Charting A City’s Fiscal Future

eBlog, 8/24/16

 In this morning’s eBlog, we continue to follow the run-up to municipal elections in November in Stockton—and how both the issue of housing and property taxes—not to mention pending trials of the incumbent mayor—could affect the city’s fiscal future. Then we turn to upstate New York, where a criminal investigation in the Town of Ramapo could have severe fiscal consequences. Finally, we turn the spinning wheel to Atlantic City as it hires a new firm to assist it in putting together a plan to avoid a state takeover.

Taking Stock in Stockton. Stockton Mayor Anthony Silva last evening unveiled new details of his plan to help Stockton’s homeless population at Tuesday’s City Council meeting, scaling back his goal to provide housing, but continuing to plead with city leaders to “make this happen.” In a presentation lasting half an hour, the mayor called for approval of a “homeless bill of rights,” including the right to food, shelter and clothing, clean water, showers and toilets and pet-friendly housing. Advocates believe this policy would help address the neglected issue of affordable housing within Stockton. Residents of all income levels — but especially those with low-, very low-, and extremely low-incomes — are being squeezed by a lack of affordable housing within Stockton, as local development of the past 30 years has focused almost exclusively on market-rate, single-family housing. A key, but undiscussed issue last night, was the signal importance of property tax revenues to the city: third quarter revenues, after all, show that 54.9 percent of revenues were derived from the property tax.

As part of the city’s plan of debt adjustment, Stockton had reduced spending by $90 million from 2008 levels in response to a plunge in revenue triggered by the collapse of its once red-hot housing market. (The city slashed the police department funding by 25 percent and cut other departments even more ahead of its chapter 9 filing for bankruptcy protection.)  Indeed, last evening, Mayor and candidate Councilmember Silva showed the City Council slides of homeless encampments where people and animals live. Well over a dozen speakers, including some who said they are or were homeless, later shared their stories in an in-depth, sometimes emotional community discussion that ultimately lasted close to three hours—or, as the Mayor noted: “Tonight has to be the night that we have a positive debate about moving the city forward, not talking about ‘This won’t work’ and ‘That won’t work.’ We can make this happen. There is enough heart in Stockton.”

Notwithstanding, some experts who work on local homeless issues cautioned that there are no easy answers and that the mayor’s plan needs work—the cornerstone of which is to convert a former motel into housing for 100 homeless people or families. However, after city officials last month expressed concern about the cost and other issues, the Mayor last evening he would now seek to provide housing for just 25 people or families, “to first prove to people that it can be done,” proposing to tap into $250,000 allocated specifically to homeless issues, with some of those funds made available to be used to award mini-grants to local organizations, to clean up small businesses, and to pay for the portable toilets and hand-washing stations. However, longtime Stockton homelessness advocate Bill Mendelson, director of Central Valley Low Income Housing, cautioned that it is an “extraordinarily complex problem, and the solutions are going to be as complex as the problems themselves,” noting that buildings that could be used for housing are privately owned, so that converting them could be very expensive. Joelle Gomez, with the Women’s Center-Youth and Family Services, said it’s not just a matter of providing housing. People need services, too. The smallest shelter operated by her organization houses just 12 people but costs more than $300,000 a year to run, she said, warning the Council the Mayor’s proposal “has the potential to do far more harm than good.”

The mayor’s plan was up for discussion only. City Councilman Michael Tubbs, who is challenging Mayor Silva in November’s election, said the revised plan was “radically different” and suggested that a committee of experts be convened by the city manager to meet over the next couple of months — along with volunteers and homeless residents — to see what kind of action might be taken.

Fastball? Last May, about 40 FBI agents swarmed Ramapo, a town in Rockland County, New York, formerly known as New Hempstead—a town of approximately 125,000: the federal agents removed boxes of documents and hard drives in yet another crackdown on alleged corruption in Rockland County. The search was likely triggered by suspicions related to the Ramapo Local Development Corporation (LDC) and a controversial $38 million baseball stadium it runs: the Rockland Boulders’ Provident Bank Park, the issuance of the municipal bonds for which could wind up costing taxpayers as much as $60 million, according to the New York State Comptroller. As LDC president and town supervisor, Christopher St. Lawrence has been targeted by local activists who claim that his dual duties result in an absence of adequate checks and balances, facilitating what they characterize as misallocation of government funds. Indeed, for the last five years, activists have been funneling information from distressed members of the community to the FBI and the New York Attorney General’s Office. So, now, Christopher St. Lawrence, a supervisor and Ramapo’s Finance Director, as well as president of the Ramapo Local Development Corp., and Aaron Troodler, the former executive director of the RLDC, face 22 counts of wire fraud, securities fraud, and conspiracy stemming from an indictment obtained last April by U.S. attorney for the Southern District of New York Preet Bharara: a criminal case alleging the two Ramapo officials misled investors and credit rating agencies in connection with municipal bonds—with U.S. District Court Judge Cathy Seibel setting the case to go to trial in January. Here the criminal case against the pair mark a first-of-a-kind for the Department of Justice. In addition to the criminal charges, the SEC brought civil charges against both the town, the RLDC, and two other town officials: Michael Klein, Ramapo’s town attorney, and Nathan Oberman, its deputy finance director, asserting the former and current officials used fraud to cover up the strain on Ramapo’s finances related to 16 municipal securities offerings made between September of 2010 and last year, and to prevent further political fallout over a baseball stadium project: fourteen of the offerings were from the town, with the remainder from the RLDC—yet even these were guaranteed by Ramapo—and related to the financing for the baseball stadium—a stadium which struck out with the voters, who had overwhelming voted by a 70% margin to disapprove said bonds to finance its construction. It appears here to be a case of spitball where the bonds were issued to cover up the municipality’s deteriorating general fund—a fund which, according to the SEC, was covered up by means of a series of fabricated receivables over that period in an effort to make it appear as if the fund actually had positive balances of between $1.4 million and $4.1 million.

Planning How a City Can Avoid a State Takeover. Warning that a “lot of the actions that will likely be necessary will be unpleasant…And they haven’t happened yet for a reason. Because absent the kind of challenge the city faces, (it) wouldn’t want to see them happen,” Michael Nadol, of PFM Group, yesterday led Atlantic City’s third public meeting on its five-year fiscal plan to avoid a state takeover. (Atlantic City has until Nov. 3rd to submit its plan to the state, rejection of which would result in a state takeover of the city’s finances and major decision-making powers for five years.) Warning citizens that many “unpleasant” actions would  likely be needed to address the city’s finances, he described the city’s dire financial situation—and outlined some steps that could help the city achieve fiscal stability. Indeed, in response to a citizen’s query, he warned it could mean changes in services, a city workforce reduction, changes in employee compensation, or tax increases. A key part of the fiscal challenge is the city’s roughly $100 million budget deficit before state aid, the $228 million in outstanding municipal bonds issued to cover tax appeals, and an additional $165 million in tax refunds due to Borgata Hotel Casino & Spa and MGM Mirage, according to Moody’s. Now the city will have a new bill: it will owe PFM up to a maximum of $225,000 for a year’s work, according to its contract with the city. Mr. Nadol said the firm is one month into its work and is conducting interviews, reviewing data, and developing five-year financial projections for the city. The firm intends to provide a “quantitative analysis” for the city and help inform city officials’ decisions. PFM is not the first firm to review the city’s dire finances. Most recently, Ernst & Young billed the state $2.6 million for its work in the city. But this time, the firm works for Atlantic City–not the state. After yesterday’s session, Mayor Don Guardian recalled a time the city asked Ernst & Young for financial planning advice: “They said ‘We can’t share that with you. We work for the state of New Jersey. Not for you.’”