Contents

About the Crisis
Revenues Decline
Costs Increase
The Result
Moving Forward
Frequently Asked Questions


About the Crisis

Newark, like countless communities across the United States, is experiencing a budget emergency. For over a decade, the City has been running a structural budget deficit, where its revenues fall short of its expenditures.  Until now, however, non-recurring (one-shot) revenue was available to fill the annual gaps.

This problem started well before Mayor Booker and the 2006-2010 Council began their time in office, and was an issue that they immediately began to address by improving revenue collection, identifying new revenue streams, focusing on operational efficiency within City government, renegotiating contracted services, cutting the non-uniformed municipal workforce, and leveraging private philanthropy to pay for costs that are traditionally the responsibility of taxpayers.

These efforts were successful at beating back some of Newark’s reliance on non-recurring revenue. But circumstances that have shocked the budgets of countless other municipalities throughout New Jersey, and across the Country, have proven these extraordinary efforts insufficient to avert the crisis. The unyielding recession has depressed critical revenues, forcing the State to cut back on much needed aid, the costs of pensions and benefits continue to rise, and the City no longer has the luxury of Port Authority settlement dollars above the base rent to fill the resulting gap. The City has a plan to move forward, but difficult choices abound. The following is presented to equip you, Newark’s citizens, with a factual foundation from which you can further understand the complex challenges our city currently faces.

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Revenues Decline

Newark was on its way to structural financial integrity when three events thrust the City into this crisis. The first, the exhaustion of Port Authority settlement dollars, is both specific to Newark and was planned for by the Administration.
 
Figure 1. A history of the application of Port Authority settlement funds to fill the structural budget gap. Funds are exhausted at the end of this year.



Figure 2. Port Authority settlement funds have kept the tax rate lower than it would otherwise be.


The expected problems from the depletion of the Port Authority fund, however, were compounded by two unexpected events that have impacted countless other municipalities. The first was the depth of the financial crisis, which has severely impacted City revenues across the board from payroll tax collection to grant opportunities. This crisis has had a nationwide impact on cities, some of which have gone so far as to file for bankruptcy.

Figure 3. Revenues dependent on a robust economy have severely suffered. The example of special tax collection is offered here.


The second unexpected event was a reduction in municipal aid received from New Jersey state government. This drop in aid has severely impacted budgets in dozens of municipalities across New Jersey.

Figure 4. Graphical representation of 3-year trend in combined special and formula municipal aid received by Newark.


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Costs Increase:

The City has 18.5% fewer non-uniformed employees than it did in 2006, but personnel-related costs have continued to balloon with no end in sight. For example, since 2005:

•    City employee HMO costs—up 15%
•    City employee prescription costs—up 42%
•    City employee dental insurance—up 24%
•    City employee life insurance—up 18%


Figure 5. Four consecutive years of rising combined health costs.




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The Result

These dynamics have led to a very difficult 2010 budget picture. The City has $519.6 million in combined revenues and has to cover $605 million in expenditures (including $102 million in school taxes and $73 million in county taxes owed by the City to those respective entities). This approximately $85.4 million gap must be addressed in order for the City to continue functioning. There are only three ways to fill such a gap: cut spending, raise taxes, or find new revenue. Mayor Booker and the Council are working feverishly to identify new revenue to avoid significant tax increases and service and personnel cuts. It is unreasonable to expect, however, that a total revenue solution will be found. The gap that remains after new revenue is secured will be addressed by reductions in city personnel, cuts of non-vital programs, and a tax increase.

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Moving Forward

We find ourselves now with difficult choices. Much of the aid that has been traditionally relied upon to fill the budget gap is gone. Mayor Booker and the Council have spent the past four years closing this gap, and planned to continue to gradually and smoothly move the city toward structural fiscal integrity. However, the recession, cuts in state aid, and the resulting sudden loss of critical revenue have cut the time available to enact reforms.

There must be sacrifices and pain within City Hall in order for Newark to reach its goal of a balanced budget and a fiscally sound city.  Without personnel reductions and some service cuts, the City would be forced to rely on massive increases in the tax rate, which would seriously harm Newark residents. While planning these cuts to avoid an even higher tax increase, Mayor Booker has made it clear that he will fight to preserve three priorities integral to Newark’s long-term strength:

•    Services for children and seniors
•    Public safety
•    Investments in Newark’s economy (small business and job creation)

With these priorities set, the Mayor and Council have moved aggressively to cut deeper into the budget. Because personnel costs (salary and benefits) make up the vast majority of Newark’s spending – over 85% of the total budget, with police and fire over 98% (salary alone) -- there is no way to avoid layoffs.

While layoffs and furloughs will create a municipal government structure that has long-lasting fiscal integrity, the full financial benefit of the layoffs will not be felt for one to two years due to severance costs earned by laid off workers (i.e. accumulated sick and vacation days, health insurance and unemployment costs). Therefore, the City’s budget will not immediately become structurally sound, and the City must find one-time revenue sources until the final severance payments are made.

The Mayor and Council recognize that any job loss in this economy is extremely burdensome to families, and do not take this decision lightly. The City is committed to working with laid off workers and will assist with outplacement services for every effected employee. Government officials will continue to coordinate with many of Newark’s largest employers to give job preference to displaced municipal workers. Finally, under the City’s first source ordinance, all private contractors who take on City work will be obligated to hire Newarkers.

The Mayor and Council have prioritized keeping tax increases to a minimum. They recognize that the economic downturn has impacted more than just government pocketbooks, and that families and small businesses are struggling.  Raising taxes by extraordinary amounts would force many residents into deeper distress, and push many businesses to reduce jobs or close their doors. In order to keep any tax increase to a minimum, the Mayor initially introduced the creation of the Municipal Utilities Authority to bring critically needed improvements to Newark’s water infrastructure, and increase an underutilized revenue stream for the City. Under such a plan, the number of layoffs would have been reduced from current projections and the tax increase would have been 7%. The majority of the council objected, and the Mayor and a unified Council quickly turned to find an alternate plan.

Without the revenue available through the MUA, the balanced budget originally presented by the Mayor was no longer feasible and an $85.4 million budget gap remains. The City is currently pursuing another option to avoid a seriously damaging tax increase. This plan, a sale/leaseback of certain municipal buildings, is projected to cut the remaining budget gap by an estimated 53% if it is approved by all regulatory authorities (an estimated $45 million in revenues towards a $85.4 million gap). It will also provide much-needed funds to improve several city buildings. Cities and counties in New Jersey, as well as governments across the country, have pursued this option as they face similar struggles. This one-time revenue combined with other measures the City is currently undertaking will significantly temper the required increase in the Newark tax levy. However some tax increase will still be required.

By making the difficult decisions this year -- involving layoffs, reductions in spending across the board, and a tax increase -- Newark will not just balance its budget in 2010, but put itself on track to achieve fiscal integrity by 2012. Furthermore, by 2011 Newark will be fully able to operate under the 2% property tax cap advocated for by the Mayor and implemented by the State Legislature.  In other words, Newark has difficult choices to make today in order to insure its long-term fiscal strength and success.

This website tab will be continuously updated. Please revisit the tab often for more facts and information regarding the 2010 budget.

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Frequently Asked Questions Regarding the Budget:

Q: Has the Administration done anything to get ahead of this crisis?
A: Yes, the structurally deficient budget has been a priority issue for the Mayor and Council since taking office in 2006. The Mayor has been working diligently in partnership with the Newark Municipal Council and budget experts since the months before he took office to correct a massive and unsustainable gap in Newark’s budget. For example, headcount reduction is nothing new. The following graph and chart show the extent and composition of an 18.5% reduction in non-uniformed City personnel over the Mayor’s first four years in office:



Q: Is it true that we are outsourcing City services?
A: Yes. Many divisions already use contracts to supplement work performed by City staff. In fact, sanitation in the South Ward has been outsourced since prior to Mayor Booker taking office. However, the City is preparing to completely outsource refuse collection and park maintenance. The outsourcing of refuse collection alone is expected to save the City well over $7 million annually. The savings are as follows:

Q: Is it really necessary to layoff workers?
A: Unfortunately, yes. There is simply no way around it. The City spends much more than it takes in, and personnel costs constitute over 85% of municipal expenditures – a figure that continues to rise with increases in pension and benefit costs. The alternative to layoffs is an unacceptably high property tax increase. The City will do everything within its power to assist laid off workers in finding new jobs in Newark’s private sector.


Q: Why did Mayor Booker support the formation of a Municipal Utilities Authority (MUA)?
A: The MUA is no longer a viable option, and as such Mayor Booker is no longer pursuing its creation. The Mayor and several council members initially supported the MUA because it presented the best option to navigate Newark’s financial crisis. Under the MUA, the City would have been able to make substantial improvements to its deteriorating water infrastructure, lay off fewer workers than current plans require, and keep any tax increase down to 7%. Contrary to some rumors, this would not have been a “sale” of Newark’s water, it was rather a lease of our system to our own independent water authority. The time for the MUA has passed, though, and we must look forward to new solutions to help solve this crisis.

Q: Will City pools, Pop Warner Football, Camp Watershed or other children’s programs get cut?
A: No, we will expand services for children. City pools, Pop Warner Football, Camp Watershed, and other youth programs will continue to be funded.

Q: Why are you closing libraries?
A: Two of the least utilized library branches had to be closed to help us keep the tax rate and number of layoffs down. However, the closings are limited to only two of Newark’s eleven library branches -- the main branch and all but two of ten satellite branches will remain open. Hours are being reduced, but the Mayor and others are working on this as an area for philanthropic investment. In addition, the Mayor has continued his commitment to support the Library beyond the statutory requirement, which underscores his dedication to children, education and providing a valuable resource to the community.

Q: I’ve heard rumors that senior services are being cut?
A: No senior services are being cut. Protecting programs for our seniors will remain a priority for the Mayor through this crisis.

Q: How can you keep us safe if you layoff police officers and firefighters?
A: Police and fire cuts will be the last cuts made when no other avenues for savings are available. Throughout the Mayor’s first term, he and the Council were able to fight back rising costs and attrition and actually increase the number of sworn police officers and firefighters. Unfortunately, the situation we find ourselves in now no longer affords the Mayor and Council that option. In order to curb the public safety effect of layoffs, the Mayor plans on investments in technology, moving more police officers from administrative posts to the streets, new gang and gun strategies, and innovative partnerships with other law enforcement agencies. He will continue to support firefighters by fighting for funding for the best equipment so they can continue as leaders of the Nation’s fire service.

Q: I hear that the state is cutting back on school funding, and that the schools are laying off workers. Are our kids going to suffer?
A: The City and school budgets are separate, and the schools are under State control. The Mayor and the Council have no say over school personnel decisions. There is no question, though, that we should be concerned about the education afforded to Newark’s children. The Mayor has spent much of his energy and focus on improving the educational environment in the City. He has founded the Newark Charter School Fund, identified financial support for five new alternative schools, launched the Teacher Next project, established the $500,000 Brick City Scholarship Program, has expanded after-school programming, created the YES² Center, and runs the annual Mayor’s Achievement Challenge.

Q: What is City doing to help families struggling with foreclosure?
A: Throughout the first part of this decade, Sub prime lenders targeted the City of Newark and similar cities across the country. In 2006, the peak of subprime lending, 54% of all new loans in Newark were subprime, versus 26% in New Jersey. Approximately 25% of the loans originated on homes in Newark in 2006 are currently in foreclosure. Foreclosure filings in Essex County have grown steadily, from 3,017 in 2004, to 4,816 in 2007, and to 6,013 in 2008. In Newark, foreclosure filings grew from 866 to 2,080, and to 2,701 during that same period. Approximately 2,500 loans are currently in the foreclosure process in Newark and an additional 813 homes are currently bank-owned REO’s.  Foreclosures often lead to property abandonment and disinvestment.  According to a survey conducted by Rutgers University Bloustein School graduate students, in the spring of 2008 approximately, 70% of the 96 properties in Clinton Hill with foreclosure filings were vacant upon inspection. In Lower Broadway, 41% of the 52 foreclosed properties were already empty.
 
In response to this crisis, the City of Newark’s Housing and Real Estate Division and the Essex County Housing and Community Development Division co-convened a taskforce in November 2007 to address the impact of mortgage foreclosure on residents and neighborhoods in Newark and adjacent municipalities. The Newark/Urban Essex Foreclosure Taskforce currently has over 35 organizational members including government, community groups, research and advocacy organizations, state and local regulators and community development lenders. The Taskforce seeks to create a coordinated, strategic local response to the negative impact of mortgage foreclosures on residents and neighborhoods in Newark, Irvington, East Orange, Orange, Montclair and the surrounding area.

The taskforce furthers this mission by:
•          Creating a forum for sharing ideas and information and coordinating action among the various entities working in Essex County on foreclosure prevention and neighborhood stabilization

•          Supporting programs and activities that help Essex residents affected by foreclosure as either owners or renters to preserve their homes and neighborhoods

•          Advocating for the needs of low- and moderate-income residents and their communities as programs and policies take shape to respond to the current mortgage crisis

•          1,010 individuals attended the two Hope Now mortgage workout fair events held in Newark

•          Approximately 4,500 households were contacted through outreach efforts such as flyer handouts, mailings and door-to-door outreach

•          Funded non-profit housing counseling organizations

•          Facilitated a regional application for NSP2 resulting in $2.7 M for property acquisition and rehabilitation


Q : What is City doing generally to help families make ends meet?
A: The City will continue several successful programs to help Newarkers with their finances. Please consider utilizing the Financial Empowerment Center, Newark Works and/or the City Hall Office of Reentry (Newark’s ex-offender reentry program). For more information on any of these programs, please follow the links above or call 973-733-4311.

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