BAD DEALS FOR CITY'S FINANCES

Updated 10/18/01

Result:          26% Tax Increase in the Municipal Tax Rate PLUS 25% increase in water & sewer rates YTD PLUS $70.6 Million in Supplemental School Aid - new under Schundler PLUS $47,040,000 in "Distressed State Aid" PLUS $54,900,000 in BONDING for operating costs like Caven Point & the MUA PLUS additional millions in tax abatements in a BOOMING real estate market and still $17,500,000 in "pre-payments to balance FYE 2001's budget Plus numerous other questionable revenue sources. In addition, there were hundreds of layoffs of City Inspectors, Crossing Guards, Public Works Maintenance Employees, early retirement to needed Police & Firemen- see note below, suspension of street repavings & general repairs of an antiquated infrastructure ….

(1) Shortly after Schundler took the $15 Million reserve for repairs from the JC Sewage Authority and plugged half into the 1995 and 1996 city's budgets, the JC Sewage Authority bonded $11 Million to pay for repairs to the 100 year old combined sewer/storm water system.

(2) Schundler sold the water system in 1996, which was making a profit to United Water promising $40 Million in additional revenues and savings. The reality is the City got a $2.5 Million sign-on fee in 1996 and that's about it. Schundler promised no rate increases for 5 years but in 1998 when Schundler set-up the JC MUA, he bonded $36,000,000 ($31 Million went into the budget, $5Million was spent on legal fees, bond counsel, auditors etc) and raised rates 42% over 10 years to pay for those bonds!

(3)  Schundler vowed that Breen Capital would make good on part of the $25 Million in Subordinate Notes and plugged $8.4 million & $10 million into the budgets to avoid a tax increases. Both deals fell through and the following year's budgets had to be increased by the resulting deficits.

(4)  Subsequently, the City settled with Breen Capital on the $25 Million of notes & 7 years of 8% interest for $6.25 Million less legal fees of approx. $1 Million to Lawrence Bathgate… The 1993/ 1994 Bulk Lien Sales on $57 million in tax liens brought in $31.7 Million in cash + $25 million in notes and NO 8% interest on the notes as originally agreed an additional loss of million to the city.....

(5) The recent analysis by short-term NJS Director of Local Government Services Marvin Corwick mentioned the open Land Sales sitting on the Balance Sheet ( $11.2 Million ) that have not been collected. In his analysis, JC faces a $54 Million operating/ cash deficit which includes the old, uncollected balances on the Balance Sheet such as the land sales that never materialized.

"Bret Schundler claims he supports watershed protection because he sold watershed properties to the DEP; however, when you examine the details, you will find that Bret Schundler cared more about Jersey City's budget than he cared about protecting Jersey City's reservoirs. They were already protected because of the watershed moratorium. You will find instead that he sold these properties to get money to help Jersey City balance its budget. After years of trying to get rid of these properties  because he wanted money for them but could not sell them to developers because of the moratorium, he was able to get the State of New Jersey to spend $6.8 million dollars of taxpayer money to buy properties that couldn't be developed. Included in that sale was Camp Hudsonia, a former Girl Scout's camp, owned by Jersey City and used by Jersey City residents. He did not use any of the moneys to buy other lands to help protect Jersey City's reservoirs."   (Jeff Tittel,  Director, Sierra Club, NJ Chapter Sierra Club, New Jersey Chapter, 609-924-3141,  jefft1@voicenet.com- Press Release 11/1/01)

They are also questionable accounting practices such as the Caven Point $8.9 Million land sale which was not received from the JC Board of Education until 2000 but the City's budget shows it as "realized" in 1997, which is not true. Realized means cash received not set-up as a receivable, which the City did. The integrity of the city's financial statements and the auditing firm who allowed this should be questioned… I've adjusted the chart below accordingly (a) but what about the $13,000,000 budgeted and "supposedly" collected in 1999?? It appears that the Schundler administration was "cooking the books"….

FYE Ending	BUDGETED	ACTUAL COLLECTED, (REALIZED PER THE BUDGETS )
2001	$ 1,350,000	?
2000	$ 6,000,000	(a) $10,933,000
1999	$13,000,000	$13,000,000
1998	$ 4,000,000	$ 1,926,600
1997	$ 9,470,000	(a) $ 131,901
1996	$ 6,963,000	$ 7,233,000
1995	$ 124,500	$ 163,400
1994	$ 0
1993	$ 211,500	$ 51,400
TOTAL	$ 41,119,000	$ 33,439,301

(6)  2000- The State required a special audit by Arthur Andersen, which cost $450,0000. They deducted it from JC's Distressed Cities monies for 2000.

2001- The budget had $15,500,000 but the actual number was $4,150,000 in cash plus $7.34 million contribution to police and fire pensions that the city did not have to make. That creates a shortfall of $4,060,000.

(7)  Prior to the Distressed Cities monies from 1993 to 1997 only, JC got Supplemental School Tax Relief in addition to the other standard state aid.

SUBSEQUENT EVENT: The new JC Museum dedicated in May 2001 took out a $ 3 million mortgage from Provident Savings Bank to help meet their day to day expenses. Not included above.

MORE FISCAL MISMANAGEMENT: In July 1994 due to the rich early retirements offered to city employees particularly Police & Fire, the city is assessed $28.1 MILLION for the City's contribution into their pension funds. The payments come to about $138,000 per retiree plus the annual 5.9% bond interest costs which exceed the cost of their annual raises! Schundler bonds for the money, 36 years at 5.9 %. See POLICE section for details.

In 1996 Schundler refinanced $136 Million in debt with INTEREST ONLY payments in 1996 and 1997.  Principle payments spiked in October 2001......  how convenient, after his term expired.  The bond deal cut the tax levy $3 Million in 1996 ( Jersey Journal, 11/22/96 "Bond deal saves city millions ).  The savings was pushing interest payments into the future... SAVINGS = POSTPONEMENT which cost the taxpayers more in future interest payments.  Only the investment bankers and bond counsel make out on these deals....they get millions in fees and remember that during the elections... campaign contributions....

"City ready to sell stake in Newport…. Price: 10 percent of '85 UDAG loan" read Brian Donohue's JJ front page article, 1/5/98. "Thirteen years after the city jump-started waterfront development with a $40 million loan to the Newport development, Jersey City Mayor Bret Schundler plans to sell the city's interest in the project for 10 percent of that amount. With $ 4 million included in the city's introduced budget to stem a tax increase…. Under the terms of its partnership, the city was to have retained an equity interest in Newport's first phase, including Newport Center Mall and 1,500 units of housing once the loan was paid off." Councilmen Cavanaugh and Bettinger persuaded the Council to have Sam Lefrak buy an annuity that through time would pay back the $40 million due the City. The UDAG loan was flipped into an annuity but shortly thereafter, Schundler sold it for an immediate $5 million to plug his FY2000 and FY2001 budgets. Council members Bettinger, Cavanaugh and Donnelly voted against the sale but were out voted. Once again the City with its Gold Coast has to sell out at 12.5 cents on the dollar so as to cut the budget deficit.   Great deal for Simon & Associates who owns the mall and Sam Lefrak the luxury, tax abated apartments,  bad for the taxpayers…. As they say the rich get richer and the poor get poorer.

The city included $2.5 million of the sale in its FY2000 budget and $2.5 million in the current, pending FY 2001 budget which ends in June. Chronically late budgets are the hallmark of the Schundler administration. Late budgets = tax increases.   

What about those parking fees at the Newport Mall?

"Mall parking fee has users crying foul" (JJ, 2/19/01, LINK )

"The new parking rates are 50 cents for up to an hour; $1.50 for up to two hours; $2.50 for up to four hours; $7 for up to six hours; $20 for over six hours."

I remember when they first opened the mall in the mid-80s' and the first 2 hours of parking were free… Why is it that Lefrak and Simon & Associates get a sweet 20-year tax abatement, the City sells out and takes pennies on the dollar for the UDAG loan but then the shoppers pay to park? Why can't the mall validate 2-hour of free parking for shoppers? Where's the City Council and Schundler on this???… As a gubernatorial candidate Schundler's running around New Jersey selling people on the idea that he would eliminate tolls on the Garden State Parkway but he can't get 2 hours of free parking for the local people to shop at the mall? That's Bret for you! If the Short Hills Mall charged for parking, and their shoppers are some of the wealthiest in the state, he'd be out there condemning the practice so as to solicit their suburban votes. If suburban malls can build parking lots for their shoppers for free why can't Newport validate 2 hours of free parking for shoppers? Also why not a free weekday evening for shoppers, which would be good for business?

In 1996 Schundler refinanced $136 Million of city debt with interest only payments in 1996 and 1997. Principal payments spike up beginning October 2001 conveniently after his term expires. Gift to the next administration & the JC taxpayers.

Under the Florio administration, the City, to pay off tax appeals, would float 1-year notes but had to pay them off by year five. Under Whitman and Schundler, the City bonds for tax appeals for 10 years! As a matter of fact, Schundler lobbied the change soon after he got into office.

If you've made it this far, just a few more stats!

Jersey City's total debt which includes General Obligation, School Bonds, Water & Sewer Bonds …all paid in one form or another by JC taxpayers…..

Source: Annual Debt Statement" filed with the state each year.

Note 1: In 1996, Schundler refinanced $136,000,000 of existing debt much that would have been paid off in the following 5 years.  He refinanced with NO INTEREST PAYMENTS IN 1996 & 1997 (backloaded) and the PRINCIPLE  PAYMENTS WOULD SPIKE UP STARTING OCTOBER 2001, after his term expired!

Note 2: In the spring of 1998, Schundler bonded $9.50 Million for his Golden Door Charter School &  $36,000,000 through the newly formed MUA to plug his operating hole.  To pay off those bonds, the MUA agreed to a 42% rate increase spread over 10 years with 8% increase at the beginning.   The MUA- Water account had a LOSS of  $3,899,490 for YE 12/31/2000  and a LOSS of  $6,678,467 for YE 12/31/99 the 2 years of operations!  Prior the water and sewer departments had a net profit of around $2 to 3 Million annually!

Note 3:  The NJS Local Finance Board put the kabash on additional city bonding since it was so excessive under the Schundler administration.   Therefore, to get his "Play to Pay" construction projects built,   and his gov political contributions,  the new $11 Million Museum without a parking lot took out a $3 Million Mortgage  and the JC Incinerator Authority took out several million $$$  in bank loans to meet payroll and other operating expenses. 

The State,  late in the Schundler game, has been denying the city's requests for floating additional bonds as with the JC Museum. Schundler went ahead any way with the project and now he's taking CDBG funding and whatever he can get his hands on to pay the contractors. (see EXTRAVAGANT BUILDING, CHARTER SCHOOLS)

The bonding cap is calculated as 3.5% of the total value of the city.  Tax abatement payments are treated as "Payments in Lieu of Taxes" and are not calculated at full value from the on-set, only the land values are added to the valuation of the city. Consequently the County and the Schools don't collect anything from tax abated buildings but must be subsidized by the "regular, non-abated inner city taxpayers".   For the city to increase its bonding capacity, they would have to DO A REVAL and increase the value of the city to current market values. The tax abated properties, "Gold Coast" would not be impacted and would remain unchanged.

The NASDAQ market tanked April 2000, the dot com companies have been laying off as well as the "brick and mortar" businesses, the housing market is softening and the City is broke!  During the greatest real estate boom in this area, Schundler gave away the "Gold Coast" for the next 20 to 30 years! When the State stops the additional $16 million in "Distressed Cities" monies, which is already rumored thanks to Schundler's gubernatorial primary race, we're in deep trouble. There's nothing left to sell, he's practically bankrupted the city's autonomous agencies, loaded up the payroll and piled on the bonding in one form or another. The bulk of the liens sold in the "93-94 bulk lien sale" were a result of homeowners who couldn't pay. The city continued to bond and spend, then bond again to pay for the successful tax appeals.

In April 1998, the state Supreme Court ruled that JC had to return the $2.9 million plus 11% interest to the businesses that paid the tax. The City counter sued and lost but appealed to the State Supreme Court. Numerous times the Mayor denied support of the Payroll Tax then supported it depending on whom he spoke to and at what time of day. Dennis Drasco of the Roseland law firm, Lum, Danzis, Drasco, Positan & Kleinberg again represented the City. See Golden Door Charter School and the Police Department segments.

After Schundler won the run-off election, in January 1993, Schundler sought a resolution to hire tax assessors to perform an analysis to reassess property tax values based on 1993 property sales figures, which in essence are spot assessments. The Council voted it down due to it's illegality and at the request of Tax Assessor Peter Casamasino. Only a city-wide revaluation is allowed by state law, not just current sales, spot sales. (JJ 1/26/93)

"In a letter dated February 2, 1993 the ( NJ State) Director of the Division of Taxation wrote, "A review of the Jersey City plan to accomplish an update and revision in assessments clearly indicates the proposal is not in conformance with prescribed standards"" from Jerome Lazarus' analysis. Yvonne Balcer in her Letter to the Editor, JJ 6/18/99, stated "Mayor Schundler attended the caucus meeting because he wanted to raise the ratable base of Lafayette" which is primarily a lower income minority ward of the city.

When Schundler bought his second home on Varick Street in April 1992 for $217,500, the house was assessed for $230,900. Schundler (really Lynn) immediately appealed his taxes, by calling in the assessor, and his assessment for 1992 was reduced to $175,000, that's  $7959 in today's taxes.  Schundler reduced his taxes by $2200...   That must be the tax decrease he keeps bragging about...

  As anyone who has appealed their taxes knows, you can only use sales from the preceding year, ending October 1st.  If you or I bought the following April, we could not use our sale as a basis for an appeal for that year.  Guess the laws don't apply to newly elected mayors!  Later in a 1995 Jersey Journal article, Schundler headlines with "Tax appeals are killing the City!" One of Schundler's zillions of campaign mailings in 1993 invited people to appeal their tax assessment on their homes!