At a recent hearing of the state's Local Finance Board, the majority of the seven-member commission okayed the city's plans to restructure the debt, although one reluctant member told the administration they were "nuts" to propose it. The vote cleared the last major hurdle before the City Council can take a final vote.
A public hearing and possible final vote by the City Council on the issue is currently scheduled Oct. 1 at 7 p.m.
The Local Finance Board in the Division of Local Government Services, part of the New Jersey Department of Community Affairs, is the state arm that must green light proposed municipal bonding ordinances. The application passed the Local Finance Board with four members voting an unqualified yes. Another voted yes "very reluctantly" with "deference to local control." Additionally, one member abstained and the one member emphatically voted no.
The members of the board who voted in favor of allowing the city to refinance gave two lines of thought for letting the city go forward.
The first was that it should be a local debate whether or not future costs are worth current savings. "The issues that are local issues should be hashed on the local level between the council members themselves," said board member Ted Light.
The second argument was that the refinancing proposal is the best deal the city has produced before the board.
"I'm not convinced there are other alternatives that we might find acceptable," said Weehawken Mayor Richard Turner, who is a member of the Local Finance Board. "That is the problem."
He also said that it should be a local decision if the benefits outweigh the future costs.
James Mullins, the commissioner who voted no, questioned why the Local Finance Board was even hearing a proposed bond that would refinance a debt at a higher interest rate for a longer period at an "aggregate dis-savings" of around $18 million.
"Borrowing long-term debt to pay current expenses is like taking an advance on one credit card to pay another," said Mullins. "I got to tell you people, I think you're nuts. The emperor has no clothes."
Mullins added that currently, Hoboken can pay its bills without taking such a drastic and costly measure. He said that maybe for towns like Jersey City and Bayonne that have problems paying their bills, an extreme solution might be the way to go, but for Hoboken, incurring $18 million in future costs is too costly.
"What is this board doing?" he asked. "You're doing the same thing that you did 15 years ago when you approved those stupid FIAB [loans]. And that is why a lot of these towns have gotten these problems."
Pros and cons
According to the city's professionals, the proposed restructuring will lower the city's annual debt payment from around $6 million annually to less than $4 million for the next five years, meaning that around $11 million in debt will be deferred over the next five years.
But even the administration admits there are drawbacks, including borrowing at higher interest rates than the bonds are currently financed at, and extending the bond for nearly eight years.
In his testimony, City Business Administrator Robert Drasheff said that the restructuring will cost the city $18 million over the lifetime of the bond, which according to Drasheff, is between $2.5 to $3 million in current present value.
Another drawback is that the bond will be refinanced at a higher rate, a relatively odd occurrence when refinancing. According to the Ernst and Young's June 30, 2002 audit, which lists the interest rates for all of the city's loans, well over $30 million of the city's outstanding bonds are currently financed at an interest rate of between 4.15 percent and 4.75 percent. In fact, according to the audit, only one
$2 million bond was financed at almost 9 percent, more than the 5.75 percent that the city estimates it will get as the rate for the proposed refinancing.
Critics say spending $18 million to lower debt payments for the next couple years is entirely too big a price to pay for keeping taxes down now.
One interesting retort from critics is that that the entire municipal portion of the tax levy from property taxes for the past year was only $18 million, which is the same amount of extra money the administration is willing to spend in the future to push this restructuring through.
"The request we have before you generates no net savings for the city," said Drasheff during his testimony, "and it extends the term of the bond issue out by almost seven to eight years; so that in the end, we're paying about 18 million dollars more than we should have, but it generates significant savings in the budget process over the next five years."
There'll be layoffs, too
Drasheff added that city is "taking significant steps" to stabilize its budget, and this restructuring is just one of those steps. He said the city is also "taking steps" to increase revenue through development and other incentives in town, as well as preparing a plan for "significant layoffs in personnel."
He added that the city is waiting for the state to approve the administration's layoff plan, and he said that layoffs should occur "around Oct. 20."
Four political opponents of the mayor and opponents of the bond spoke at the hearing. First was Michele Russo, the wife of recently resigned Third Ward Councilman Anthony Russo (see sidebar).
The second was 1st Ward Councilwoman Theresa Castellano, who is also Russo's cousin. "It is clear that this refinancing makes absolutely no sense," she said. "Number one, the interest rates on the bonds are higher than the existing one. One would not refinance their mortgage to higher rates unless you had to."
Another speaker was At-large Councilwoman Carol Marsh, a critic of the mayor. She questioned whether spending $18 million in the future is worth the relatively short-term budget relief. "The cost of this is very high," said Marsh. "The benefits are relatively low."
Former Hoboken CFO Michael Lenz, who was fired by administration, also spoke against the bond ordinance.
A meandering evolution
Originally, in addition to refinancing the $42 million in debt, the city announced plans for an extra $15 million in bonds for several other purposes, including acquiring open space, building a new Public Works garage, a new fire headquarters and offering early retirement incentives to city employees. Now some critics, such as Marsh, say that the previous incarnations and promises of capital improvements were dangled before the council and public to justify refinancing at a higher rate, but now those promises have fallen by the wayside.
"[In the beginning] there were several things that [the bonding was purported to do]," said Marsh to the board. "[It was supposed to fund] the acquisition of open space, funding infrastructure improvements, facilitating savings to the refunding of health insurance costs, providing funds to facilitate early retirement, reducing interest spikes, and taking advantage of 'historically low' interest rates. In fact, none of these things apply with this application as [it stands today]."
"We don't like paying taxes anymore than we like paying out bills," she said, "but we won't refinance our homes at higher interest rates to pretend that we don't need to economize."
Drasheff has responded that it is the feeling of the Revenue and Finance Subcommittee of the City Council that each of these projects be looked at individually as separate entities and not as a package issue. Caption: PUBLIC HEARING OCT. 1 - The Hoboken City Council could take a final vote on the refinancing of the city's debt as early at the first meeting of October. Sidebar: Political sidenotes
This bond issue has many political side notes, not the least being the impact of the sudden resignation of 3rd Ward Councilman Anthony Russo from the council, as Russo was against the $42 million debt restructuring.
Last month, Russo, whose cancer returned, resigned from the council because of his health. If Russo were still on the governing body, this bond would most likely never see the light of day, because for a bond ordinance to pass it needs a two-thirds majority of the council.
At the Local Finance Board Hearing, Michele Russo, Anthony Russo's wife, read a letter from her husband objecting to the bond issue. "I was elected June 10th by the people of the 3rd Ward," reads the letter. "However due to the reoccurrence of my cancer, and on the advice of doctors, I resigned my seat. However, my constituents were not in favor of this bond refinancing, and if I did not resign, we would not be here."
Russo asked a vote be postponed until after a special election that is scheduled to be held Nov. 4.
What makes this more interesting is that Russo's son Michael is one of four candidates running in a special election to replace his father in November. While it is impossible to know who is going to win that election, if Michael Russo were to win and oppose the bond issue, Roberts would only have a few months to get this bond restructuring passed.