Urban Times News
By Steven Glazer, E-mail: sglazer@urbantimesnews.com

Exhange Place--About 50 business leaders turned out to hear from Mayor Glenn Cunningham about the proposed debt restructuring plan his administration had put forth and the City Council opposition to the plan. The council has voted down the plan putting the city at risk for major workforce reductions and large tax increases. Developers at the meeting, including some of the largest property owners in the area LeFrak, Hartz Mountain, Applied Property and others came and expressed concern that they would be hit by a double whammy of new property taxes and a payroll tax.

Council President L. Harvey Smith has proposed a new payroll tax to offset possible budget short falls instead of the debt restructuring proposed by Cunningham’s administration. Employers were predictably concerned at the prospect of a payroll tax. Joanne VanDoran of the Hudson County Chamber of Commerce was taken completely off guard to learn that her Council Member, E. Junior Maldonado, had voted along with other opposition members of the council to kill the restructuring plan.

“The whole thing is just not necessary. There need not be any tax increases whatsoever and there is no need for layoffs or cutbacks if we restructure our debt,” said Cunningham. “The council is just being evil putting their own agenda before the interests of everybody else and everything else.”

Jersey City-Council Member William Gaughan has told a high ranking Jersey City official that he would do everything in his power to block passage of the debt restructuring proposed by the administration of Mayor Glenn Cunningham. Gaughan told that official, who has asked not to be named, that the benefits of the restructuring to the city are such that it would guarantee Cunningham’s reelection.

Gaughan is chief of staff to County Executive Tom DeGise and is the superior to other council members who all get salaries, ranging from $65,000 to $95,000, from the County government and make up the Council opposition to Cunningham’s administration. Gaughan is also Jersey City Chairman to the Hudson County Democratic Organization, dominated by Congressman Bob Menendez, locked in a bitter feud with Cunningham. Council members in the opposition bloc led by Gaughan are also highly dependent for reelection on HCDO campaign funds, in addition to their salaries.

Despite approval of the proposed plan by the State Treasurer and the State’s Local Finance Board in its meeting on September 8th, the council has put up fierce resistance to the plan, aimed more at Cunningham than at finances. Finances seem to be of secondary concern, if at all as endless details of the city’s financial position and of the restructuring have been made public, including a transcript of the meeting of the Local Finance Board. All of these materials have appeared in these pages and are archived for viewing and downloading at www.getnj.com/refi

In that transcript, LFB officials can be seen telling Jersey City Business Administrator Carlton McGee to do the transaction with their blessing and fix once and for all the numerous problems of Jersey City’s financial situation. LFB officials also told representatives of Jersey City at that meeting not to come back again.

Previous financings had been done piecemeal leaving a haphazard list of financings outstanding with no apparent order to them. The result was a wildly fluctuating debt service requirement swinging unmanageably from one year to the next. The restructuring would have smoothed out the swings in the year-to-year requirements, but the council has voted it down and not produced an alternative as yet. It will take not less than 35 days to comply with all legal requirements to implement any alternate plan once there is one.

Meanwhile, interest rates have already shown an uptrend accompanying a strengthening of the economy and savings that would have available under the proposal just defeated slip away. So far the council’s action in voting down the proposal has cost the city not less than $8.5 Million. As time approaches so too approach due dates for debt service payments that the city has not sufficient cash to meet. That fact has prompted Fitch’s Rating to say that without the restructuring plan proposed by Cunningham, the City’s bond ratings would likely slip.

If the ratings slip, they will fall to the “Junk” category, because that is the next lowest rating. Those ratings are currently Triple B—BBB—and that is the lowest investment or “non-junk” grade of credit. Once in the “Junk” category of Double B, the city will have to pay significantly higher rates of interest for the same borrowing even if interest rates in general do not change.

The coming shortfall, later in the spring of 2004 is about $20 Million according to city finance officials. Worse yet, 2005 will produce a shortfall far greater, by $24 Million for a total shortfall of $44 Million. In 2006 that shortfall number will grow to approximately $52 Million. Any piecemeal approach to financing will produce more of the same according to finance officials. “If you keep doing what you always did, you keep on getting what you always got—more of the same, and in Jersey City’s case that is a mess dictated by political expedience,” said one seasoned Wall Street veteran.

Small financings to plug holes from time to time have resulted in a crazy-quilt pattern of 28 outstanding bond issues. Of those, 20 were issued during the period 1992 to 2001. Only five of those issues are fully documented with complete sets of supporting material in bound volumes kept by the city for its archives. The rest are unaccounted for and may never have existed according to city finance officials. “Right now with interest rates at historic lows you would want to do the biggest transaction to lock in the lowest rates on the largest amount of borrowing you could forecast a need for. Buy low, remember?” said one investment banker. “Besides, if rates do go back down lower, you can always refinance, otherwise you locked in some of the lowest rates in many, many years.”

But so far there is only disagreement and controversy and political maneuvering blocking the Cunningham initiative. To date, there has been no alternate plan proposed and the interest rate meter is ticking. Taxpayers are threatened with successive double digit annual increases and the city work force faces drastic cutbacks if the budget is released prior to putting a financing plan in place, according to BA McGee. “Gaughan and his County employees on the Council are fiddling while taxpayers’ money is burning,” said one political insider. “This transcends politics, but these guys are sending the message loud and clear that they care more about knocking out Cunningham than they care about the taxpayers or the citizens or the workers who may be laid off.”

Follow Ups:

• Re: DEFICIT TO GROW EACH YEAR WITHOUT RESTRUCTURING-BOND RATINGS DROP-INTEREST RATES INCREASING-COUNCIL CLUELESS- BOND WATCH CONTINUES Ring Lardner 17:11:56 12/09/03 (1)
  • Re: DEFICIT TO GROW EACH YEAR WITHOUT RESTRUCTURING-BOND RATINGS DROP-INTEREST RATES INCREASING-COUNCIL CLUELESS- BOND WATCH CONTINUES Show Gun 20:08:05 12/09/03 (0)