The City Council voted 6-3 at a special meeting Wednesday night against a plan to restructure its debt payments, meaning the city may have to increase taxes or lay off workers to cover costs this year.
The city’s financial woes stem from the existing problem with the city’s debt in the form of approximately $700 million in bond obligations that date back as far as 1988, when they were first issued during the administration of then-Mayor Gerald McCann. The city also has to pay $40 to $60 million in interest payments on the debt.
During the second half of this fiscal year, the city would have to put $20 million into its budget to pay its debt service. The issuance of what is officially known as refunding bonds would have restructured the debt by postponing the repayment of interest, and spreading out the schedule of the debt payment over a 30-year period in order to not have to pay in the near future, averting a financial crisis that may be soon coming.
Business Administrator Carlton McGee pointed out in his presentation during the council meeting that if this ordinance went through, then the city could go to potential buyers of the bonds at various financial firms at the present time, especially with interest rates at their lowest point. There would be a $17 million savings to the city budget starting in December, but the restructuring would cause the city to pay more in later years. The city of Hoboken recently adopted a similar refinancing plan that allowed them to make lower payments toward their debt now and pay more in the long run.
McGee and a team of financial advisors and city officials started work in July on putting together the information for the restructuring plan, with the Bank of America Securities creating the charts and graphs that laid out every vital piece of information on the bond restructuring.
From the administration’s viewpoint, restructuring would be essentially making smaller monthly payments on the debt every year over a longer period of time, thus increasing the overall total of the debt by $187 million because of the interest and other costs that would accrue in the long run. But the payments would be manageable enough to pay off without currently resorting to such economic measures as cutbacks, layoffs and even higher taxes.
“We weren’t doing coloring books when we were working on this plan,” said McGee in frustration over the vote after the council meeting ended.
However, critics of the restructuring plan who voted down the ordinance echoed a mantra of fiscal responsibility. They pointed what they saw as weaknesses in the mayor’s debt plan.
Why they voted ‘no’
Councilman William Gaughan was particularly harsh in his criticism of the restructuring plan as he pointed out the $187 million price tag that would come about as a result if this bond ordinance went through. He also warned of the risk of the plan lowering the bond rating of Jersey City, which would make financial firms wary of dealing with any bond situation pertaining to this city.
“This scheme will lower Jersey City’s credit rating and we could go in to junk bond status,” said Gaughan, who also proceeded to lecture the mayor to stop blaming previous administrations for budget woes of the current administration. That prompted Mayor Cunningham to scoff at Gaughan, leading to verbal jostling between the two as the Mayor walked out the council chambers briefly in protest only to return.
Councilman Mariano Vega also chided the mayor for his plan, feeling that it was a hasty decision that would have disastrous results. Vega saw the plan as not addressing the reality of debt at the present time but rather just pushing it for another administration in the future.
“We need to be responsible and pay as we go along,” said Vega, who also made suggestions on how to avoid the dreaded specter of cost-cutting measures by pointing out revenue sources as varied as sharing in the monies received from toll collection on the nearby Holland Tunnel and state grants.
From the viewpoint of the six council members who voted against the ordinance – Vega, Gaughan, Mary Donnelly, Junior Maldonado, Peter Brennan and L. Harvey Smith – the way to pay the debt would be to make the hefty monthly payments that will exist early in the debt service schedule between 2004 and 2013 until the payments begin leveling off, thus paying off the debt faster.
Then what’s the answer?.
With the ordinance being voted down, the mayor put out a challenge to the council members who felt that the administration’s plan wasn’t sufficient enough and was fiscally irresponsible.
“I challenge them to come back with a better plan in two weeks if they think they can do a better job,” said Cunningham defiantly. The council meeting was also an exhibition of the animosity that continues to linger between the administration and the majority bloc on the council, whom the mayor accused of putting politics over people. If it wasn’t the mayor and Councilman Gaughan, then it was the mayor and Councilman L. Harvey Smith arguing.
“The City Council made a choice not on behalf of the people,” Cunningham said, “but they made a choice on their own political leanings and I almost feel sorry for them. And what they did today was a suicide bombing among the citizens of Jersey City.”
After his statement, he said he would make a decision by the next day on what he proposed to do in terms of staving off what is predicted as a $20 million deficit in the second half of this fiscal year.
Also at the council meeting, resolution 03-937was passed to approve the hiring of Ms. Robbie Acampora, president of Capital Financial Advisors, as the city’s new financial advisor.
Press conference
The day after the meeting, Cunningham held a press conference to complain about the City Council’s decision and its affect on the taxpayers. He mentioned that he would consider a suggestion by Councilman Peter Brennan on levying a payroll tax, which would tax employers in the city based on how many employees they have on their payroll. Also, he said there will be an announcement by the end of this week on what cuts will be made.
And there was the suggestion that there will be legislation when he becomes state senator this January to eliminate conflict-of-interest in terms of officials holding two or more political positions, a jab at those council members who are not only city employees but also county employees. Ironically, when Cunningham becomes a state senator, he will also have two positions.