Newark to Use Housing Agency Funds for Budget Fix, Baraka Says

Newark will redirect $5 million from its housing authority to help settle debt as part of Mayor Ras Baraka’s plan to close a $93 million deficit without firing city workers.

Money held by the Newark Housing Authority will cover two principal and interest payments on city obligations, Sakina Cole, a spokeswoman for Baraka, said yesterday by e-mail.

Baraka, 44, who took office three months ago, released a plan Oct. 3 that calls for $16 million in spending reductions, including not paying into “statutory funds” and cutting expenses such as stationery, travel and software. The mayor plans to present an amended budget to the city council tomorrow, Cole said.

“We realize this is not ideal, but we were not faced with an ideal budget situation,” Cole said via e-mail. “In these first 100 days, the administration is committed to being fiscally responsible in balancing the budget without any layoffs. There is no change or impact to bondholders or the city’s bond obligations and debt structure going forward.”

She said in the coming year the mayor plans to identify “more ideal” ways to raise revenue and balance Newark’s budget. The city has also been approved for $10 million in state aid, Cole said.

Immediate Challenge

The budget plan requires state approval because the city is accepting increased aid, Cole said.

Baraka, a former city councilman, school principal and deputy mayor, has called the deficit his most immediate challenge. In August, he announced plans to trim it to $30 million by reducing employee car and telephone use, freezing hiring and increasing tax collections. The city also has sold property and entered into a collective-purchasing agreement with Jersey City and Paterson, Cole said.

“We are not relying on Trenton to make Newark prosperous,” Baraka said in a statement Oct. 3. “These measures, combined with our work with the state, will erase the deficit and put our city on a stable financial platform.”

Baraka won election in June promising economic growth in the city of 278,000 about 13 miles (21 kilometers) west of Manhattan.

“It’s a question of what their long-term plan is,” said Howard Cure, head of municipal research at New York-based Evercore Wealth Management LLC, which oversees about $5.4 billion. “They have a structural operating deficit and are trying to use whatever funds they have available to close that gap, but what are they going to do going forward?”

Rating Cut

Moody’s Investors Service in May lowered the rating on almost $575 million in city general-obligation debt to Baa1, three levels above junk, citing increased reliance on cash-flow borrowing, late budgets and high poverty. Twenty-eight percent of the population lives below the poverty line, compared with a statewide rate of 9.9 percent, according to the Census Bureau.

Moody’s also gave the city a negative outlook, meaning more rating cuts are possible.

The housing authority, which has 1,200 employees, manages 9,000 public units with 30,000 residents across the 24-square-mile city. It also operates an additional 5,000 units under a federal program.

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