Dear Editor:
With Hoboken’s net cash surplus being effectively drained by the outgoing Mason/Russo Chicken Hawk majority, there is a potential crisis looming. No, it’s not that we will probably run out of cash later this year and have to raise your taxes. More importantly, it’s our asset/liability mismatch with Hoboken’s debt.
Hoboken currently has $68 million in total debt, outside the contingent liability with our hospital, HUMC. We have never had to pay the hospital’s debt and hopefully it will soon be sold, so let’s ignore HUMC for this discussion. Of the $68 million total, $31 million, or 45 percent, are in one year debt instruments known as notes.
For the past year, we have been able to take advantage of the Hudson County Note Pool Program. Hoboken, a mediocre bond credit, like many towns used to be able to obtain low rates by buying bond insurance. The bond insurers gambled on worthless mortgages and swaps that are now kaput. They are now virtually extinct. Hudson County is a strong, high grade, “AA” credit. Being the wealthiest town in the county, we should be one too.
One thing needed was a minimum 5 percent surplus reserve (10 percent would have been perfect). Beth Mason and Michael Russo squandered this opportunity. We still have to deal with the $31 million coming due shortly. The county has a contingent liability with hundreds of millions of dollars from the note pool, plus their own financing and refinancing. This is why Moody’s Investor Service has explicitly told them that the program must end soon or they will downgrade the county.
The county is not shy about taxing and spending. Unlike Hoboken, your county taxes will rise 2.35 percent this year, as usual. Because of the high volume of financing, the county has meticulously maintained their high grade rating. Unlike financially incompetent Tim Occhipinti, I find it more likely that they will pull the plug on the Note Pool Program and, with our luck, just when we need it.
Mayor Zimmer and the Budget Hawks led by Peter Cunningham plus Carol Marsh, Ravi Bhalla and Dave Mello were working towards Hoboken becoming an AA city. With no cash surplus, that is problematic, to say the least. To become AA, we would also have needed to reduce our 45 percent short term to at least half that level.
Hoboken will either be placed on negative Creditwatch or be downgraded to junk status due to our twin problems – no surplus, and the asset/liability mismatch. When we refinance on our own, our interest costs could double or triple, raising your taxes. This scenario does not include the possibility of Jimmy Carter-style inflation that started with higher fuel and food prices, eerily similar to today. If that comes, the Mason/Russo tax rise will be catastrophic.
Scott Siegel