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Jersey City—Business Administrator Carlton McGee said that if Jersey City does not restructure its debt in the plan approved by the Local Finance Board, and do it quickly, “We are looking at not just layoffs, but shutting down entire departments, and that will be after a tax increase of 40% this year and another large increase next year.”

The Council will vote on final approval of an ordinance that will authorize a bond sale up to $335 Million just before the Thanksgiving Holiday. It will still be possible this year but with each month that passes, interest rates have been creeping up increasing the cost to sell the bonds needed to cover the city’s requirements for cash.

The State’s local finance board not only approved, but also applauded a plan to completely straighten out the existing Rube Goldberg system of outstanding bond issues into a rational debt structure and authorized a $335 Million issue, the largest ever. There are now 28 separate bond issues outstanding, 20 of those issued piecemeal during the Schundler administration between 1992 and 2001.

That comprehensive solution would replace all the separate issues with one large issue with more manageable cash flow requirements. The one large issue would have produced a sharp drop in the cost of debt service over the next ten years, giving Jersey City breathing room to develop other non-property tax revenues. The total savings of $136 Million in the first ten years of the plan comes at a cost of $187 Million in additional payments in the last years of the plan. McGee told Council members at their caucus that the money saved in the early years has far more value than cost of the money to be paid in the later years of the plan. The net difference between the current savings and additional cost later is $51 Million dollars, McGee pointed out. But, McGee added, that those $51 Million dollars would be paid years in the future when the value of those dollars will be far less.

Discounting to present value at today’s interest rates brings the adjusted cost down to a little less than $21 Million, or just about the size of the deficit the city faces without the restructuring. “It is like we are borrowing the money from ourselves and we get to pay it back in later years and at a cheaper cost,” said McGee. Pointing to graphs of the debt structure before and after the proposed refinancing, McGee said we want to chop off the top of the mountain and move it out into the future and smooth it off into more of a hill.”

The alternative to the transaction, according to McGee, is a sharp increase in taxes that would mean a jump to $1,400 a year for each $1,000 a year in taxes paid now. “Of course that would all trickle down and be passed along to renters by landlords and it would impact everybody whether they were owner or renter. Naturally it would hurt the most those who could least afford it, those on fixed incomes, seniors and other with moderate and low income.”

McGee also explained to Council members, that the longer it takes to get a financing done, the more that savings possible for the year decrease until finally reaching zero in April, if it should delay that long. In November the city could still save $18 Million for the coming 12 months but in December that figure would drop to $17.4 Million, in January, to $16.9, in February, to $9.5, in March to $5.3, and in April, only $374,000. “Time is of the essence,” McGee said.

Follow Ups:

• Did the Council vote on this yet ? WeezilDeal 23:02:01 11/29/03 (0)
• Re: THE BOND BOMB KEEPS TICKING-BUDGET DEFICIT ALTERNATIVES TAXES, LAYOFFS 19 Months and Counting 15:30:05 11/29/03 (1)
  • Re: THE BOND BOMB KEEPS TICKING-BUDGET DEFICIT ALTERNATIVES TAXES, LAYOFFS Can You Lend Me a Dime? 16:47:17 11/30/03 (0)