Nov. 23 (Bloomberg) -- Trenton, the New Jersey capital that fired a third of its police force in September to help close an $18 million budget deficit, could ill afford to reject Governor Chris Christie’s offer of $22 million in aid this year.
The grant was about $13 million less than last year’s and came with a condition: Mayor Tony Mack would have to cede control of decisions, including hiring. Now Christie, a first-term Republican, is poised to keep watch over a Democratic mayor who faced a citizens’ recall effort and two whistle-blower lawsuits after just 16 months in office.
Trenton, a onetime factory hub where 23 percent of residents now live in poverty, is among the half of U.S. cities that have had their state aid cut since 2009, according to a September survey by the National League of Cities. Mayors expect revenue to fall for a sixth straight year in 2012 as property-tax collections continue to decline, the group said.
For Christie and some counterparts around the U.S., the local funding crunch presents a chance to control spending in cities that plug budget holes with state money.
Michigan Governor Rick Snyder in March expanded the role of emergency managers in financially stressed cities and school districts, empowering them to terminate union contracts and remove elected officials. Benton Harbor has been under such oversight since 2010. Detroit faces a $45 million deficit and needs union concessions to help avoid a state takeover, Mayor Dave Bing said in a Nov. 16 speech.
In Pennsylvania, Governor Tom Corbett appointed an overseer Nov. 18 to take control of Harrisburg, the state capital that filed for bankruptcy protection after failing to make payments on $310 million of incinerator debt. The state’s first municipal receiver, if confirmed by a court, would have power to act without consent from local officials.
Given the nature of financial and management challenges in Trenton and other cities dependent on state aid, “this sort of bartering makes sense,” said Chris Hoene, research director for the National League of Cities, a Washington-based lobbying group.
“These are cities that have had long-term distress,” Hoene said in a telephone interview. “Related to that long-term distress is difficulties in hiring practices and giveaways to employee groups that may not be sustainable for the cities’ budget realities.”
Under Christie last year, 22 mayors agreed to give up some autonomy in exchange for a share of $159 million in aid, which the governor termed “transitional,” because grants will expire with the fiscal 2014 awards. This year, 11 cities have signed on for a combined $139 million.
The mayors must document how they intend to live within their means. Christie gets the final word on issues, including labor contracts, bond sales in excess of $1 million and health-benefits enrollments. No-bid professional contracts are out, as is unapproved out-of-state travel. Meals and entertainment billed to taxpayers is restricted, and expenditures on parties and charitable gifts are prohibited.
Trenton’s aid came with an additional requirement, that the state make recommendations for filling top city jobs.
“The requirements attached to the aid and the aggressive enforcement are really pushing towns to do all they can to withdraw from the program,” Lisa Ryan, a spokeswoman for the state Department of Community Affairs, said in an e-mail.
Mack, in a Nov. 16 interview at a conference of municipal officials in Atlantic City, said he expected to be independent of the aid “over the next year or so.” He didn’t say how he would balance a $183 million budget without the state’s help.
Trenton raised property taxes to $71 million from $53 million over fiscal 2010 and 2011, an increase of 33 percent. Christie’s 2 percent cap on local tax increases, effective this year, would allow Trenton to raise the annual levy by a maximum of $5.3 million, according to its aid application.
Mack said he has made “tough decisions” over the past year that include reducing the workforce and consulting contracts. A federal grant and some savings from employees retiring allowed the city to rehire 18 police officers in October, said David Rousseau, a financial consultant to Mack who was state treasurer for Christie’s predecessor, Democrat Jon Corzine.
“We believe we’re on the right fiscal track,” Mack said.
Trenton has had six business administrators since Mack, 45, took office in July 2010. Two whistle-blower lawsuits have been filed against the city, one from a parks employee who said she was fired for questioning Mack’s bidding procedures and hiring decisions. The other was from two former water-utility workers who said they were suspended after providing evidence against Mack’s half brother, a fellow employee who was charged with theft and official misconduct after allegedly using city equipment on private plumbing jobs.
Questions about Mack’s hiring practices led citizens to organize a campaign to recall him. That effort failed after the group fell short of the signatures needed by Nov. 14 to force a special mayoral election. The next day, Mack said in a statement that he had heard residents’ concerns “loud and clear” and wanted to work with them to “build Trenton together.”
Trenton’s largest employer is the state, which doesn’t pay property taxes on exempt buildings and land that represent about 22 percent of total assessed value. The city of 85,000 would be almost $79 million richer if the state paid its “fair share” of taxes, it said in its transitional-aid application.
Christie had initially cut the shared aid to $10 million in the budget he signed for the fiscal year that began July 1. He later agreed to restore the money in a supplemental funding bill as long as his administration got more power over it.
The Democratic-led Legislature has yet to take up Christie’s aid plan. Trenton, along with Camden, East Orange, Passaic, Paterson and Union City, are under review by Moody’s Investors Service for possible credit-rating downgrades because of lawmakers’ inaction.
“If I was a mayor in one of these cities that receives transitional aid, I’d be saying, ‘Hey guys, can you get to work here please?’” Christie said to reporters on Nov. 21. “It should be a news alert that I’m willing to spend more money.”
The six cities under review have a combined $603 million of general-obligation debt, the highest amount belonging to Trenton, with $374 million, according to Moody’s.
Trenton’s credit rating was cut to A3, the fourth-lowest investment grade, from A2 in May 2010, after Christie proposed aid cuts. Moody’s cited a narrow cash balance, high debt burden and a history of relying on the state for financial support.
In 2010, Trenton got $34.9 million from Christie’s administration. This year the award is 37 percent less, and Ryan said all cities should expect even more cuts next year.
Senate President Stephen Sweeney, the state’s highest ranking Democratic lawmaker, said he is hoping his house will pass the transitional-aid bill by Dec. 15. The impasse, he said, is over the estimated $1.5 million expense for increased oversight. Christie’s funding measure took that cost out of the total pool for the cities, while Democrats want to add it to the legislation, Sweeney said.
“If you take another million-and-a-half dollars from these cities, you may as well be putting a stick in their eyes,” Sweeney, of West Deptford, said in a telephone interview yesterday. “They are already dealing with diminished funding.”
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