Editorial: Jersey City’s Sketchy Financial Management

There is nothing as mind-numbing and impenetrable as municipal finance. A look at Jersey City’s 2023 budget is enough to send the most numerate among us running. But even without an accounting degree, a layperson can see that when it comes to financial management, there is a problem at 280 Grove Street.

A case in point. Near the end of a City Council caucus last month, Director of Finance Carmen Gandulla asked for the approval of “emergency appropriation financing” of $21 million to pay for refunds going to property owners who had successfully filed tax appeals.

Ward E Councilman James Solomon was taken aback. “Here’s an issue I raised to them six months ago” he told the Jersey City Times last week. “Our attorneys who are arguing these things should at least know what the potential liability is” said Solomon during the caucus.

The usually accommodating council president Joyce Watterman showed uncharacteristic frustration with the administration’s failure to anticipate the huge tax bill. “We just can’t keep accepting it…what’s taking so long to get the information?”

To pay for the refunds, the city would issue bonds to be paid back over five years, essentially putting the cost on the city’s credit card.

A New Jersey-based expert in municipal finance who asked not to be identified by name, was unsparing in their criticism of Gandulla’s December debt request. “Basically they have $21 million in expenditures they didn’t budget for” said the expert. “It’s not normal at all.”

This wasn’t the first time administration officials sought a bailout to pay for regular operating expenses with borrowing. Just seven months earlier, the administration asked for and got approval to issue $57 million in “special emergency notes” to begin closing a massive $92 million budget deficit uncovered by auditors of the city’s 2021 budget.

That infamous 2021 budget was, in the view of outside experts, likely manipulated to avoid a tax increase as the mayor ran for reelection. Rather than making the hard choices required to balance the budget, as the law requires, the administration opted to deliberately underestimate the city’s expenses allowing it to lower taxes and, ultimately, put regular operating expenses on the city credit card.

Then in November, Public Safety Director James Shea told the City Council he would need another two million dollars to pay for police overtime. “Routinely they expend more than they are budgeted for” says Solomon of Shea’s department. It’s something other departments don’t do, he added. By failing to live within its budget, said Solomon, the police department regularly “circumvents the democratic process.”

Who is responsible for making sure departments live within their budgets? “Ultimately it’s go to be the mayor” says Solomon.

Then there was the retirement money. Only weeks before Gandulla made her request for the $21 million, Assistant Business Administrator John Mercer went to the council seeking approval for $10 million in bonds to pay for retirement payouts. Then too, Solomon argued that the cost was foreseeable and should have been budgeted for. And again, over his lone no vote, the Council approved issuance of the bonds.

There was some irony in the administration’s request. Solomon points out that just before the mayoral election in 2013, Mayor Jerramiah Healy attempted to do the same thing, borrow to pay for accumulated absences. Then councilman Fulop objected and forced Healy to raise taxes instead, strengthening Fulop’s position as he ran to unseat Healy.

The effect of all the borrowing was that in less than a year, the administration added an additional $88 million in debt to Jersey City’s balance sheet for expenditures that should have been budgeted for and paid for out of the city’s regular revenues. To pay off the debt, the administration has now saddled taxpayers with a two percent tax increase for each of the next five years, before any additional tax increases, which are sure to come.

Making matters worse, it’s a particularly bad time to be issuing bonds, says Solomon. “The tax payers are going to pay an extremely high interest rate on those bonds.” By borrowing to pay for regular operating expenses, the administration is “kicking the can down the road” he says.

Solomon says that the City Council has taken some steps, including passing an ordinance requiring better reporting from administrators and regular overtime tracking.

But it’s not enough. Says Solomon, “I do not have confidence in the city’s financial management at the moment.”

Neither do we.