Hoboken officials will release a preliminary municipal budget in the next week or two. The budget is in the process of being finalized, and city officials are grappling with a multi-million-dollar budget gap.
The city faces an estimated $7.4 million budget shortfall due to anticipated increases in personnel costs, among other expenses. This reportedly does not include the projected decrease in the city’s surplus account from $21 million to $15 million.
Councilwoman Tiffanie Fisher, who is on the Finance Committee, challenges the $7.4 million figure.
“The City is in a very difficult position with a total budget gap of up to $14M, almost double the original estimate when the use of our surplus to balance our budget is included,” she told the Hudson Reporter. “The solutions are not straightforward and will impact peoples’ livelihood, our municipal tax rate, and provision of city services. Not having a business administrator to navigate through this process only complicates things.”
Budget gap explained
The city stands by $7.4 million figure. And, according to a Dec. 17 memo from Business Administrator Stephen Marks, the gap is due to a variety of factors, including an anticipated increase in employee medical benefits of about $1.5 million; a state-issued pension bill which is $578,345 higher than last year; and anticipated increases in salary for all the city’s six municipal labor unions currently in negotiations.
The total to settle all the labor contracts is estimated at $3.2 million, a $2.5 million increase over the city’s previously budgeted amount of $700,000. This does not include retroactive pay for all bargaining units.
“When pension and health benefit increases have been added, the subtotal for expected contractual personnel costs is $5,691,795,” Marks said in the memo.
This is compounded by revenue shortfalls such as an estimated $300,000 loss in municipal court fines; a debt service increase of $600,000; departmental budget requests of $642,000; increases in solid waste disposal fees of $100,000; and an increase in the Joint Insurance Fund premiums of $87,000.
According to previous municipal budgets, every year the city uses a portion of the funds from its surplus account in its budget as revenues. Last year, the city used about $12 million from the surplus account, which had a total of $21 million, as revenues.
Throughout 2019, only an estimated $5 million was regenerated, which leaves the city with a surplus this year of about $15 million.
According to city officials, this surplus is replenished with previously budgeted funds that were unspent.
For example, if the city budgets $100,000 in outside attorney contracts but spends only $50,000, the extra $50,000 would go into the city’s surplus account.
As the city spends closer to its estimated budgeted costs, there is less money left over to go into surplus.
This year that loss is estimated at about $6 million. According to city policy, the city can only use the amount of surplus it is able to regenerate, which means they will need to either find an estimated $6 million in revenue, further cut expenses, or a combination of both.
Fixing the gap
To address the projected $7.4 million budget gap, the city is considering a variety of remedies, including layoffs, tax increases, and changing insurance plans (if agreed to by the city’s bargaining units).
According to a Jan. 15 letter to the New Jersey Civil Service Commission, the city may lay off up to 79 employees.
Thirty-eight employees from the Department of Administration, four employees from the city clerk’s office, one employee from the Department of Community Development, 10 employees from the Department of Environmental Services, four employees from the Department of Finance, 11 employees from the Department of Health and Human Services, six employees from Public Safety, and five employees from the Parking and Transportation Department could be let go.
According to the city, all the employees would be laid off only in a “worst-case scenario.” The decisions on how many people in each department could be let go would be made after the administration met with city directors.
Civil Service has a total of 30 days to review and approve the plan for layoffs before the city can issue a 45-day notice to employees who will lose their jobs.
The city can also raise taxes this year. Last year the revenue generated from property taxes was about $56.5 million. By state law, this tax levy is subject to a two-percent cap, which means the city could raise taxes this year by about $1.9 million.
But this isn’t a hard cap because there are exceptions.
If a municipality doesn’t raise property taxes as much as it is allowed to, it can hold onto the unused funds in a Levy Cap Bank.
In Hoboken, that is about $5 million, according to the Dec. 17 memo from Marks.
That means the city could increase the tax levy by almost $6.9 million, but that could be done only if approved by voters on a referendum in the spring.
Director of Operations Jason Freeman said the city is spending less than the previous administration. Freeman will be acting business administrator along with Assistant Business Administrator Caleb Stratton when Marks resigns on Feb. 16.
“The narrative that is being put out there, that our philosophy is to spend now worry later, is just false,” Freeman said.
He said under the previous administration, in 2016, the city spent $2.48 million on salaries in the mayor’s office, business administration, and corporation counsel and outside attorney fees. In those same categories, the city spent $2.2 million in 2019.
Freeman formerly served as Deputy Chief of Staff for Mayor Ravi Bhalla. He became Director of Operations in December when the city announced administration changes, including the appointment of Caleb Stratton as Assistant Business Administrator, a position left vacant by Patrick Wherry in February. Former Chief of Staff John Allen moved to the Office of Corporation Counsel as Assistant Corporation Counsel.