Moody’s Investors Service Friday placed Newark, N.J.’s general obligation bond rating on review for possible downgrade as the city has less than three months to close a $70 million current-year budget deficit.
Mayor Cory Booker and the Municipal Council must balance and adopt its $600 million fiscal 2010 budget in time to mail out tax bills in early November. Fiscal 2010 began Jan. 1.
“With less than 90 days to adopt a budget and mail out fourth-quarter tax bills for the current fiscal year, the city will be challenged to amend the proposed budget with additional revenues and-or sufficient expenditure reductions in order to prevent further deterioration of a weak financial position,” Moody’s said in a statement.
The rating agency said its “review will focus on the city’s adoption of a fiscal 2010 budget and assess the adequacy and timeliness of proposed plans to close the budget gap.” Moody’s rates Newark’s $500 million of outstanding debt A2 with a negative outlook.
Booker, who won re-election in May by 9,175 votes, had been pushing for the creation of a new bonding agency, the Municipal Utilities Authority. The council earlier this month officially tabled the MUA plan as many residents believe it would increase water rates dramatically.
Conversely, the mayor has said that without the authority, residents will see drastic tax hikes of roughly 27% and deeper reductions in city social services. Booker’s fiscal 2010 budget proposal already calls for layoffs of more than 600 non-uniform workers and cuts in spending. The administration plans to begin a four-day work week starting in late September.
Booker’s MUA initiative involved placing the city’s water and sewer operations within the proposed independent bonding agency. The new authority would then issue bonds to finance a $100 million initial franchise payment to the city. The administration anticipated using $70 million of the payment to help balance the fiscal 2010 budget, with the remaining funds going toward next year’s spending plan.
“Lost revenue that would have been generated from this [MUA] transaction represents 11.1% of current fund revenues (pro forma),” according to Moody’s.
In addition, bond proceeds would have generated funds for needed infrastructure improvements to the water and sewer system.
