How did it get this far? The full Story of why the city Shut down last week

How did it get this far?

The full Story of why the city Shut down last week

03/28/2005 Hoboken Reporter

How did the city's budget wrangling get so out of hand that municipal services had to shut down? That's the question many residents are asking.

The answer has to do with a number of things - bad timing, nasty politics, and budget problems going back to 1990.

The budget conundrum

Hoboken and most other cities run on a budget year from July 1 through June 30. Therefore, this budget should have been passed last summer or fall.

In September, Mayor David Roberts submitted a preliminary $72 million budget to the council. Roberts claims that the budget was balanced, fully funded, and could be approved without a tax increase.

The garage is the lynchpin

But Roberts' opposition argues that the mayor's budget was never realistic.

To be fully funded, Roberts' budget relied on a plan to sell the city's municipal garage to the Hudson County Improvement Authority, a quasi-autonomous public agency, for at least $7.9 million. The HCIA would then lease it back to the city. Thus, the HCIA would be lending the city at least $7.9 million.

The garage property is really worth $10 to $20 million, so if the HCIA sold it later, it would give the profits to Hoboken.

The HCIA runs the county's solid waste management and recycling operations, but has also helped cities and the county with their budget crises by paying for revenue deals. Last year, the HCIA debated stepping in to help manage the Hudson River ferries that came close to going bankrupt. The HCIA is funded by the county's waste operations, and by government grants.

Needs separate vote

Roberts' garage deal needed to pass in a separate vote before it could be included in the budget. It also needs, as a special revenue item, a two-thirds majority on the council, rather than the usual simple majority.

However, four our of nine council members have disagreed with the mayor's spending policies, and two of them are running for mayor themselves. Those members have said from the beginning that they don't like selling off city assets for temporary budget relief.

After the budget was introduced in September, the mayor realized he needed to shift around some line items to stay within state law. The state has rules about how much spending in certain areas can increase over the previous year. Partly because of health insurance overexpenditures from the previous year, the $72 million budget was too large an increase. The actual proposed operating budget for the city less the over expenditures from the previous year is approximately 6.7 million.

So new amendments to the budget were introduced in December, but the state said there were errors in how certain items were classified and appropriated. In the end, the state said the budget had exceeded the allowable increase in spending and the city would need to apply to the state for a spending cap waiver.

The state granted the "cap waiver" in February, so the budget was ready to move ahead - but not quite. In a separate vote, the City Council voted down the garage sale.

The final budget has not yet come up for a vote, because the council has not approved the garage deal.

Budget gap is old story

Long before David Roberts' administration, the city has relied on one-time revenue sources, forcing a budget gap to re-open each year.

In 1990, under the administration of Mayor Patrick Pasculli, the city anticipated a land deal with the Port Authority to develop the south waterfront. Pasculli included millions of dollars from the proposed sale in his budget. However, two succeeding development proposals went down in referendum votes, meaning the city would not get the expected infusion of development money.

Because of the dearth of development and because of other city budget problems (including cuts in state aid), a structural deficit began widening.

In early 1993, Hoboken lost $3 million in state aid. Pasculli's administration raided the city's surplus and used more one-shot revenues to keep taxes from climbing that spring, and the city passed a $44 million budget. When Mayor Anthony Russo took office in July of 1993, he warned voters that he would have a huge budget hole to deal with. Pasculli also had warned that his successor would have a gap. Russo said the gap was as high as $23 million, although his critics argued that he was exaggerating to save face. (Critics also correctly noted that Russo had been the chairman of the council budget committee under Pasculli.) What is true, though, is that audits filed years later showed that Pasculli's administration had deferred at least $6 million in expenses to future years.

Russo introduced a $56 million budget with a 94 percent increase in municipal taxes, as well as several one-shot revenue sources.

The Russo administration worked on those revenue deals well into 1994, and his budget was finally introduced late in the 1993-1994 fiscal year. The state government threatened to fine the council members $25 a piece until they passed the budget.

The $56 million budget was passed, albeit with a tax increase and several non-recurring revenues.

Russo slowly began to bring the size of the budget back down to $52 million over the rest of his two terms, while taxes remained the same.

Russo and his business administrator, George Crimmins, said that once the waterfront and other depressed areas of town started finally seeing some development, the city would rake in more taxes and cut the tax rate. But the tax rate never came back down.

Mayor David Roberts, who took office in 2001, is still putting together budgets with non-recurring revenues, and spending has climbed to $72 million this year (but it should be noted that this year includes approximately 5 million in deferred expenses due to health insurance overexpenditures from last year).

Certain line items like the rising cost of employee health insurance have affected all towns.

Whose budget is it anyway?

So who is responsible for the budget - the administration or the City Council?

In Hoboken, it is up to the mayor and his full-time financial team to write a budget. That budget is then passed to the governing body, which in Hoboken's case, is the City Council. Once in their hands, they are charged with the responsibility to approve or amend that budget. It only takes a 5-4 vote to pass a budget.

In some towns, the City Council's Finance Committee reviews the budget and makes recommendations. Other towns hold all-day workshops to discuss the budget.

But has that ever happened in Hoboken?

Generally, the mayor has introduced the budget and council members have voted for or against it, while not offering specific solutions.

Roberts has said that the council minority is being disingenuous and political because they have not offered their own budget ideas.

"They are not willing to act on that budget, nor have they offered a single budget recommendation in terms of cutting spending, nor have they produced a single revenue item," Roberts said.

Councilman Tony Soares has, numerous times in the past, asked that a member of the minority be placed on the council's Budget and Finance Subcommittee. Instead, the subcommittee is made up of Richard Del Boccio, Christopher Campos, and A. Nino Giacchi - all of whom support the administration.

While any council member can suggest a budget amendment, working on the budget is traditionally the Budget and Finance Subcommittee's purview.

In Bayonne recently, two factions of the council worked together on their Finance Committee and came up with cuts, even if they were politically unpopular, to decrease spending.

Roberts said that still, any of the council members could have suggested specific cuts or made a motion at a council meeting.

"A governing body expresses budget cuts through resolutions, not verbally," Roberts said. "At least go through the trouble of developing a resolution that has a number on it. They certainly have four people. They could have sponsored and seconded many motions."

Election coming up

May 10 is the election for mayor and for three councilpeople at large. Council members Michael Russo and Carol Marsh are running for mayor, and Councilman Tony Soares is running for re-election to his at-large seat on Marsh's ticket.

None of these politicians, nor Roberts, wants to deal with the alternative to selling the garage - which is raising municipal taxes to fill the $7.9 budget gap.

But Marsh, Soares and Russo say they can't live with the garage idea, either.

Offering suggestions

Have the minority council members introduced or offered $7.9 in alternative cuts or revenues, or have they just criticized?

Councilman Tony Soares said Friday that it would be impossible at this point to come up with $7.9 million in cuts. He said that when he and his allies on the council have offered smaller cuts throughout the last two years, they have been accused of being naysayers or being "against" whatever they were trying to cut, like a city entertainment program.

"I don't think we could ever cut $7.9 million total without effecting a drastic reduction in services," Soares said. "The fact remains that we have to stop spending from two years ago... for over a year we had two parking authority directors. Those were things that were brought in to save us money, but they didn't. We gave [Roberts] the benefit of the doubt the first year to see how it was going to go. And it didn't work."

Soares said that he and his allies proposed, at a council meeting in December, that they only half-fund city legal contracts so they could revisit them from time to time and vote on them again, but the council majority ignored this and voted to fund a year's worth of work at once.

Roberts was not moved. "Marsh has not produced a single budget recommendation," he said. "Show me where you've cut."

The council minority said their ideas included rolling back hires made since a hiring freeze was enacted last year, lowering the salaries for the city's directors, the City Council and the mayor, freezing non-essential professional services contracts, and ending "unnecessary" city advertising.

With the exception of freezing contracts, those measures would have amounted to only a few hundred thousand dollars in cuts.

At a recent council meeting, Michael Russo openly proposed that the City Council members surrender their entire salaries for the year because of the city's budget problems. The move was voted down. It would have saved approximately $185,000.

Mayoral candidates Russo and Marsh both said Thursday that they are willing to sit down with the majority and work on the budget.

Temporary budgets approved in their place

So while the city has run without a final budget, the council has had to keep approving month-by-month temporary budgets, which pay salaries and operating expenses. These temporary budgets also require a two-thirds vote; therefore, four "no" votes are enough to block them.

Frustrated with administration's budget, on Jan. 19, the council minority first threatened not to approve these temporary appropriations.

"We will not vote over and over and over again for temporary emergency appropriations when they have yet to present us with a budget that doesn't insult our intelligence," said Marsh at that meeting. "For two years, we have said that the administration has been overspending its budgets, and for two years we have been ignored."

Marsh's current campaign manager is Roberts' former Chief Financial Officer, who was fired last year after breaking politically with Roberts, then won a settlement in a lawsuit against the city.

The state steps in

Responding to the council's threats, Susan Jacobucci, the director of the state's Division of Local Government Services, ordered the council in a Feb. 22 letter to approve temporary budgets until a final budget can be approved.

"The city will not be able to continue delivery of essential services for health, safety and public welfare of its residents," Jacobucci said. "Additionally, the city will not be able to fulfill its contractual agreements, resulting in a loss of services and potential litigations."

She added that the council members who do not obey the state order would be fined $25 a day.

Meanwhile, Roberts' administration had to admit a mistake. They had sent out fourth quarter tax bills without a final budget, a move that Councilman Michael Russo (the son of former Mayor Anthony Russo) said was illegal. After consulting the city attorney, the Roberts administration realized Russo was right and had to recall the bills.

A line in the sand

At the March 16 City Council meeting, the minority voted down, for a second time, the temporary emergency budget. They also said that the administration did not accurately follow the resolution to rescind the tax bills. And again, Jacobucci wrote a letter ordering the council minority to approve the temporary budget, as well as to take action on the real budget.

The breaking point

This takes the action up to this past Monday. An emergency meeting was called to approve the appropriations. Filling the room were over 100 people, mostly city employees, who were concerned that their salaries would not be funded.

Even if the council minority was not in favor of the final budget, Roberts urged them to vote on the temporary budget to keep services running.

"It's reprehensible that the governing body or small minority of the governing body is playing politics," Roberts said, "similar to what Newt Gingrich and the extreme Republican faction did several years ago at the national level. I sent a budget to the City Council seven months ago."

The dreaded 'T' word

If the sale of the garage does not go through, there are few other ways to raise $7.9 million in three months. One of them is a tax increase.

But no politician wants to voluntarily support a tax increase before an election.

Roberts and his team claim that the council minority is trying to "force" the majority and his administration into a last-minute tax increase.

"Their political ambition has the city workers walking on egg shells," said Councilman Michael Cricco. "If they don't like the HCIA proposal, then the alternative is to raise taxes. I have stood by the taxpayers and city workers for 10 years without a raise in taxes."

Michael Russo said that it's Roberts who is to blame for the city's shutdown, and said that it's Roberts who is being political by creating an emergency.

"Mayor David Roberts has done what no other Hoboken mayor has done in our city's history," he said. "Putting his fiscally irresponsible policies and overspending on the backs of dedicated city employees."

Thursday night, the council members worked together to pass a temporary budget. However, the permanent budget is still up in the air.

Will the city approve the garage sale to the HCIA and put a final budget in place? Will they simply sell the garage property to a developer, a move that requires only five councilmembers, but would have consequences for other buildings in the area? Will the city raise taxes? With the mayoral candidates be able to work together with the election five weeks away?

Tune in next week for new developments.


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