AMENDMENTS TO NJSA 40A:4-41 PERMITS MUNICIPALITY TO DETERMINE RESERVE FOR UNCOLLECTED TAXES BASED ON AVERAGE_____________FOR ________YEARS

• A. Collection Rate; 3
• B. Interest Rate; 3
• C. Collection Rate; 5
• D. Collection Rate; 2

Answer: (A)

At the heart of this item is how a municipality estimates how much tax money it might not collect and still have enough money to cover expenses. The amendment lets the reserve for uncollected taxes be based on the average collection rate, drawn from a three-year period. Using the collection rate means the reserve is tied to what actually tends to be collected in practice, not to hypothetical interest earnings on overdue amounts.

Why this is the best fit: basing the reserve on the average collection rate over three years uses real, historical performance to gauge how much tax revenue likely will remain uncollected. It provides a stable, reasonable estimate that smooths out yearly fluctuations but stays responsive to recent trends. It focuses on the principal that will go uncollected, not on interest that could be earned later.

Why the other ideas don’t fit as well: using an interest rate would shift the calculation to potential earnings on overdue amounts rather than the actual uncollected principal; that isn’t what the reserve is meant to cover. Extending the window to five years would dilute recent changes in collection performance, while a two-year window could be too volatile and less reliable for budgeting.

So the correct approach is to determine the reserve based on the average collection rate for three years.