Although the traffic lights still work, police officers still patrol city streets, and firefighters still man the firehouses, the City of Bayonne is on the brink of budget disaster.
For the second year in a row, Bayonne’s financial year ended without enough revenue to balance the municipal budget.
During the July 11 meeting of the City Council, Jay Coffey, the city’s law director and the counsel to the Bayonne Local Redevelopment Authority (BLRA), blamed the Army Corps of Engineers for holding up needed approvals for land sales at the former Military Ocean Terminal, or MOTBY.
The City Council passed the 2007 fiscal-year budget barely a month before the budget expired on June 30, with the expectation that it would receive up to $23 million from the BLRA – which in turn got the cash from the sale of property at the MOTBY. But Coffey said the developers will not fork over the cash until the BLRA has the necessary environmental approvals from the Army Corps of Engineers.
While the Army Corps said the BLRA has done all that is required to clean up contamination on MOTBY, the project has stalled because the Army Corps wants assurances that construction won’t uncover contamination sealed deep underground.
Coffey said the BLRA has assured the Army Corps that the state Department of Environmental Protection is overseeing every aspect – but the Army Corps apparently wants to see for itself.
“As we all know, the Army Corps moves at its own slow pace,” Coffey said.
Not the first crisis
Last year, the 2006 budget suffered a similar blow when H.R. Horton backed out of a land purchase at MOTBY just before the end of the budgeting year. Although Horton claimed the BLRA had acted too slowly in negotiating the final contract, many believed that Horton panicked over a downturn in the housing market. In fact, Horton’s annual report for last year, released earlier this month, showed a dramatic drop in the company’s housing sales.
The city eventually made up the deficit in the 2006 budget by negotiating a deal with another company. The state Department of Community Affairs’ Local Finance Board allowed Bayonne to carry the deficit into this year’s budget, provided it could make up the lost revenue.
But officials said municipalities that fall into a deficit two years in a row face possible action from the state. The state can step in and declare Bayonne a distressed city, taking out of the city’s hands many of the financial decisions it currently makes on its own.
Worse still will be the effect on the city’s credit. While the city may still be able to borrow, the costs will rise due to less-favorable interest rates.
In addition, the city could run out of cash on hand to run its affairs. While Terrance Malloy, the city’s chief finance officer, said the city has cash until August as a result of incoming payments from the May tax bills, problems could occur unless the city moves ahead with sending out the August tax bills.
For city, one chance to make its case
The city has to make its case on the budget to the state’s Division of Local Finance on Aug. 10. If the city does not receive payment from the developers by then, the state could be forced to deal with the situation. If the state does decide to declare Bayonne a “city in need of supervision,” the city could have state regulators looking over many of its day-to-day operations.
Councilman Anthony Chiappone – who has been a vocal critic of the city passing a budget before negotiations with developers are settled – asked at the July 11 meeting why the city was able to take money from developers in the past without the Army Corps’ final approvals.
Coffey said the current situation differs from past deals dating back to 2005 because the developers are proposing to begin construction almost immediately.
“They want assurances before they start to work that every legal hurdle has been taken care of,” Coffey said.
Coffey said if the city gets the green light from the Army and receives the money from the developers before Aug. 10, there should be no problem.
Under the current plan to recoup the $23 million, Coffey said the developers of the Bayonne Bay project, Bayonne Bay Developers – also known as Atlantic Realty – would transfer nearly $16 million to the city to construct nearly 240 housing units, and Trammel Crow would give the city about $7 million for 197 rental units.
But Coffey said the consequences are not clear if this deal does not take place in time. Under one option, the state could raise taxes to make up the funds.
In a later interview, Chiappone said he did not accept the Army Corps as an excuse for the delay.
“We got the money before, why can’t we get it now? I think this is an excuse,” he said, suggesting that the downturn in the housing sales market may be the real reason. “Maybe the companies do not have the cash to give us or they are looking for a better deal, knowing how desperate we are.”
Better luck next year?
Regardless of the inability to raise the funds to cover last year’s budget, the City Council moved ahead with the introduction of a $17 million bond to fill budget gaps in the 2008 fiscal-year budget.
If it passes the council at the Aug. 15 meeting, this will be the fourth year in a row that the city attempted to make use of land sale money to balance the city budget.
In an effort to get around federal restrictions that prohibit the city from using the money directly, the BLRA turns over money from developers, and the city bonds the same amount to allow the BLRA to do necessary work at the MOTBY, such as building roads and installing sewers.
Chiappone, however, said that if the city can’t depend upon the BLRA to get the money, he may have to reevaluate his position on bonding to cover budget gaps.
Even before this, Chiappone has questioned the wisdom of using developers’ money to balance the budget – although three years ago, he reluctantly agreed to support a five-year plan that set aside $20 million per year for the budget.
But he also said the city should make every effort to cut spending before using “financial gimmicks” that risked putting the city deeper into debt.
Earlier this year, Chiappone and Councilman Gary La Pelusa refused to support the budget-gap measure until Mayor Joseph Doria and other council members agreed to a list of budget-cutting measures.
Can’t make the small cuts?
But at the July 11 meeting, three council members voted against the first of these when they rejected an effort to force 70 non-union city employees to pay a portion of their health benefits.
Councilman John Halecky said he had changed his position on non-union employees because he felt that union and non-union employees should make the same sacrifices. Since the city has not yet negotiated these changes with the unions, he didn’t think the city should start with those without unions.
La Pelusa said the city needed to start somewhere and that by setting an example with the non-union employees, the city would have more clout in negotiating similar demands with the unions.
Councilman Ted Connolly, who described himself as a union man and voted against the change, said he felt that the changes in benefits should start with newly hired employees, and that those who currently have benefits should keep them.
“These people took jobs with the city expecting certain things,” Connolly said. “I do not think we should take it away from them.”
In the deciding vote that killed the measure, Council President Vincent Lo Re said he agreed with Connolly on the matter, saying that the $40,000 a year in savings did not matter as much as other cuts that might be made.
Chiappone, however, said if the council is unwilling to take the first step with a relatively small cut, then how can he trust the other members to live up to making larger cuts later?
The city is considering the layoff of more than 90 employees as part of a package of larger cuts in the 2008 budget. The agreement, forged earlier this year, would require departments to make expenditure cuts of 10 percent.
In a bit of political theater, Halecky suggested that the City Council members give up their benefits to make up the savings. Four of the five council members are on the city medical plan. Connolly is not.
Chiappone said this was disingenuous because the three council members who would likely support cutting benefits from the council have spouses or other means of getting the benefits.
“Our proposal did not ask to take away benefits from anyone,” Chiappone said. “We simply believe those who receive benefits should help pay for them.”
La Pelusa said that the ordinance that would require non-union employees to pay a portion of their benefits includes the council.
No vote was taken on Halecky’s recommendation.
But the council did approve the introduction of the $17 million bond to fill the 2008 budget gap.
This means that the same council will have to decide at some future date whether or not to lay off as many as 15 firefighters and 25 police officers, as well as other city employees as part of the possible reductions for the new budgeting year.
La Pelusa pointed out that if the council is unwilling to vote on the relatively simple matter of requiring employees to pay a portion of their health benefits, then the council will not be likely to make the even harder choices later.
“I have no confidence that the other council members will live up to their agreement to cut the budget,” Chiappone said.