Two experts in municipal finance believe that the Fulop administration altered the city’s financial projections by millions of dollars in order to aid Mayor Fulop in his 2021 reelection efforts.
The two, who have worked for decades in New Jersey municipal finance, believe that by lowering estimated expenses that year — in accounting parlance “under-appropriating” — the city was able to announce a tax cut during a mayoral campaign.
Said one, “They lowered the 2021 budget … because of the election.” The other agreed, calling the budget numbers possibly “fraudulent.” Because of their ongoing relationships in government, both administrators asked that their names not be used.
A legally mandated annual audit completed early this year and approved by the city council last Wednesday provides evidence for their conclusion, they say.
By law, appropriations — also known as projected expenditures — must be matched by the revenues the city will collect. By under-appropriating, the city can raise less revenue and thus collect less in property taxes to balance its budget. But, when a city under-appropriates, it is budgeting for less than it actually needs to pay its bills resulting in a deficit that must be made up in the following year.
According to the audit, in 2021 Jersey City under-appropriated to the tune of $43 million. Those under-appropriations, said the administrators, made it possible for the city to lower property taxes as Mayor Fulop campaigned for reelection.
There were good reasons the administration might have wanted to lower taxes that year. As the summer of 2021 approached, the issue was on the minds of Jersey City homeowners. School taxes had shot up for a third year in a row due to massive cuts in state funding, and the mayor himself had come under withering attack for a new solid waste fee that had without warning shifted the cost of garbage collection previously borne by the city to home and business owners.
While Mayor Fulop’s road to reelection looked smooth, there was still the chance that he’d face challengers. In early June, a political newcomer named Lewis Spears threw his hat in the ring. His chief city council critic, Rolando Lavarro, was considering a run, too, as was political scion Rob Menendez. They still had months to file their petitions with the clerk.
A week after Spears’ June 3 announcement, the mayor would make a move that was music to the ears of stressed-out taxpayers.
In a June 11 press release, the mayor wrote that he would introduce a budget that would cut taxes for each homeowner by an average of $967. In a follow-up email in September, he pledged “to fix the decades of fiscal mismanagement” he implied he’d inherited from previous administrations. “We have successfully held the tax levy because we are fiscally responsible,” he said.
The budget was anything but fiscally responsible, said one administrator, pointing to $16 million that was under-appropriated for insurance. “Health insurance, that never goes down … ever,” the individual said. “I couldn’t understand how the state didn’t pick it up … I don’t know how they got away with that … if you budget less than the year before, they question you and ask, ‘Why is this less,’ and you have to give them an explanation.”
Another $4 million of under-appropriations related to police salaries, which one of the administrators found troubling. “You know what your salaries and wages are going to be. You know what your appropriations are going to be. You have full control over your salary and wages.”
As a result of the under-appropriations, noted one of the administrators, the city was able to lower the municipal portion of the tax “levy” (which includes municipal, county, and school taxes) from $266 million in 2020 to $207 million in 2021. That reduction, in turn, lowered the tax rate, allowing the mayor to announce a tax cut.
But if the election year tax cut and city’s manipulated budget that made it look affordable was good politics, it was, together with other accounting mishaps, a disaster financially. The audit laid out the damage in stark detail. The city had “incurred an operating deficit during the year ended December 31, 2021 of $92,939,388.” It was then forced to pay down $35,531,579 in debt in the 2022 budget. The remaining $57,407,809 would have to be paid in its 2023 budget.
And, indeed, the 2023 budget has been balanced through the use of $57.4 million in “special emergency notes” approved by the state. The notes are to be paid back over five years through a built-in two-percent-per-annum tax increase. Thus the 2021 deficit will echo into the future though higher taxes and fewer financial options for lawmakers.
“They just basically said we’ve got to get to this number”
That state regulators allowed Jersey City to so mismanage its 2021 finances surprised one of the administrators. “They had higher-level help get this through because nobody — the regular bureaucrats at the division of local government services who approve city budgets — would never allow this. They had to get permission. I don’t know what they did.”
The election year tax cut was short-lived. In 2022, municipal taxes jumped from $207 million to $319 million. For 2023, municipal taxes have climbed to $349 million. Jersey City’s tax rate has risen to 2.24 percent, putting it in league with many suburbs with higher-performing schools and lower crime rates.
But the deficits aren’t all the auditor — Donohue, Gironda, Doria, and Tomkins, LLC — found wrong with Jersey City’s financial management. It also castigated the city for shortcomings in its accounting procedures. Jersey City “does not have standard policies and procedures in place for regular interim reconciliation (such as monthly) of its general ledger to various subsidiary ledgers and other account balances,” the firm said. Compounding the budgeting problems, the city filed its annual financial statement months late and underreported its operating deficit by $57 million. The city’s financial reporting “was not timely and reliable.”
The city, for its part, is deflecting blame. According to Jersey City Chief Financial Officer John Mercer, who appeared before the city council at its Monday caucus, much of the under-appropriations related to COVID.
The administrators scoffed at the claim. “For them to blame Covid, it’s blatant,” said one. “There was money thrown at municipalities … everything was covered.” Vaccinations should have cost the city nothing, one said. “They reimbursed you at 100 percent.”
The Jersey City Times asked the city’s spokeswoman for an explanation of the COVID-related expenses that were not reimbursed. There was no response.
Neither administrator ventured an opinion as to which person or persons within the administration might have been responsible for the problematic financial projections.
Despite that, a recent court settlement would seem to bolster the case that there is a problem. In September, the city paid former chief financial officer Lubna Muneer $325,000 to settle her whistleblower lawsuit in which she claimed she was fired for refusing to falsify financial statements related to the municipal budget.
If the allegations of budget manipulation are true, the 2021 budget would not be the first time the Fulop administration politicized taxes. In 2013, Mayor Fulop cancelled a revaluation of properties, shifting $143 million in taxes to less affluent areas of the city to the delight of his relatively well-heeled downtown political base. Beyond shifting the tax burden to less wealthy residents for close to five years, the litigation cost the city over $4 million.
In a statement to the Jersey Journal, city spokeswoman Kimberly Wallace-Scalcione called the 2021 audit results “nothing new.” Moody’s, however, saw it differently. In April, the company downgraded Jersey City’s bond rating, writing that “internal controls must be addressed before the city’s finances can truly be on a healthy footing.”
For Assistant Professor Irfan Bora, Director of Master of Accountancy in Governmental Accounting at Rutgers, budgetary problems like Jersey City’s are usually caused by mundane factors such as under-qualified and over-stretched staff and a lack of internal control systems. The solution, he says, is “investing in proper governance and investing in proper systems. If you have that, many of these problems disappear.”
However, if mundane factors are often the cause of such mistakes, the administrators believe they aren’t the primary reason for Jersey City’s 2021 budget debacle. Opined one, “They just basically said we’ve got to get to this number, and they did anything they could to get to that number without thinking about the consequences.”