How Newark overcame its $93 million deficit in 6 steps

By Naomi Nix | NJ Advance Media for
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on October 09, 2014

NEWARK — It wasn't so long ago that city leaders first realized that 2014 would not be the banner budget year in Newark they thought it would be.

In April, officials disclosed in a public offering statement that the city faced an unexpected $93.5 million dollar deficit. Newark has been strapped for cash before, but that deficit was high, even for the Brick City.

But on Tuesday, the City Council adopted a 2014 budget that not only steered the city out of its multi-million dollar deficit but also included no employee layoffs.

So how did they do it?

  1. Former mayor, now current at-large councilman, Luis Quintana's administration got the ball rolling. In July, the city council introduced a balanced 2014 budget drafted by his administration (though he would eventually vote against introducing it when he went back to being a councilman), that included two surprising figures.
  2. The first was a proposal to pay the $30 million dollar deficit from 2013 over 10 years, which reduced the $93 million dollar deficit to $66 million. The budget also projected that the city could realize $47 million in revenue from selling its foreclosed properties, a figure that seemed unrealistic to many political insiders.
  3. When Newark mayor Ras Baraka assumed office, his administration started fiddling with the introduced budget. In August, the Baraka administration announced a strategy to reduce the deficit that did not rely on $47 million in property sales, but instead made up the deficit by enhancing business taxes, increasing the tax collection rate and accepting about $30 million in transitional aid from the state. Transitional aid is the process in which the state gives money to municipalities in budgetary emergencies.
  4. Last month, the state announced it was only awarding Newark $10 million dollars in transitional aid, forcing the city to come up with another $21 million dollars to make up the difference. The state played a big role in helping make that happen.
  5. The amended budget the city council adopted on Tuesday included a proposal that the state would allow the city to reduce its required contribution into the reserve for uncollected taxes by about $10 million dollars. The reserve is a fund the state requires municipalities to contribute to make up for any uncollected taxes from the year prior. More specifically, the state allowed the city to contribute to that fund based on its 2012 tax collection rate instead of its 2013 tax collection rate, which was lower, according to at-large councilman Carlos Gonzalez.
  6. The remaining $10 million was made up by various miscellaneous measures, including not hiring for vacant positions and contributing less to the city's unemployment insurance reserve.

The city's financial problems are from over. Newark will be paying down its 2013 deficit for the next decade, and the city still have to find ways to rely less on one-time revenue sources.

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