Budget battles reborn over Transitional Aid

TRENTON – Paterson laid off a third of its police force last year after receiving $22 million from the state. This year, things are just as bad fiscally for Passaic County’s Silk City, but the state has only committed $10 million for aid in total to the state’s legion of distressed cities.

That’s a roughly 94 percent reduction in state aid in the FY12 budget compared to FY11’s $149 million in aid for 22 mostly urban municipalities scratching to escape blight, an insufficient tax base, and a downward economic spiral.

This year, Gov. Chris Christie signed a budget with extreme cuts in aid – reduced significantly even from his initial budget proposal – although insiders say a significant portion of the funding will be restored before the fiscal year is out.

Brandishing his red pen, Christie called out Democrats for removing funding for several positions in the Department of Community Affairs’ (DCA) Local Government Services division that oversees the aid-receiving towns and cities. A bill was submitted this week by one of Christie’s front-liners in the state Senate that would restore that oversight by requiring the aided municipalities to pay back 1 percent of their award to fund the positions in the DCA division.

But as the post-budget negotiations about aid restoration begin, a whole host of other budget items are resurfacing while struggling cities hold their breath.

‘Addicted aid’

Transitional Aid came into existence in FY11, when the new administration consolidated Extraordinary Aid, Special Municipal Aid, and Trenton Capital City Aid into one municipal finance assistance program. Christie’s plan was to roll down the funding and make it truly transitional, according to state Sen. Steve Oroho, (R-24), of Franklin.

The aid is meant to balance out one-shot shortfalls or extenuating, unfortunate fiscal circumstances, Oroho said, that could put a struggling town in an insurmountable pitfall. It is not meant to be a budget subsidy that towns automatically pen into their spending document every year before it’s awarded. It’s become “addicted aid,” Oroho said.

If there’s anything that is going to be appropriated in FY12, he said, it will be with the passage of his just-introduced bill, S3009. It appropriates 1 percent of the Transitional Aid awards to administer oversight to the program.

Debt dominoes

This week, Moody’s Investors Service announced a review and possible downgrade of the credit ratings of six New Jersey towns counting on Transitional Aid from the state: Camden, East Orange, Passaic, Paterson, Trenton, and Union City.

Assemblywoman Nellie Pou, (D-35), of Paterson, the state’s third biggest city with 146,999 residents, said the credit downgrades could have a domino effect that spreads a fiscal burden to surrounding towns, counties, and eventually the state.

If the aid is not received, she said, each town would have a “serious financial crisis” on its hands, leading “in most cases (to) bankruptcy.”

For instance, officials in Camden have been leaning heavily on surrounding towns to provide mutual assistance for large warehouse fires following reduction in firefighter staffing.

Pou said credit plunges for large towns such as Camden, Paterson, and Trenton could have a ripple effect that could damage the triple-A bond rating that many counties enjoy. This “automatically will impact the state’s bond rating,” she said.

Statehouse strategies

In February, Christie submitted a budget that included $139 million for aid to distressed cities and towns, but following the Democratic majorities’ budget volley, the aid was reduced to $10 million.

Why $10 million? Well, for one, it avoids eliminating the line item for aid from the budget altogether, said a source close to the administration, making it easier to transfer funds to that line at a later time. That’s the plan, said Trenton insiders, but these mayors now have to approach the Governor’s Office directly to make their case for aid, said two officials in cities vying for the funding. It leaves the Democrats out of the loop initially.

Democrats are extremely supportive of the aid to cities, so if Christie and individual mayors agree to a level of aid that will be restored, the Legislative majorities are unlikely to oppose a supplemental appropriations bill.

But Christie is going to require the Division of Local Government Services positions restored, according to Republicans in the Legislature. There are other budget “hijacks” that the Governor’s Office was unable to fix with line-item vetoes, according to a source in the administration. For instance, they want a correction on language governing the Stars II junior college to four-year college student assistance program.

The Governor’s Office initially removed language requiring state universities to provide half of the $6,000-per-year awards, which was seen as an unfunded mandate by the front office. The Christie budget only provided for $3,000-per-year state-funded student assistance.

The Democrats amended the budget language to require the state to pay the entire $6,000. Rather than eliminating the program, Christie’s office is going to ask for Democrats to fix it.

But Democrats also want something in return for the restorations, like $537,000 to fund operations of the Wynona Lipman Child Advocacy Center in Essex County, said one source close to leadership. That budget cut was criticized as a politically-motivated reduction for a center for sexually-abused children.

But at the center of the re-opened budget skirmish are towns and cities in distress.

Timeline for aid

The six towns flirting with a possible credit downgrade are all operating on a fiscal year budget calendar and are already in the FY12 budget year – without a budget in place.

Pou, who also serves as the assistant business administrator in Paterson, said the process – from her perspective as a local official – is lagging behind last year’s pace. By this time in 2011, DCA had already sent towns instructions and guidelines for their applications for aid. Those applications were due on Sept. 30 and awarded by DCA’s Local Finance Board by Dec. 1.

Another reason the governor left $10 million in the fund while slashing the bulk of funding was to ensure that the application process could continue.

Paterson, according to Pou, is staring at a $28.3 million budget gap based on the FY11 state aid allotments. The shortfall in the city’s budget this year could lead to late tax increases for residents of Paterson, above the 29 percent hike they endured last year. “That’s an additional – possible, potential – increase,” Pou said. “And the taxpayers are paying a greater lump sum in the second half of the year,” because the tax bills for the first two quarters are estimated since a city budget has not yet been adopted.

Last year, the city asked the state for $70.2 million in aid, but was granted $22.3 million in Transitional Aid and a $6 million loan/grant.

Particular approaches

“We’d be lucky to get half,” said Paterson Councilman Andre Sayegh, compared to FY11. “I’m hoping we can talk some sense into the governor.”

Sayegh said the aid problem is only exacerbating the difficulties the city is already having encouraging economic development and maintaining public safety after slashing the payroll. The Paterson Council has passed a three-month budget that takes the city into October, but a nine-month  budget has to be in place before then.

If the state doesn’t follow through with some aid, Sayegh said, the city may be subjected to another round of “massive” layoffs and possible reduction to a four- or three-day work week. That, and property taxes will “skyrocket,” he said.

Another city, Camden, isn’t waiting on state aid. Spokesman Robert Corrales said the city will move forward with introduction of a budget next month, whether there is any clarity on the funding or not.

Last year, Camden received $69 million in aid and was still reduced to drastic measures to keep the government solvent. Among the 22 towns that received aid, Camden was awarded the most per capita, $892 per person. Second was Asbury Park, awarded $11.7 million, or $729 per person.

Aid and oversight

One city is actually hoping to avoid the aid altogether this time around. Passaic Council President and Assemblyman Gary Schaer, (D-36), said the city found that oversight from the state attached to the funding was restrictive for the town.

“We are looking to take all measures to see if we can wean Passaic from this Transitional Aid,” he said. The council will try to gauge by the end of August whether or not that will be possible, he said. The city has already laid off police and City Hall workers, and is trying to find savings through ongoing union negotiations.

Restrictive or not, oversight is critical, said Republicans lawmakers on the floor of the Senate during veto overrides. For instance, DCA found that one receiving town, Harrison in Hudson County, had nine Town Council members who were provided $29,000-per-year health benefits.

Each town receiving the aid must sign a Memorandum of Understanding with the state which gives DCA final approval over additional personnel, contractual obligations, tax exemptions, and other areas.

“You can’t hire a crossing guard without going through the DCA,” Union City Mayor and state Sen. Brian Stack, (D-33), said on the floor this week.

His town is relying on $11.3 million from the state this year, over 10 percent of its entire budget, which is now hanging in the balance of another round of budget battles.

In FY11, Stack, an important cross-aisle ally of Christie, brought home $13 million in Transitional Aid, the only municipality to receive 100 percent of what it requested. The year prior, Union City was awarded $12.9 million.

This year, a carryover would equal more than 10 percent of the city’s budget. Stack was the sponsor of a veto override bill that would have restored the cut, but the measure failed to receive the needed two-thirds majority due to a lack of support from Republicans.