Hoboken, N.J., now needs state approval for all borrowing and spending plans during the next year after New Jersey officials yesterday announced that they are extending their supervision over city operations.
Mayor David Roberts and his staff learned of the level of oversight yesterday in a meeting with New Jersey's Local Finance Board. The board approved selecting a state monitor to map out how the city should close its more than $10 million deficit, requiring LFB approval on all city expenditures, and restricting all new-money borrowing, according to Kathryn Kinney, financing consultant at Donohue, Gironda & Doria, the city's financial adviser. Susan Jacobucci, director of Division of Local Government Services, ran the meeting.
"The finance board was clear that this was not a state takeover, that this is a state supervision," Kinney said. "And [Jacobucci] listed a number of items that they will take state supervision of, namely that the city cannot issue any debt without the state's approval."
Hoboken must now receive LFB authorization before heading to market with a new-money bond or note sale. Typically in New Jersey, municipalities must receive LFB approval only on refunding debt or non-general obligation borrowing, leaving local governments free to issue new-money GO debt without state authorization.
Along with the debt restrictions, the state will approve all city contracts, including professional-services contracts. In addition, there will be an audit of all city employees and departments, "to make sure that the right personnel is assigned to the right position within the city," Kinney said.
A state monitor will work with the mayor and his staff on a day-to-day basis, and at Hoboken's expense, to address the $10 million deficit and craft a budget for fiscal 2009, which began July 1. Monthly reports to the LFB will detail city revenues and expenditures for the board to approve. Jacobucci said Roberts and city council members will contribute to the budget process, but the city's most immediate needs and addressing the shortfall are the state's first concern.
"If the mayor has an idea of how to bring revenue in, he can certainly propose it, if the [City Council] has ideas, they can certainly propose it," Jacobucci said. "We are not dismissing anything out of hand, but what we are going to do is we're going to look at things and make sure the essential services are covered, make sure the deficit's made up and we're going to try and keep the burden on the taxpayers as minimal as possible."
Hoboken officials knew the state oversight was imminent after the city council failed to pass a $92 million budget for fiscal 2008 before the state-imposed deadline of June 6. Yet council members said they did not hear of the $10 million deficit until late May and have had difficulty throughout the year getting hard numbers from Roberts' staff.
In anticipation of the borrowing restriction, Hoboken yesterday closed on a $20 million tax anticipation note deal and a $15 million bond anticipation note sale, although the bans did receive prior LFB approval, Kinney said. The tans will help the city with its cash flow before third-quarter tax revenues come in and the bans will help support capital projects throughout Hoboken.
Both negotiated note deals mature in one year. NW Capital Markets Inc. is the underwriter on the short-term debt. Gluck Walrath LLP is bond counsel.
Hoboken has $60 million of outstanding debt and does not carry underlying ratings from the three ratings agencies. The city has an estimated 2006 population of 39,853, according to U.S. Census data, and is located directly across from Manhattan, over the Hudson River. Gov. Jon Corzine is a resident of the city.
In April, the LFB implemented a one-year state oversight for the city of Bayonne, about eight miles south of Hoboken. The state decided to supervise Bayonne's operations after the city ended two consecutive fiscal years with budgetary shortfalls.