Newark’s Credit Rating Drops Amidst Budget Concerns

Friday, 30 May 2014 19:27 Local Talk News Editor

 

 

NEWARK - Mayor-Elect Ras Baraka may have realized this last week that the pressures on Newark's finances may come from one source or another.


Gov. Christopher Christie, in a three-way meeting in his Trenton office with Essex County Joseph N. DiVincenzo May 21, told Baraka that the state has no interest in taking over Newark's finances.


Christie, as related by DiVincenzo in a published report, said he was taking a wait-and-see approach to how Baraka can plug what is now a $93 million deficit in the still-under-construction Calendar Year 2014 municipal budget.

"He (Christie) said, 'You need the opportunity to do what you have to do," recalled DiVincenzo (D-Roseland), whom the governor invited to the 45-minute meeting.
Baraka, who has been running heard on his transition since his May 13 election, may have heaved a sigh of relief leaving Christie's Trenton office. That relief was short-lived when Moody's Investor Service downgraded Newark's credit rating from A3 - the fourth lowest rating - to Baa1 - the third lowest - May 22.


"The negative outlook reflects our view that Newark's financial position will continue to be strained," said the New York City rating company May 22, "with late budget adoptions and a persistent structural imbalance due to recurring expenditures coupled with revenue-raising limitation."


Moody's is one of three nationally-recognized bond rating companies. Council members in Newark have mulled switching to one of the other two ratings companies.
Lowering Newark's bond rating will make revenue raising for New Jersey's largest city more costly. Banks will charge higher interest rates on Newark's bond issues.
Moody's had been hinting at lowering the city's bond rating as far back as 2008 and as recently as March.


An April 20 report to investors by officials in Acting Mayor Luis Quintana's administration, disclosing that the 2014 budget gap has risen from some $30 million to $93 million, got Moody's to downgrade the city's rating.


The officials cited, in part, last year's property revaluation for the increased debt. The revaluation, which sets the average values of taxable real estate properties for the next seven years, shifted more of the tax burden towards commercial properties and away from residences.
The revaluation, which sets the assessed value of a property for tax purposes, is generally one quarter of that property's market value.


The state requires municipalities to hold either a property revaluation or reassessment every seven years. Newark and Orange, among others, had failed to hold "revals" for decades - until the late 2000s.


The $93 million 2014 budget deficit also allowed the New Jersey Department of Community Affairs to consider taking over Newark's books this season. Thomas Neff, the DCA's Local Government Services Director, wrote Quintana about his considering such a takeover.
Neff cited to the acting mayor the latter's lack of consulting him in his November hires and firings, city elders not meeting several state fiscal guidelines, failing to hold an accelerated property tax lien sale in December and the city council adopting a budget late in recent calendar years.


Neff doubles as a state fiscal monitor, being present in council meetings the last two years. His presence in City Hall was one of Christie's conditions for giving some $31 million in state extraordinary aid to Mayor Cory A. Booker in 2012.


The state, through the Christie Administration, also required accelerated property tax lien sales, an annual audit and the consideration of sharing outsourcing and/or privatizing city services.
The $93 million gap became a late debate point on the mayoral and council campaign trail leading to the May 13 election.


Baraka, in several debates, said that city services have been "cut to the bone." The now-outgoing South Ward Councilman offered several council-derived economies, including establishing a port container tax. He said he was open to renegotiate the city's Newark Liberty International Airport lease with the Port Authority of New York and New Jersey.


"We have to grow our way out of the deficit," said Baraka. "We need to look at the millions of people who go through the airport and the containers and trucks that go through the seaport. We have to increase our revenue so we can put more code inspectors and police on the streets, to improve our services and to fund our public schools."


Christie and Neff may give Baraka time to present, with Quintana, a balanced 2014 budget, and for a future economic plan. They have left their fiscal leverage tools, however, within their reach.
Christie, complaining of the 2012 budget's late ratification, once cut $1 million in state aid to Newark.


State officials, including Christie (R-Mendham), have been pressuring city elders to get the budget balanced earlier in the calendar year for the last six years.
"We don't want Newark to stagger through 2014," said Neff to Quintana, "like it had in 2009 and 2010."


Booker, before voters made him U.S. Senator Oct. 16, had sought various economies since his 2006 election. Those moves also included raising property taxes 16 percent in 2011, a partial privatization of the sanitation department and the layoff of 700 city employees.
Booker's moves included the layoffs of 167 police officers and twice bringing a water and sewer Municipal Utilities Authority before the council.


Some of the laid off officers, whose pink slips were attributed to an impasse between Booker Administration and FOP Local 11 Nov. 30, 2011, have been rehired. The council voted down the MUA both times.


Several council members have complained about having to wait for state aid figures before finalizing their budget so late. Both New Jersey and Newark, by state law, have to have balanced budgets.


State Legislators have to pass and Christie has to sign a balanced state budget on or before June 30. State elders, however, are grabbling with an estimated $800 million deficit that has prompted the governor to say "everything's on the table," and to raise more user fees before dreading to raise taxes.


Newark is on a calendar year schedule - but it cannot spend until Dec. 31 to ratify it. The state DCA ideally wants a calendar year municipal budget in their hands in May. Budget processes entering the summer may subject late municipalities to financial or aid penalties.


The council adopted a $639.5 million final 2013 budget Sept. 10, 2013.

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