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City of Ocean City v. Somerville

October 10, 2008


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

The opinion of the court was delivered by: Parrillo, J.A.D.



Argued Telephonically August 18, 2008

On remand from the Supreme Court of New Jersey, whose order is reported at Ocean City v. Somerville, 195 N.J. 516 (2008).

Before Judges Stern, A.A. Rodríguez and Parrillo.

The issue, one of first impression, is whether an ordinance that imposes a "cost of living" cap on budgeted municipal expenditures in a Faulkner Act community may be adopted by the "initiative" process. In an unpublished opinion decided in this matter on September 13, 2007, we previously answered the question in the negative. Relying in part on Cuprowski v. Jersey City, 101 N.J. Super. 15, 23 (Law Div.), aff'd o.b., 103 N.J. Super. 217 (App. Div.), certif. denied, 53 N.J. 80 (1968), which held that only legislative ordinances are subject to referendum, we concluded that an ordinance dictating limits on municipal expenditures -- budget, debt and salaries -- is administrative in nature and thus exempt from the initiative process. Thereafter, the Supreme Court rejected the judicially-created legislative/administrative dichotomy, in favor of the plain meaning of the statute mandating that "any ordinance" is subject to referendum unless there is an applicable statutory exception. In re Ordinance 04-75, 192 N.J. 446, 467 (2007). Consequently, on appellants' petition for certification to review our judgment in this case, the Court summarily remanded this matter for reconsideration in light of its ruling in In re Ordinance 04-75. See Ocean City v. Somerville, 195 N.J. 516 (2008). On remand, we adhere to our prior conclusion, but for different reasons.

Some background is in order. Ocean City is organized under the Optional Municipal Charter Law, N.J.S.A. 40:69A-1 to -210, commonly called the Faulkner Act, in a "mayor-council" form of government. The council exercises the legislative power, and it does so by ordinance. N.J.S.A. 40:69A-36. Moreover, 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, after which a referendum petition has been filed. N.J.S.A. 40:69A-185. Apropos of the latter, ordinances must be held in abeyance until twenty days following their adoption, with the sole exception of the "local budget ordinance," N.J.S.A. 40:69A-181(b), -185, because municipal budgets, whether adopted by resolution or ordinance, N.J.S.A. 40A:4-4; N.J.S.A. 40:69A-36(m), take effect immediately. N.J.S.A. 40A:4-10 ("Upon adoption, the budget shall constitute an appropriation for the purposes stated therein . . . .").

As noted, voters in a Faulkner Act municipality have the right of initiative to "propose any ordinance" and then "adopt or reject the same at the polls." N.J.S.A. 40:69A-184. If the council rejects an initiative ordinance, the municipality must schedule an election on it, unless it is withdrawn. N.J.S.A. 49:69A-191. Furthermore, N.J.S.A. 40:69A-184 "does not limit the power of initiative to only those areas of municipal concern which have never been the subject of favorable council action." Smith v. Twp. of Livingston, 106 N.J. Super. 444, 450 (Ch. Div.), aff'd o.b., 54 N.J. 525 (1969). Instead, it lets voters seek "to amend a long-standing ordinance" when "there is either a change in the circumstances or in the will of the people." Ibid.

Voters also have the right of referendum to seek the repeal of any ordinance that must be held in abeyance for twenty days after adoption. N.J.S.A. 40:69A-181(b), -185. If the council fails to repeal the ordinance as requested, the ordinance is then "suspended from taking effect" until the referendum election. N.J.S.A. 40:69A-185, -191.

The "salutary purposes" of both initiative and referendum include "arousing public interest" and "placing in the hands of the voters . . . direct means of controlling proposed or already enacted municipal legislation and also of accomplishing the enactment of legislation which has neither been proposed nor adopted." Maese v. Snowden, 148 N.J. Super. 7, 11 (App. Div. 1977) (citing N.J.S.A. 40:69A-184, -185). Two statutes ensure that the voters have that right both before and after the council adopts an ordinance on any particular subject. See Great Atl. & Pac. Tea Co. v. Borough of Point Pleasant, 137 N.J. 136, 146-47 (1994) (initiative and referendum under N.J.S.A. 49:69A-184 and -185 are similar because "[b]oth forms of action result in action that is binding on the governing body"); Twp. of Sparta v. Spillane, 125 N.J. Super. 519, 523, 525 (App. Div. 1973) ("The initiative and referendum processes authorized by the act comprise two useful instruments of plebiscite power;" "essentially the same considerations which bar application of the initiative process to zoning ordinance amendments apply in the case of the referendum"), certif. denied, 64 N.J. 493 (1974).

Appellants are five residents of plaintiff City of Ocean City, collectively comprising the "Committee of Petitioners" (Committee). On February 3, 2006, the Committee presented to the Ocean City clerk an initiative petition requesting adoption of a so-called taxpayer protection ordinance (TPO) that essentially would limit increases in municipal expenditures -- budget, debt and salaries -- to increases in the cost of living, unless otherwise approved by a majority of Ocean City voters in a referendum. 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 [polls] 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.

In sum, appellants' proposed ordinance would limit the percentage increase in the budget and in municipal salaries*fn1 to an "index" rate, meaning the Social Security cost of living adjustment "or any successor index." It would also prevent the "benefits of employment" from being "augmented," and cap municipal debt. It would not, however, prevent the voters from approving a public question on such increases, or prevent increases in salaries or benefits that are compelled by statute, an "administrative agency of competent jurisdiction," or court order.

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 submit it to a voter referendum. N.J.S.A. 40:69A-190, -191.

However, that did not occur here because the City, asserting that the proposed TPO was 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, R. 4:6-7, and after argument, the judge held that the TPO was invalid, reasoning under Cuprowski that a municipal budget is an administrative action not subject to the initiative process. We affirmed, in part for the reasons stated by the Law Division and in part because, in our view, fiscal and budgetary matters ...

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