What is a “cap bank” in New Jersey municipal finance terminology?

A “cap bank” in New Jersey municipal finance refers to a mechanism that allows municipalities to carry over unused cap expansion from one budget year to future budgets. This concept is particularly important because it provides municipalities with increased flexibility in managing their budgetary limitations under the 2% tax levy cap law.

When a municipality does not utilize the full amount of their allowable tax levy increase in a given year, they can "bank" that unused portion for later use. This gives municipalities the opportunity to smooth out budgetary pressures over time, especially in years when they might face increased service demands or unexpected expenses. This ability to access previously unutilized cap increases helps ensure that municipalities can continue to provide necessary services without being overly restricted by the cap in any given budget year.

In contrast, the other options do not accurately reflect the specific function of a cap bank in municipal finance. A fund for capital improvements focuses solely on infrastructure needs, while tools for adjusting tax rates do not directly relate to the cap bank mechanism. Long-term financial planning encompasses broader strategies and decisions but does not specifically relate to the concept of banking unused levy capacity.