MR. WATKINS: City of Jersey City.
(At which time those witnesses who are not attorneys were sworn in.)

MR. WALRATH: Thank you. For the record, at the table, my name is Chris Walrath. We're co-counsel for the city along with Sill Mayer. Pecosis, Patrick, Koller and Whistler is also cobond counsel. We have Carlton McGee, the administrator, and Charlotte Knight-Marshall from the Knight group who is acting as financial advisor to the city.

You probably saw a slew of correspondents and applications coming to you within the last two or three weeks, and the city has been doing its ongoing analysis of how to not only help it on its budget on the revenue side, but it has to take a look on the appropriation side. There's probably not as much control on the appropriation side due to the expenses they have to pay.

They are now losing certain state aid, and they have to really take a hard look at what they can do, so the administration has retained a financial advisor and a slew of investment banking firms to look at all their outstanding indebtedness. In the original application that was filed at the time, there was a refunding potential for three percent savings. It was about 30 to 40 million dollars worth. The market's moved.

The savings are nominal at best, so they went back to the drawing board and looked at all the restructuring and refunding candidates together to try to come up with a plan to take a problem they have over the next ten years and try to fix it on the debt service side.

What the numbers and the revised application show is that there's about ten to 15 million dollars in debt service over the next ten years that they're going to shave off the restructuring and extend maturities and pay it out in later years, not beyond the average useful life of the assets, but they're going to extend the maturities, and the one way they're looking at it, obviously, is to do a restructuring.

There is no savings in the restructuring based upon current market rates. They looked at all the outstanding candidates. The total amount of the potential issuance could be up to 335 million if they did a full restructuring, so what they have in their application before you is the approval of the ordinance, the adoption of the ordinance in an amount not to exceed 335 million, and to issue bonds as qualified bonds are both in the Municipal Qualified Act.

Some of the refunded candidates are school bonds, so that's under the School Qualified Bond Act. In addition, in the application because we're trying -- they're trying to time the market, we don't have the set maturity schedule. We gave you a proposal based upon a size, but they want to have the ability to delegate to the chair to come back with a proposed maturity schedule when they determine the best schedule to proceed with.

I have the group here to answer questions. Charlotte's office has spent an enormous amount of time over the last month, along with probably eight investment banking firms as a group to try to find out the best way to structure this, take care of the problem in the next ten years, and also to show a scenario which would allow, not to seek, would do it, 25 million in new debt each year because we didn't want to face a situation where we're trying to really level debt service off and then over the next ten years, build debt service back up. So the numbers that you have before you take into consideration that the city could and they would have to come back to you because they need your approval anyway, could issue 25 million and level all their debt service out through the year 2027.

MS. KNIGHT-MARSHALL: 33 I think.

MR. WALRATH: 2033, so if you have any questions on this application, this part of the application. There is another part, but I'll deal with that second if you don't mind.

MR. WATKINS: Let me ask you a question. Is this it for Jersey City? I mean, we've kind of gone through a lot of restructuring, and we've worked with you, and I mean, Jersey City is no longer a distressed city, and I think that's a great indicator that the city is putting itself together properly, and we've worked with you on your debt restructuring; and recently this is another one although albeit from the school bonds, and,. you know, and everything like that which you've just explained. I'm just curious as to whether or not is there something else further coming down the pike?

MR. MCGEE: Chairman, to my knowledge, this is really basically the last thing. I think from this point on, we'll be in a configuration where we would probably just be reviewing with you our annual capital spending, capital budgets on an annual basis. We don't think the interest rates are going to go any further than when we hear about half a trillion federal deficits. We know this is the end on this, but we do think it is still a historical opportunity to try to level this thing off and make it manageable.

One of the things I'm really proud of, first of all, in terms of -- I think it's unprecedent that we brought in as many outsiders, and I know there is arguments about whether you bring in outsiders or not, but we brought a national firm to look at this; and one of the things I'm most proud of, when you look at the proposed debt service, is it sort of, you can go out almost 20 years, and find that the debt service still doesn't make it back up to the level it is now.

We think that's a much more intelligent and manageable way to handle the debt service on a long term basis. We don't expect to be piling up any new debt. Clearly, any debt issues that we come back to, we have to come back before this body, but I think -- I would like to use the example that this mountain of debt that we're facing right now is trying to pay for a house in five years.

We can try to do it that way, but you may bankrupt yourself. If you made it a 15 year mortgage, that would make it a lot more manageable, but clearly a 30 year mortgage, I think, gives you an opportunity to live in the house, buy groceries and meet some of your other obligations, and that's really what we're trying to do here.

We realize that if you look at the example of a 15 year mortgage versus a 30 year mortgage, you're obviously going to be paying more in interest over the 30 years you would in 15 years; but just from a manageable standpoint, from the idea that you would like to have a stable as possible tax environment, we think that's positive for growth, and we think this is a much more reasonable way to handle this.

We've done a net present value on this. It is going to cost the city probably about 23 million dollars in current value over the next 30 years to do this, but we feel that at least the debt service portion of our structural portion will be addressed, and that will no longer be the component that it is in our structural deficit.

There are other issues, health benefits, labor contracts. Clearly, those are still part of it, but this takes debt service out of that structural deficit picture.

MR. WATKINS! Questions from the board?

MR. MULLINS: Well, does the city have any intention of adopting the new early retirement programs being offered?

MR. MCGEE: At this point, yes, we are.

MR. MULLINS: Do you see that there may be substantial savings?

MR. MCGEE: Well, again, that's really a question of the city, you know, how do we replace people. That is really the replacement strategy for the people that are allowing us to have this opportunity. We're projecting that if we can keep the replacement level at about 60 percent, that there are going to be enough savings suggested by the program.

MR. MULLINS: Second question is if the city does intend to go in that direction and does, would you be issuing debt to take out the obligation, or would you be running that out over 15 years?

MR. WALRATH: Can I help and answer that?

MR. MCGEE: Yes, please.

MR. WALRATH: As you know, the new law would allow them to issue bonds to take care of that situation, and to the extent -- and they'd be doing them taxable. To the extent they could do it at a cost less than eight and three quarters, which the division is going to charge for the annual kicker, I think they would seriously do that.

MR. MULLINS: The reason I bring it up is obviously it would add to your debt exposure, and with all due respect and believe me, I'm as fond about Jersey City as I can be, but I do want to, for the record, indicate that the total debt service under this proposal would be going up by over 200 million dollars.

MR. MCGEE: Over 25 years, 30 years.

MR. MULLINS: That's a lot of money.

MR. MCGEE: It is, and again, if I think you made the same comparison, a 15 year mortgage versus a 30 year mortgage, you find that you are paying a lot more. Again, I think that we're trying to maintain a reasonably stable tax environment in Jersey City. We think that the key to Jersey City's survival is growth, and we think that any time -- we may still have to visit taxes.

I'm not saying we're not. This precludes it, but maybe this makes the tax bite not as hard. Clearly, if we left the current debt service in place, it would just be that much more of a tax burden on businesses.

MR. MULLINS: How do you answer your critics that say you're mortgaging it in the future?

MR. MCGEE: Again, I don't think this is anymore than a 15 year mortgage versus a, 30 year mortgage. What it does is it allows the city to have some capacity to do some modest borrowing on an annual basis without having the debt service go over 60 million, 70 million dollars which clearly, it could go over during the next ten years.

And the other thing that we have to remind ourselves of is that we are at a historical point with interest rates. If we wait a year to do this, believe me, the cost will be even more dramatic, and we're trying to take advantage of that right now.

MR. MULLINS: But most applicants using the historical low rates do such to save money. This is going to cost more money.

MR. MCGEE: Only over 30 years because we're stretching out, and again it's a lot cheaper -- I understand that, but what I'm proud of is the fact that if you look at the level of the debt service, it doesn't go above where we are today for like another 20 years, and I think that's significant.

MR. WATKINS: Let me have a clarification. This is leveling out debt service payments that you have?

MR. MCGEE: Yes.

MR. WATKINS: That are coming, so that's where the savings is. Just the fact that you're saving spikee that is anticipated.

MR. MCGEE: That is correct.

MR. WATKINS: That would not anticipate that is a reality without this restructure, correct?

MR. MCGEE: Without this restructuring, we will have some other various severe --

MR. WATKINS: And that's a key aspect certainly of my being in favor is that, you know, these spikes that were there, whether they're prudence of the past is notwithstanding the fact that the spikes were there; and what this generates to a town that's trying to put itself, right itself, is where the benefit is.

MR. TURNER: But the spikes are in the short term.

MR. MCGEE: The next ten years, correct.

MR. TURNER: And so what

MR. Mullins is referring to by spreading the spikes out or taking those dollars and putting them into the third year program, it adds more interest.

MR. MCGEE: There is no question about it.

MR. TURNER: But give us -- is there some indication of the mechanism of the spikes?

MR. MCGEE: Yes.

MR. MULLINS: I can tell you. In the year 2024 the debt service goes up by 31 and-a-half million dollars.

MR. TURNER: Is beyond the spike. That's the new package. What is the current spike?

MR. MCGEE: The current spike is 57 million, I believe.

MR. TURNER: Is that current?

MR. MULLINS: No, that's on the proposal.

MR. MCGEE; No, no.

MR. WATKINS: The current spike is around without change.

MR. MCGEE: The current spike is around 57 million. There is a 54 million, 52 million, 59 million.

MS. KNIGHT-MARSHALL: There is a 61.2 million dollar spike existing.

MR. TURNER: I'm talking existing now. MR..WALRATH: Almost 60 million from 2004 to 2007.

MR. TURNER: A 30 million dollar spike from 2004 to 2007; is that what you're saying?

MR. WALRATH: It's going to be roughly about ten to 15 million dollars a year higher than existing debt service going out for payments.

MR. TURNER: When you throw in the present value, it does change some of the -- when you throw in the cost over time though, the actual dollar cost does diminish, but the spike is the initial problem which is five to six years ago.

MS. KNIGHT-MARSHALL: Can I make a comment, please? If you look at the package --

MR. TURNER: The actual dollar cost over 30 years is a lot less than the actual dollar cost for four or five years.

MS. KNIGHT-MARSHALL: What I'd like to make a comment on is that using

MR. McCee's scenario of a mortgage of five years versus a mortgage of 30 years, everybody knows that when you mortgage your house for 30 years, you're going to pay a lot more interest for it over the long term, but the cost to you today, to be able to pay it off in a shorter period of time, impacts your ability to make other payments that you have to make.

The difference in the reduction of the mountain top is as dramatic as ten million dollars a year in some cases more than that by leveling it off, and current dollars are more valuable than future dollars. It's called the present value of money, so money that you're stretching out into a 30 year scenario, you're also making the assumption that over the course of 30 years your rateables are going to increase, that Jersey City is not going to stand still in terms of its rateables --

MR. TURNER: But equally important, with the type of spikes you're talking about, they're, going to be a distressed city again in four five years.

MS. KNIGHT-MARSHALL: Exactly.

MR. TURNER: There is no way out, and this is set debt, correct?

MS. KNIGHT-MARSHALL: Yes, sir.

MR. TURNER: There is just no way out. The only way out is to take advantage of the market which is not as good as it was six months ago, but it still is significantly better than it was six years ago.

MR. MCGEE: And we're sensitive to the market because on one of the questions from Monday night's special council meeting was why didn't we do this three months ago. If we knew the bottom of the market was three months ago, everybody would have done that, but just in three months, we've lost the ability to refinance 107 million dollaxs?

MS. KNIGHT-MARSHALL: Yes.

MR. MCGEE: We could have done three months ago.

MS. KNIGHT-MARSHALL: The market has moved 150 basis points since July.

MR. TURNER: And the majority of the council has endorsed this?

MR. MCGEE: Yes, it was unanimous.

MR. TURNER: Not an insignificant feat by itself. 

MR. HARKNESS: It was the market -- I know you were in a few months ago.

MR. MCGEE: Yes, that is correct.

MR. HARKNESS: And it was a major proposal, a funding proposal. The movement in the market is the reason that you need to come in again?

MR. MCGEE: No, no. We just know that we had this structural problem, and believe me, if we all had a crystal ball, we would have developed this whole program three months ago. The problem is we know that with the federal government now talking about half a trillion dollar deficits that they're going to crowd everybody out of the marketplace including the municipalities, and we're trying to -- I know in the past Jersey City has not been -- we've not had a reputation for looking into the future.

And we were just thinking, if there was a way to make this as rational as we can make it -- and one of the good news about this is we're refunding school bonds, and since the state, at this point, still helps us reimburse on school bonds, it's really a little bit less of a burden for the state in terms of their reimbursement.

MR. HARKNESS: Why wasn't this part of the earlier proposal? That's what I don't understand.

MR. MCGEE: It's taken a lot of time, and I can't speak to the hours that the investment bankers, bond counsel has spent in developing the strategy. We didn't want to just come out here and throw something on a sheet of paper. We've really researched this. we have the best brains working on this.

We battle back and forth whether it should be all inclusive, if we should leave the school bonds out, not leave the school bonds out. There's a lot of analysis. I can't even begin to estimate the number of hours that have come into play just to produce this little chart.

MR. HARKNESS: I'm sure of that.

MR. MCGEE; It is a time constraint.

MS. KNIGHT-MARSHALL: And plus we've been market constraint because initially when we looked at it when the first application went in, the market was in a different place, so there were refunding opportunities when the application went in. Since the application has gone in, those refunding opportunities have disappeared into the market thin air.

MR. HARKNESS: That is what I was originally asking. I think that's important. Would you say that's the reason -- what bothers me a little bit is I understood that prior proposal to be it, this is it. We've thought this through, and that's it.

MR. MCGEE: This is it.

MR. HARKNESS: And a few months later we're back and we've got a another manor --

MR. TURNER: This is it, it.

MR. MCGEE: The problem is we couldn't come in good conscious to this council and talk about doing refundings if it wasn't a three percent savings, and that was really the hurdle rate we had set. Again, this application process is a four week process. The market has moved. It would be kind of crazy to come here and say we're going to refund five million dollars worth of bonds.

MR. WATKINS: The point is we thought the last time that was it. This time you've come in with more, and we want to make sure this is -~ no more. 

MR. MCGEE: This is no more. This is all our debt.

MR. WATKINS: What we're saying to you is you come three months from now expecting to get something, to refinance, it's not going to happen.

MR. MCGEE; Yes, Sir.

MR. TURNER: And I think I'll add to that, if I may,

MR. Chairman, to the extent that this works, any additional debt has to be dealt with very carefully from the city because obviously that starts screaming the numbers again. You've refinanced everything. You have a plan to deal with your spike, but if you start coming out with big projects and more debt, I think that's going to create a significant problem.

MR. WATKINS; You've got to be very careful in the future, and the division is going to watch that very carefully as well, so in advising the Local Finance Board so I think we cleared up a lot of issues that are of interest and concern of the board. Are there any other questions from the board? If not, I'll entertain a motion. 

MR. TURNER: I'll move the application.

MR. HARKNESS; This is for all four of the --

MR. WATKINS: One vote for the qualified school, the bond ordinances, the qualified bond, refunding of the bond ordinance, and the revised maturity schedule.

MR. WALRATH: The revised maturity schedule was for the bonds for tax, appeal refunding notes. vote on that?

MR. TURNER: Do you want a separate

MR. WALRATH; I do not need a separate vote, but I did not explain why you did have correspondence on that, but when. they had come in the past for their approvals for the maturity schedules for refunding bonds, their ordinances contain a specific maturity schedule.

I believe after Pat had done some research, found the actual Local Finance Board resolution, which showed a different payment schedule, although the city was currently ahead of that payment schedule, the last few years are different and the city has been moving forward  based upon their ordinance. Rightly or wrongfully so, I don't want to continue doing that. I'd rather have it blessed here. They'll be done next year. They have one more year to roll it over, and they're done.

MR. WATKINS: So it's on the qualified bonds --

MR. WALRATH: That's under revised maturity schedule for the last one.

MR. TURNER: Do you want that together, or do you want that as a separate vote?

MR. WALRATH: It can be together.

MR. EWING: I got a question. What happens if we don't pass this?

MR. WALRATH: If you don't pass this, it's a very good question, Senator.

MR. EWING: What is the answer?

MS. KNIGHT-MARSHALL: You could inherit Jersey City to the distressed cities program.

MR. WALRATH: The answer is, sir, we would have a problem because the city has budgeted this year for a specific amount of pay down and a specific amount of rollover. They are already in the process of closing on the nose.. They're waiting for this approval.

MR. TURNER: Just on the last portion?

MR. WALRATH: Yes, on the last portion. It would cause --

MR. TURNER: On the qualified bond portion as well?

MR. WALRATH: On the revised maturity schedule. It's a fair question.

MR. WATRINS: Any other questions?

MR. MULLINS: Certification executed by the CFO, i.e., the chief official officer whomever he or she may be next week.

MR. WALRATH: That should have been filed. Does your copy not contain that?

MR. MULLINS: No certification by the CFO.

MR. WALRATH: We do have that. I will get that to you today.

MR. WATKINS: Make sure it's here.

MR. MCGEE: Yes, sir.

MR. SWING: Make it contingent on receiving it.

MR. TURNER: It has to be done so they can fax it today, right? 

MR. MCGEE: Absolutely.

MR. WALRATH: Yes, it's already been done and signed.

MR. WATKINS: We're going to take two votes. One is on the qualified first three issues on the closed qualified school bonds, the proposed qualified bond ordinance, and the proposed refunding bond ordinance. We're going to do the maturity schedule second.

MR. TURNER: I move the first three which is the first vote.

MR. WATKINS: Motion, and I seconded it. Call the roll, please.

MS. MCNAMARA:

MR. Watkins.

MR. WATKINS: Yes.

MS. MCNAMARA:

MR. Harkness.

MR. HARKNESS: Yes.

MS. MCNAMARA:

MR. Turner.

MR. TURNER; Yes.

MS. MCNAMARA:

MR. Ewing.

MR. EWING: Yes.

MS. MCNAMARA:

MR. Guhr.

MR. GUHR: Yes.

MS. MCNAMARA:

MR. Mullins.

MR. MULLINS: No. 

MS. MCNAMARA:

MR. Light.

MR. LIGHT: Yes.

MR. WATKINS: On the issue of the proposed, the 29,600,260 proposed revised maturity schedule, do we have a motion?

MR. TURNER: I'll move.

MR. WATKINS: Do we have a second?

MR. LIGHT: I'll second.

MR. WATKINS: Motion and second. Please call the roll.

MS. MCNAMARA:

MR. Watkins.

MR. WATKINS; Yes.

MS. MCNAMARA:

MR. Harkness.

MR. HARKNESS: Yes.

MS. MCNAMARA:

MR. Turner.

MR. TURNER: Yes.

MS. MCNAMARA:

MR. Ewing.

MR. EWING: Yes.

MS. MCNAMARA:

MR. Guhr.

MR. GUHR: Yes.

MS. MCNAMARA:

MR. Mullins.

MR. MULLINS: No.

MS. MCNAMARA:

MR. Light.

MR. LIGHT: Yes.

MR. WATKINS: Okay. Thank you. Now, Jersey City Incinerator Authority. I assume it's the same group?

MR. WALRATH: Yes, it's the same group here. The city had been before you, I think, in November of last year with respect to an ordinance that the city would fund capital equipment for the Jersey City Incinerator Authority, and the ordinance provided either that the money would be granted to the incinerator authority or made as part of a loan.

The city council wants the incinerator authority to be responsible for this, has required it to be a loan, so we've prepared documentation evidencing that loan for the incinerator authority, which under the Local Authorities Fiscal Control Law would be required to come here to seek positive findings on the project and the issuance of its debt to the city.

MR. WATKINS: Any questions on this?

MR. TURNER: Do we have an application on this?

MR. WALRATH: There is an application.

MR. WATKINS: Any questions? MR, LIGHT; Your outstanding debt is seven and hundred thousand something?

MR. WALRATH: It's going to be done by the end of this year.

MR. TURNER: One note, 2.2 million?

MR. WALRATH: Right.

MR. LIGHT: I'll move the application.

MR. WATKINS: Motion. Do we have a second.

MR. MULLINS: Second.

MR. WATKINS: Motion and second. Call the roll, please.

MS. MCNAMARA:

MR. Watkins.

MR. WATKINS: Yes.

MS. MCNAMARA:

MR. Harkness.

MR. HARKNESS: Yes.

MS. MCNAMARA:

MR. Turner.

MR. TURNER: Yes.

MS. MCNAMARA:

MR. Ewing.

MR. EWING; Yes.

MS. MCNAMARA:

MR. Guhr.

MR. GUHR: Yes.

MS. MCNAMARA:

MR. Mullins.

MR. MULLINS: Yes.

MS. MCNAMARA:

MR. Light, 

MR. LIGHT: Yes.

MR. WATKINS: We won't see you guys for a while.

MR. EWING:

MR. Chairman, I got a question. They said the thing was unanimous, but this letter from Carol Marsh --

MR. TURNER: That's Hoboken.

MR. WATKINS: Which is next.

MR. TURNER: Hold that thought.

MR. WATKINS: Let me have a clarification. Let me go to another issue on Jersey City for one second. Clarification on what action. Chris, you had taken -- you had made the request that the setting of the advised maturity schedule be qualified bond maturity schedule, and the new money be scheduled to be set by what?

MR. WALRATH; It's a schedule on refunding, qualified bond schedule for the refunding to be delegated to the chair to determine that. Unlike the bond on the refunding, which we present a schedule on as long as we don't vary from that analysis, I don't believe you're now approving particular maturity schedules. Qualified Bond Act does require the approval of a particular maturity schedule.

The one that the investment banking firms have put together is based upon today's market. It could be adjusted slightly to fit when they go out to the market. In which case, if we have to come back for a formal application, it's a timing thing. They'll come back if that's what the pleasure of the board is, but it's a timing issue.

MR. WATKINS: Does the board want to do that, delegate that, or do you want to have a special meeting?

MR. TURNER: It's just timing, right?

MR. WATKINS: How much time is timing, 24 hours, 48 hours, 36 hours?

MR. WALRATH: Well, normally what happens is, you know in these refunding bond scenarios, the underwriters will go out with a proposed scale on a proposed maturity schedule, and there might be more interest in the later years, and then they have to adjust the term bonds; and if they commit to that scale, they have to immediately turn around and give approval for that because underwriters don't want to commit to buy unless they know the city is committed to sell it, and the city can't commit to sell it unless this board has approved the maturity schedule, so it's not a 24 hour. It's within a day.

MR. LIGHT: Can I make a suggestion that the board defer that to your decision, and if you find that there's something that is unusual, that you're not comfortable with, you can always call a special meeting.

MR. WATKINS: Is everybody comfortable with that?

MR. EWING: Sure.

MR. WATKINS: I just want to make sure they get the best deal they possibly can. How do I address that, Dan?

MR. LIGHT: Do you need a motion?

MR. REYNOLDS: I think if, in fact, the board is going to, I guess, invest that authority in

MR. Watkins, it should be on the record, so there should be a motion authorizing

MR. Watkins to review the actual maturity schedule that the city intends to use in undertaking the refunding that the board just approved, and he would determine that the maturity schedule that the city is actually going to finalize is consistent with the maturity schedule that the board reviewed and approved, or if not, in

MR. Watkins judgment, that they'll have to do what

MR. Light suggested, do a special meeting.

MR. LIGHT: I'll make a motion.

MR. HARKNESS: I'll second that.

MR. WATKINS: We have a motion and second. Please call the roll.

MS. MCNAMARA:

MR. Watkins.

MR. WATKINS: Yes.

MS. MCNAMARA:

MR. Harkness.

MR. HARKNESS: Yes.

MS. MCNAMARA:

MR. Turner.

MR. TURNER: Yes.

MS. MCNAMARA:

MR. Ewing.

MR. EWING: Yes.

MS. MCNAMARA:

MR. Guhr.

MR. GUHR; Yes.

MS. MCNAMARA:

MR. Mulling.

MR. MULLINS: Abstain.

MS. MCNAMARA:

MR. Light.

MR. LIGHT: Yes.