The new mayor of Jersey City, N.J., said yesterday that the city could be technically bankrupt by next summer but does not see declaring bankruptcy an attractive option.
"Jersey City's financial situation is a result of years of irresponsible government," Bret Schundler said in a telephone interview.
Schundler first said the city could go bankrupt in his inaugural address on Monday. Under a technical bankruptcy, the state would have to step in to support the city's debt service.
Jersey City, which is located across from Lower Manhattan on the banks of the Hudson River, has been struggling with difficult fiscal times for the last few years. In August and October of 1991, the city resorted to deficit bonds in an effort to close their budget gaps.
Schundler's announcement led Moody's Investors Service to issue a statement on Tuesday saying that it had discussed the situation with the mayor. Moody's in the statement said the mayor told the agency "that it is not his intention to seek bankruptcy protection for the city now or in the future."
Moody's said that "the mayor's remarks appear to be an attempt to focus the attention of the electorate and the state on the magnitude of the city's current financial problems."
The rating agency has been reviewing Jersey City because the city plans to sell debt competitively on Monday.
"Our review of the credit is in response to the city's planned sale of $42.5 million of bond anticipation notes on Monday," Marci Tavashi, assistant vice president at the agency, said in a telephone interview yesterday.
"The mayor's comments will be considered as part of the completed rating for the Bans," she noted. She said the agency does not rate the city's short-term credit.
Jersey City has $331 million of outstanding general obligation bonds, 96% of which was sold under the state's Qualified Bond Program, according to the Moody's release. The bonds sold under the program are backed by the state if the city cannot meet debt service requirements.
The agency noted that 3% of the remaining outstanding city debt is insured and rated triple-A by Moody's, and 1% is backed by the city, with a Baa rating.
Officials at Standard & Poor's Corp., which rates the city's general obligation bonds BBB, said the rating is not under review.
Schundler said yesterday that if the city falls into technical bankruptcy, investors would not be penalized.
Investors should have "no concerns," he said, because much of the city's debt is backed by the state. But he noted that the city does not consider bankruptcy an attractive option.
He said the city's fiscal situation could be improved in several ways, including department cutbacks, tax lien sales, and lowering real estate assessments.
The first program he hopes to enact is the tax lien sale.
"Jersey City has over $100 million in properties that could be made available through a tax lien sale," Schundler said. "That move alone would lower the tax rate from $39 per $1,000 assessed value to $19.
"The plan the council is advocating now, which I oppose, would cause us to have to increase taxes $6 per $1,000. That won't get people back on the tax books," he continued.
Schundler said the amount of uncollected taxes "must be improved" if the city hopes to return to fiscal health.
The mayor, a Republican, was sworn in Monday after defeating 19 other candidates for the post, which was vacated when former Mayor Gerald McCann, a Democrat, was convicted and sent to prison for 33 months on federal fraud charges.
Over the past five years, Jersey City's rate of collected taxes has fallen 18 percentage points, to 80%. By law, the city is required to maintain a reserve fund equal to the amount of uncollected taxes. That fund has grown to $40 million.
Schundler also said the city's real estate is heavily overpriced given current market conditions. "By decreasing the town's worth," he said, the amount of taxes assessed by Hudson County, in which the city resides, would also be lowered.
"Right now, our properties are assessed at over 3.9% market average," he said. "That is over three times the amount over market value that Manhattan properties are assessed."
Schundler said the next area he would address is spending.
Although he would not specify which departments would be subject to reductions, Schundler said he would not support a 10%, across-the-board cut proposed by the council.
"A plan like that congratulates departments with a lot of waste and penalizes successful programs," he said. "We want to cut waste, not hurt efficient departments."
The mayor may only have a relatively brief time to improve the city's financial situation, since his current term runs only seven months.
"There are quite a few things I can do in seven months," he said. "I think the voters will see that my plan will work and want to return me to the job."
At any rate, Schundler said he is interested in remaining mayor for "quite some time."