State financial supervision credit positive for Newark, Moody's says

By Jessica Mazzola | NJ Advance Media for NJ.com
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on October 13, 2014

 

NEWARK — State supervision over the city’s finances is a good thing for Newark’s financial stability, credit rating agency Moody’s announced in its weekly Credit Outlook newsletter released today.

“State oversight, under the New Jersey Department of Community Affairs, is credit positive for Newark because it places the state in control of many of the city’s fiscal decisions, which gives the state powers to overrule local government decisions and removes local government governance from the equation,” Moody’s analyst Josellyn Yousef wrote in the publication.

The “credit positive” declaration does not affect the city’s credit rating, which was downgraded to a Baa1 with a negative outlook in May. The rating is the third lowest of ten investment-grade credit ratings issued by the investors’ service, and indicates some credit risk in the ability of the city to pay back its bonds.

Instead, the indication is just one of many the organization considers when looking at the overall credit rating of the city, Moody’s said.

The publication outlined several changes that state supervision will bring to the city’s financial structure that Yousef said should have a positive impact:

 

    • The state will oversee staffing and budget decisions, including potential layoffs, Yousef pointed out. There have been no plans for layoffs yet, she said.

 

    • The state has control over collective bargaining agreements, so the state comptroller can negotiate union contracts “without the constraints of local political incentives,” she said.

 

    • The oversight will give the state the legal ability to cut expenditures and compel employee health benefit contributions. Yousef said will this will help cut down on “political impasses” that have delayed Newark’s budget process in the past, causing the city to miss out on proactive budgetary planning, and interfering with tax collection. “The state supervision process may help improve the timing of budget adoption,” she said.



Mayor Ras Baraka said he was glad to see Moody’s interpretation of the state supervision.

"We are moving forward working with the state to fix Newark's financial issues and we are happy that Moody’s sees this as a step in the positive direction," he said in a statement today.

Earlier this year, Newark announced it was facing a $93 million budget deficit. The city went through a series of budget revisions and measures to cut down the debt, including spreading the payment of its 2013 debt over the next 10 years, and accepting $10 million in transitional aid from the state. Some aspects of Newark’s amended 2014 budget, which addressed the eight-figure deficit, required the city be under state supervision.

The Local Finance Board, which approved the supervision last week, is scheduled to hold a public hearing on the city’s amended budget tomorrow.

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