Mayor’s Speech for Budget Forum- 1/11/2010

I want to thank all of you in this room and those watching at home for caring enough about Orange to come to this budget forum.  I will be formally introducing the budget at the City Council meeting one week from tonight, Tuesday, January 18th, and the purpose of this forum is to give you a preview of what the budget will look like.

Tonight, you will hear the details of our plan to cut spending to cope with the crisis caused by a budget gap of more than six million dollars. You will hear our strategy to protect our public safety, health and quality of life using fewer city employees. You will hear an overview of our revenue and spending plans from our Deputy Finance Director. You will learn what changes and cutbacks in services will result from the spending cuts as the Directors of Police, Fire, Public Works, Community Services, and Housing and Development present their specific plans for increasing the productivity of their departments and operating with fewer employees.

And most important, all of us will answer your questions about how this budget will impact our families, our community, and our future.

Why is there a budget crisis?

Virtually every city in America faces a financial crisis caused by the worst economy since the great depression. Across our nation, our cities are losing revenues due to cutbacks in state aid and reduced tax collections. This is happening at the very time that cities need more money to deal with the unemployment, crime, foreclosures and other problems caused by the recession. Orange is not alone.  Cities across America are reducing services, laying off employees, renegotiating labor agreements, increasing taxes, sharing services, and scrambling to find new revenues.

There is no magic wand we can wave to get us through this crisis. With fewer dollars, we must spend less. It’s as simple as that. We are all in this together: taxpayers, public employees, and businesses; seniors and school children; the middle class, the poor and the rich. If we are to survive as a community, as a state, and as a nation, we must share the sacrifices fairly and justly.

All of us must give up something so that our brothers and sisters in this family of Orange can survive a horrible economy and live to see the day when things get better.

In New Jersey, Governor Christie balanced the state budget by slashing the money that the state pays to local governments and school districts.  As a result of the lost revenues, New Jersey cities have been forced to raise taxes and layoff employees. Cities forced to layoff employees due to the Christie budget cuts include Newark, Trenton, Hoboken, Jersey City, Linden, Hillside, Atlantic City, Hanover, North Brunswick, Ewing, Irvington, Morris Township, Maplewood, and Fair Lawn to name just a few.

In Orange, Governor Christie’s cuts helped to create a gap of $6.4 million dollars between the revenues we can expect and the money we need to provide our existing services. Nearly half of that $6.4 million gap, is caused by Governor Christie’s $3 million dollar cuts in State Aid and Urban Enterprise Zone (UEZ) funds. These cuts blew a $3 million dollar hole in our budget and triggered an immediate loss of 20 employees since our UEZ had funded 11 police officers and 9 public works employees.

Governor Christie’s budget cuts have impacted every resident, business, municipal employee, and taxpayer in Orange. Just to make up for the $3 million dollars that Christie took away would require a 10% increase in our property taxes. And that would close less than half of the $6.4 million dollar budget gap.

As I said, half of the deficit is caused by Governor Christie’s cuts. On top of that, $1.4 million of the gap is caused by higher costs and $2.1 million by reduced revenues.

The $1.4 million dollars in higher costs include a 11.6% rise in health insurance costs, a 22% increase in pensions, plus raises, overtime and longevity pay. Most of these higher costs are beyond our immediate control. They are required by union contracts and state mandates.

$2.1 million dollars, or one third of the $6.4 million dollar budget cap is caused by lost revenues.  Tax appeals alone have cost us $375,000 dollars. The increased costs and reduced revenues together add about $3.5 million dollars to our budget gap. Making up for this $3.5 million would require an 11% increase in taxes on top of the 10% caused by Governor Christie. That adds up to a 21% tax increase.

Shared Sacrifices

A 21% property tax increase is not acceptable in a recession or at any other time. Raising taxes by 21% would mean that virtually all of the pain would be borne by property taxpayers.  It would mean balancing our budget entirely on the backs of homeowners and businesses who are already paying more in taxes than they can possibly afford, while facing foreclosures and unemployment.  Instead, we must share the sacrifices more fairly.

We have known for months about the Christie cuts, and we have been preparing for them. My administration has been developing plans to cope with the reduced revenues and higher costs. Our strategy for avoiding a 21% property tax increase is all about shared sacrifice. Our plan asks everyone to pitch in and do their part to help cut spending, increase productivity, increase revenues, and reduce services where feasible.  We have worked hard to find ways to cut spending without endangering the lives and health of Orange residents

Cutting Back
The only way to significantly cut spending is to reduce what we spend on city employees. Salaries, benefits, related items and other state mandated costs are 95% of our spending.
The only way to avoid a huge tax increase is to reduce the cost of personnel.  There is no way around it.  And since police, fire and public works employees together comprise 83% of Orange’s personnel costs, those departments will have to suffer the largest reductions.

However, reducing personnel costs does not necessarily have to mean layoffs.

Negotiations
We asked our employees to do their share in closing the budget gap by making up for the $3 million loss of state funding. If they agreed, it would still leave us with a tax increase of ten percent. Not good, but a lot better than a 21% increase.

Before this past July, we invited the unions to meet with us to discuss salary, benefit and work rule changes we needed to cope with the Christie cuts. None responded in a way that would avoid layoffs.

Only after layoffs were announced in November, did the union leaders agree to meet. To reduce spending by the $3 million dollars, the City originally proposed a 20% give-back from union employees. This would have included a 15% cut in base pay and an increase in what employees pay for medical insurance from 1.5% to 5%. If the public employee unions had agreed to those give-backs, we would have been able to reduce spending by $3 million dollars without layoffs.

We did not insist on a 15% pay cut. The union leaders were asked to give us proposals for changes in salaries, benefits and work rules as long as those proposals would add up to the $3 million dollar savings. And, we gave them proposals that would have required only a small reduction in the base pay of employees.

Until this past Friday when layoffs were scheduled to occur, the City tried in good faith to negotiate with our union leaders. We proposed cutting base pay by only 3.5%; increasing the medical premium co-pay from 1.5% to 5% and for all overtime to be earned at straight time, converted to comp time to be used during the next two years when it does not cause cash payment for overtime.

At a time when private sector employees are being required to pay more for health benefits and many have no benefits at all, requiring municipal employees to pay 5% of the cost of their health benefits is not an unreasonable way to avoid layoffs or a huge tax increase.

Although the City tried to reduce the impact of give-backs on the base pay of employees, the unions did not provide any counter proposals that would save most of the $3 million Christie cut. Layoffs became inevitable on Friday.

We knew that the give-backs we asked would be very painful. And we fully understood that our employees have sacrificed in the past to help balance the budget. Yet we hoped to the very end that the union leaders would agree to the give-backs so that their fellow employees would not lose their jobs.

We even delayed introducing the budget because we were still negotiating in December to avoid layoffs by getting the give-backs we need. We knew we would be criticized for a late budget, but we were prepared to take the criticism. Prior to the layoffs taking place, we had two options: (1) a 20% tax increase or (2) a budget with major layoffs. By delaying the budget, we were hoping to create a third option: negotiated give-backs. If we had introduced the budget before the scheduled layoff date, there would have been NO real terms to negotiate.

A late but affordable budget is better than an on-time budget that causes unnecessary damage.

Now, the deadline for layoffs has passed without the unions agreeing to what we need to make up for the Christie cuts. It is tragic that layoffs have become necessary to balance our budget. The last thing I want is for people to lose their jobs.  And layoffs by themselves do not make up for the loss of $3 million dollars from the state.  If we laid off enough people to save the full $3 million, our government would no longer be able to function.

Under this budget, even with the layoffs, property taxes will increase by somewhere between 12% and 14%. If the unions had agreed to the givebacks we asked, there would be no layoffs and property taxes would increase by only about 10%. To compare where we stand in Orange in comparison with some other New Jersey cities:  property taxes in Trenton are going up 22%, Irvington up by 17%, Newark by 16%, and East Orange by 14%.

Under a court decision issued this morning, the layoffs are taking place effective today. Nonetheless, I am prepared to continue to negotiate with the unions to roll back the layoffs. One week remains before we will be introducing the budget to the City Council. I am hopeful that we can still come to an agreement.

Some have suggested that the answer is to cut the spending of each department by 10% across the board. In fact, three members of the City Council proposed a budget last week that would cut some departments by 10% and slash others by totally eliminating all services for seniors and all recreation programs for our young people.

I would never introduce a budget that abandons our commitment to the seniors who are our parents and who worked their entire lives to give us better opportunities than they had. And, I would never eliminate the recreation and sports programs that teach our young people about leadership, build their confidence, and help prevent them from becoming involved with gangs and drugs.

If simply cutting salaries and wages in each department by 10%, could prevent layoffs, we wouldn’t be in this situation.  The proposal by the three council members ignores the reality that we are bound by contracts with our employees that we can no longer afford.  So, we would still be forced to lay off employees to ensure that other employees receive their contractual raises.

It’s no secret that the unions and many of our employees are angry with me, very very angry for making them choose between major give-backs or layoffs. Some of the things they are saying about me and my staff have gotten very personal. Some have declared war on my administration. I accept the expression of their anger because I understand their pain. I fully expect they will hold me,and not Trenton, responsible for their plight.

The unions are just doing their job and that job is to fight tooth and nail for the interests of their members. I expect that. I accept that. And I respect that. My job, however, is to fight just as hard for the people of Orange.

So, I will not accept employees using this crisis as an excuse for not doing their jobs. Just as I am accountable to the people of Orange, our employees must be held accountable for each dollar they receive from taxpayers.

Facing layoffs, too many employees have chosen NOT to come to work, to abuse sick time, and to produce far less than their jobs require. For example, in the beginning of December, we had entire police shifts with no car stops, no vehicle summonses, no parking tickets, no arrests AND with above average sick calls. And, this happened in the midst of concerns about a spike in crime during the holidays.

As a result, we have put strict measures in place to hold employees and their commanders accountable for their lack of productivity. We have zero tolerance for those who call out sick when they are well, who don’t perform their duties, who don’t protect the people of Orange and who rip off the taxpayers who pay their salaries.

The Plan
With or without layoffs we have been planning for months how to reduce spending and increase productivity and revenues. Since Governor Christie’s cuts, we have stepped up our efforts to reduce spending through staff reductions. Since July 1, 2010, 20 employees have left and only 5 have been hired. The salaries of the 20 who left totaled $1.7 million compared to the cost of $230,000 for the five hired since July 1. This represents a net savings on a yearly basis of $1.5 million.

At the same time that we have made these reductions, we have reorganized the use of existing personnel to increase their productivity. Some employees have been moved from one department to another to fill gaps in essential staffing. Other employees have been cross-trained to do more than one job. They have been assigned additional responsibilities without increasing their salaries.

We have brought in over $4 million dollars in new ratables. We have created a quarter of a million dollars in new revenues with a landlord fee to pay for the inspection of apartments.
We have created a task force to derive more revenue from our Municipal Court. We are working to develop cost-saving shared services with our neighboring towns such as the agreement we have signed with East Orange to service our vehicles.  We are exploring innovative technologies to increase productivity such as spraying our streets with brine to make the snow melt when it hits the ground.

All of that, however, is not enough to prevent layoffs in the face of Governor Christie’s $3 million dollars in cuts, a $6.4 million dollar budget gap, and the unwillingness of our unions to provide the give-backs we need. When the layoffs take place, we will be prepared for them.  While hoping that layoffs would not be necessary, we have been planning for months for how to protect the health and safety of our community with many fewer people on the city payroll.

In a moment, the directors will share the details of our plan to operate with fewer resources. But, here’s a partial overview. In the Police Department, we are demoting supervisors to prevent the layoff of more officers and to ensure that there will be police on the streets.  There will be just as many police patrolling our neighborhoods as there is now.

The Fire Department will take one engine out of service, and continue to rely on the mutual aid agreements we have with our neighboring towns. We will reduce the hours of the building and construction office, make Older Adults more of a referral resource than a direct service provider, and we are considering changing street sweeping from two days a week to one or less.

I am confident that there are better days ahead for Orange and for America. Every crisis presents an opportunity for growth and positive change. If we use this crisis to improve the productivity of our municipal government, if we use this crisis to do more with every tax dollar we collect, if we use this crisis to force Trenton to give us the power to control our financial destiny as a city, if we use this crisis to find new ways to help each other, then, when the economy improves, as it inevitably will, Orange will rebound with it, and all of us, taxpayers, employees and residents together will share a brighter future.