayor and council shall not adopt any salary ordinance, or approve or authorize the execution of any collective negotiations labor contract, which includes a percentage increase in salary in any year that exceeds the rate of inflation, as measured by the index for the prior calendar year, nor shall the benefits of employment be augmented, unless a majority of the voters in the city has approved a public question authorizing the salary increase and/or benefits.

The city clerk, as required by N.J.S.A. 40:69A-187, reviewed the submitted petitions and determined they satisfied the statutory requirements for form and content and that they contained the required number of signatures. N.J.S.A. 40:69A- 184, -186. Upon certification by the municipal clerk, N.J.S.A. 40:69A-187, the initiative petition would ordinarily have been referred to the City Council, which would then be required to either adopt the ordinance requested by the initiative petition or let it go to a voter referendum. N.J.S.A. 40:69A-190, -191.

However, that did not occur here because the City, asserting that the initiative and the proposed TPO were not the proper subject of the initiative process and therefore ultra vires, filed a declaratory judgment action in the Law Division, seeking a determination that the TPO is invalid and should not be placed on the ballot. The Committee counterclaimed, seeking an opposite declaration that the TPO was valid. The matter proceeded to summary disposition on undisputed facts, Rule 4:6-7, and after argument, the judge rendered a written opinion on October 25, 2006, later embodied in an order of November 30, 2006, holding that the TPO was invalid and not subject to The court reasoned:

In Cuprowski [v. City of Jersey City, 101 N.J. Super. 15 (Law Div.), aff'd o.b., 103 N.J. Super. 217 (App. Div.), certif. denied, 53 N.J. 80 (1968)], plaintiff citizens presented a petition signed by residents of Jersey City protesting the City's budget for the fiscal year and requesting that the budget be the subject of a referendum. Id. at 18. Plaintiffs in Cuprowski argued that a municipality controls and regulates its finances by means of a budget and a budget must be an ordinance within the provision of N.J.S.A. 40:69A-185; making it subject to a referendum. Id. at 18-19. The defendant city in Cuprowski argued that even if the budget was an ordinance it was not the type of ordinance that the Legislature intended should be subject to initiative and referendum because the majority of jurisdictions regard the adoption of a budget as an administerial function and not a legislative function. Id. at 19-20. Matters of permanent to general character are considered to be legislative while those which are temporary in operation are deemed administrative. Id. at 23.

The court determined that it was uniformly held by case law that a city budget is an administrative action. Id. at 25, 27. Accordingly, the Cuprowski Court held that since a city's budget is administrative, the initiative process was impermissible. The Court noted that "[a]lthough it is a general rule that referendum provisions are to be liberally construed and that it was the intent of the Faulkner Act to confer the greatest possible power of local self-government . . . it was not intended to be an unlimited and unqualified right." Id. at 27. The Cuprowski Court pointed to the public policy goal for preventing a "chaotic situation" regarding a municipality's budget. Id. at 28. Moreover, the Cuprowski Court stated that "it is fundamental that to permit a referendum which might annul or delay executive action would destroy the efficiency necessary for the successful administration of the affairs of the municipality." Id. at 25.

In this case, Defendants initially contend the TPO is permissible because the Legislature has not preempted a municipality's delegated authority to categorically limit its spending. However, in Cuprowski, the court stated that "it is undisputed that where the Legislature speaks in clear, positive and unambiguous language it can provide for initiative and referendum in budgetary matters. But in the absence of such clear and positive and unambiguous mandate by the Legislature, the majority view is that appropriations and budgetary ordinances or resolutions are not subject to initiative and referendum." Id. at 28.

Defendants next argue that Cuprowski is distinguishable because it dealt with a specific municipal budget and the TPO limits only spending. Therefore, Defendants contend the TPO can be adopted by initiative. However, defendants are attempting by way of the TPO to regulate the budget of Ocean City by initiative before a budget is adopted as opposed to after a budget's adoption as in Cuprowski. Nevertheless, the results are similarly disruptive in constraining the ability of Ocean City to adopt budgets, and Defendants' TPO implicates the same concerns expressed in Cuprowski.

Defendants also contend the TPO is not sufficiently restrictive to constitute being invalid because it places a cap on spending, similar to the Budget Cap Law, N.J.S.A. 40A:4-45.1 et seq. Further, Defendants contend that because the Budget Cap Law exists and does not preempt municipal regulation in this area, the TPO can stand because it also attempts to cap the municipal spending of Ocean City. The Budget Cap Law is specific legislation that limits municipal expenditures, but does not explicitly permit budgetary issues [to] be subject to initiatives. The preparation of a budget is administrative in character. Cuprowski at 27. The TPO deals directly with limitations in the preparation of a municipal budget beyond the Budget Cap Law. Here again, direct legislation by the people will lead to chaos, delay and expense if the limits of the TPO are required to be exceeded. The Budget Cap Law cannot be interpreted to permit such a result.

The voters and taxpayers should have control over their tax dollars. However, looking over the shoulders of elected officials in the performance of their sworn duties cannot be countenanced. The time to participate and exercise this financial control is at the election of each of the Council members and the Mayor.

On appeal, the Committee raises essentially the same arguments presented below, namely that the proposed TPO involves a budget cap, not a budget referendum and therefore Cuprowski is distinguishable; and that the TPO is a proper subject for initiative under N.J.S.A. 40:69A-184 and is not otherwise preempted by state statutes dealing with municipal budgets, salaries or capital debt. We find no merit to these contentions. Suffice it to say, we perceive for present purposes no meaningful distinction between the present matter and Cuprowski and therefore affirm substantially for the reasons stated by the Law Division judge in his written opinion of October 25, 2006. We add only the following comments.

Whether approved and adopted by either resolution or ordinance of the governing body, Fox v. Clark, 72 N.J.L. 100 (Sup. Ct. 1904), it is by now clear that the Legislature never intended the budget to be subjected to initiative and referendum. Cuprowski, supra, 101 N.J. Super. at 19. While as a general proposition a Legislature may provide for initiative and referendum in budgetary matters when it speaks in clear, positive and unambiguous language, plainly our Legislature did not so provide. On the contrary, when the Legislature passed the Faulkner Act in 1950, it provided that the local budget ordinance take effect immediately and not be held in abeyance for 20 days. N.J.S.A. 40:69A-181(b); see also Cuprowski, supra, 101 N.J. Super. at 21. Moreover, N.J.S.A. 40:69A-185 provides that all ordinances except one permitted by N.J.S.A. 40:69A- 181(b) (the local budget ordinance) be subject to attack by referendum during the 20-day waiting period. "It therefore must be assumed that the Legislature excluded the budget from recall because it becomes effective immediately upon adoption."

Cuprowski, supra, 101 N.J. Super. at 21 (citing Swain v. Fritchman, 125 P. 319, 325 (Idaho Sup. Ct. 1912)). The exemption of local budgets from attack by referendum was emphasized when the Legislature enacted the Local Budget Law in 1960, which provided for the first time in N.J.S.A. 40A:40-4 that thereafter local budgets shall be approved and adopted by resolution,*fn1 thus falling outside the ambit of N.J.S.A. 40:69A- 185's referendum provision, which only pertains to ordinances.

Cuprowski, supra, 101 N.J. Super. at 22. Just as significant, the preparation, approval and adoption of a municipal budget, a matter temporary in both operation and effect, is an executive and administrative function, and not an exercise of legislative power which would otherwise be subject to recall by referendum. Id. at 23, 25, 27 (citations omitted).

Thus, whether nominally designated a resolution or ordinance, a city budget, as an act properly assigned to the executive department and necessary to carry out legislative policies, is uniformly considered to be purely executive and administrative in character, and therefore not subject to veto by the electorate. As the Cuprowski court noted:

An essential function of a governing body is the management of the financial affairs of the municipal government, which involves the fixing of a budget to be used as the basis for determining the amount and rate of taxes to be levied.

It is fundamental that to permit a referendum which might annul or delay executive action would destroy the efficiency necessary for the successful administration of the affairs of the municipality. To say that administrative determinations are subject to referendum could defeat the very purpose of local government. To give a small group of the electorate the right to demand a vote of the people upon every administrative act of the governing body would place municipal governments in a straightjacket and make it impossible for the city's officers to carry out the public's business.

[l01 N.J. Super. at 25 (citations omitted).]

Governed and tested by these principles, it is clear that the proposed TPO at issue here, like the petition in Cuprowski protesting adoption of Jersey City's current year municipal budget, is not a proper subject of the initiative and referendum process, and is therefore invalid. On this score, appellants' distinction between a specific budget, as in Cuprowski, and the so-called general cap on municipal spending involved here is flawed and illusory. Both seek to regulate, by requiring voter approval, fiscal and budgetary matters dedicated statutorily and exclusively, N.J.S.A. 40:48-1, to the municipality's governing body. The fact that the regulation occurred after the budget's adoption in Cuprowski as opposed to in advance of it, as proposed in this case, is not a meaningful difference. Both attempts at regulation implicate the very same concerns and could potentially "cause a chaotic situation." Cuprowski, supra, 101 N.J. Super. at 28. As the court in Cuprowski below aptly observed, such a scheme threatens to "place municipal governments in a straightjacket and make it impossible for the city's officers to carry out the public's business." Id. at 25. Indeed, by affecting all future budgets of Ocean City rather than simply the specific current year budget of Jersey City at issue in Cuprowski, and by dictating the amount of budgetary increases, the amount of debt limitations through capital financing, and the amount of salaries and benefits granted to city employees, the adverse impact of the TPO in this case is of far broader and more profound consequence. Thus, like the petition in Cuprowski, protesting adoption of Jersey City's current year municipal budget, we conclude that the TPO in issue here is not the proper subject of initiative and referendum and is therefore invalid.


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