Upgrade in Troubled City’s Credit Rating Gives Camden New Hope
While serious problems have not gone away, improved assessment by S&P sends encouraging message about future
Despite a shaky national economic climate and the second downgrade to New Jersey’s credit rating since Gov. Chris Christie took office, Camden City and Camden County are celebrating. Standard & Poor’s (S&P) has assigned Camden City its best credit rating in 15 years and has upgraded Camden County to its highest rating ever.
Both city and county attribute their success to newfound fiscal restraint and responsible management. Camden City and S&P also acknowledge the state as a significant source of support.
The city has made progress on a number of fronts, starting with the responsible bookkeeping that has supplanted the fiscal anarchy of just a few years ago. The Economic Opportunity Act of 2013 (EOA) is starting to kick in, attracting new businesses -- including the first full-service national grocery chain to open within city limits in more than 30 years. And the county’s controversial takeover of the city’s police force has made the most dangerous city in America noticeably safer.
Still, it’s too early to talk turnaround. Critics argue that tax incentives and financial infusions from the state can’t replace good schools and actual economic prospects.
That said, higher credit ratings mean the city and county can save money by borrowing at lower interest rates. Further, analysts’ confidence can send a positive message to potential investors, employers, employees and residents.
“It says to investors, ‘Camden is changing its trajectory,’” said Camden Business Administrator Robert Corrales.
From Junk Bonds to Investment Status in Three Years
Camden City received an investment-grade rating of BBB+, and its home county maintained the AA status it originally received in November. Credit and bond ratings range from AAA at the top to C at the bottom, with AA, A and BBB rounding out the ranks of investment-grade bonds; all lower grades fall into junk bond territory.
Camden City received its previous credit rating, from Moody’s Investors Service, in 2011. It didn’t look too encouraging.
“We got a BA2 rating -- junk bond status. The last time we had an investment grade was in 1998,” City Finance Director Glynn Jones said.
This year, the City of Camden requested a new evaluation from S&P in advance of issuing an $8 million bond to demolish more than 600 vacant structures. The outlook for the next two years is “stable,” which means analysts believe in the city’s ability to pay back the loans in full, provided no major disruptions hit the market.
In evaluating the city, analysts deducted points for its weak economy and an unemployment rate double the state’s.
But it got points for budgetary flexibility and performance, strong liquidity, use of standard financial management practices, and a very strong debt profile. The report noted that the city ended fiscal 2013 with an operating surplus of $10.6 million, or nearly 7 percent of its budget, thanks to “conservative budgeting and unspent appropriation reserves.”
The report also indicated that the city provides monthly budget reports to the city council and updates its five-year capital improvement plan and three-year long-term financial projection annually.
Keeping the Books
For the third year in a row, auditors gave the city finance department an “unqualified/unmodified” assessment for its bookkeeping, meaning they harbored no reservations about the condition of the department’s records. This is a big step forward for a city whose former state-appointed chief operating officer expressed public shock just seven years ago over the city’s troubling lack of record keeping, organization, or automation.
Those types of problems led earlier auditors to give the department a “no opinion” rating.
“The books were in such bad shape the auditors refused to put their names on it,” said mayoral appointee Jones. Jones credits the mayor’s finance background for the changes.
“It was really essential for her when she took office in 2010. She wrapped her arms around it, and if she’s on her game I’ve got to be on mine,” he said.
Camden’s high unemployment rate of 16 percent last year actually marks an improvement over two years earlier, when it peaked at 19.6 percent. In the report, city officials attribute part of the reduction to the state’s Economic Opportunity Act. This massive tax-incentive program sets aside significant subsidies for Camden and is being credited with helping to attract a practice facility for the Philadelphia 76ers basketball team and the Holtec International manufacturing company.
Corrales says the EOA will combine with the credit boost and Camden’s accessibility to Philadelphia and network of highways and public transit lines to create a snowball effect on job growth.
But Gordon MacInnes, president of New Jersey Policy Perspective, counters that attributing economic activity and job growth to tax incentive programs is “risky business” because most of the evidence points to other factors -- like the education level of the workforce, safe and livable communities, and quality schools -- as being much more important.
“We’re neglecting the assets that really count while we put everything into these tax incentives,” he said. Plus, the the claim that the EOA has contributed to job growth is spurious because no Camden projects approved for the program have started yet.
State Oversight and Support
“New Jersey’s partnership with Camden is the national model for successfully combatting financial stress,” Director Thomas Neff of the NJ Department of Community Affairs of Local Government Services (DCA) said in a statement. “Camden’s financial house is in order and they are poised for economic revitalization without resorting to the waste and destruction that comes with bankruptcies seen elsewhere.”
Indeed, Camden’s dependence on the state -- often the target of local indignation, and accusations of patronage and colossal financial waste -- is being held up by S&P as a national model of city/state relations.
In 2002, the state took over control of the city for five years (later extended to eight) under the Municipal Rehabilitation & Economic Recovery Act. Along with an infusion of $175 million in “transitional aid”, Gov. McGreevy appointed a city administrator to supersede the mayor. And state agencies temporarily supplanted many city ones -- adding to bureaucratic confusion and fomenting resentment among residents who didn’t appreciate the state police patrolling their neighborhoods.
Even though the state has recently taken over the school board and still supplies Camden with more than half of its current fund revenue, city, rather than state, employees, now oversee almost all its operations. Christie reportedly calls the area the “new Gold Coast.” Corrales says representatives from the federal General Accounting Office who visited as part of a study on distressed cities said they were very impressed with the level of city/state amity and cooperation.
A DCA spokesperson says the partnership (and the money) comes with certain conditions. For example, the state reserves the right to provide technical and regulatory support on matters like police regionalization, collective bargaining, conversion to a cheaper healthcare model, and approvals for “creative economic development proposals.”
What’s more, the state monitors new hires and vendors to ensure they’re qualified and not price gouging. It also explained the city’s financial condition to the markets and vouched for it earning an investment-grade rating.
S&P analysts said that they believe Camden will “likely make budgetary adjustments, as necessary, if state funding were to decrease due to state budget pressure” but warned they could lower the city’s credit rating “if the city were to draw down reserves substantially.”
The Camden Police Department
The 2013 transition of the police department from a city to a county force has generated admiration and ire. After the government of a 77,000-person city briefly cut its police force to 175 officers in 2011 -- thereby ratcheting up a record-breaking number of homicides in an admittedly almost lawless environment -- city officials closed down the department and allowed the county to create its own department to police the city. Instead of budgeting $62 million in 2011 -- triple what it collects in total property taxes -- to run a 250-member force, for the next 10 years the city will pay the same amount annually to the county with yearly increases to cover predetermined cost-of-living and inflation adjustments. The fee includes money that the state provides to Camden for general operations. S&P looked favorably on this city-to-county transfer.
But the move infuriated existing officers and union officials because by laying off every officer and taking the department off its books, the city circumvented long-standing contract provisions that prevented them from making the drastic cuts that have since been made at the county level to payments for overtime, seniority, and shift differentials.
City and county officials say the rehiring of 150 officers and the eventual addition of approximately 250 more officers and 100 civilians yielded a reduction in crime that justifies the restructuring. Crime stats show a 22 percent drop in violent crime under the county force since 2012.
But former FOP Lodge 1 president John Williamson argues that true crime stats should reflect a year when the department operated with a comparably full staff, which he says would require a comparison going back as far as 2007 or 2008. He also accuses police and city officials of previously hiding money in order to justify the layoffs and create a crime crisis that would compel residents to practically demand the takeover.
“They are masters at moving money, billing for different things, and paying through other funds,” said Williamson, who vehemently opposed the change.
After the transition had begun, an analysis by The Philadelphia Inquirer unearthed $2.3 million in unspent grants to the department -- grants city officials say they couldn’t legally use because they couldn’t find enough qualified police recruits to meet stipulations.
Entering Camden County
Even though the county has taken over responsibility for patrolling the nation’s most dangerous city, its taxpayers aren’t footing the bill and the county isn’t spending money it didn’t already have. Analysts cited “strong budget performance” and “strong management” as reasons for the county’s upgrade.
Camden County Freeholder Director Louis Cappelli says the county has laid off 30 percent of its employees since 2004 and was able to train and rehire many of them to replace those lost through attrition. He also credits the suburban Philadelphia county’s strong economic climate and points to several major public and private construction projects underway, including a premium outlet mall operated by Simon Property Group in Gloucester Township, multiple housing developments in Gloucester Township and Winslow, and the nine-year, $1 billion upgrade to Route 295.
The county has already benefited from November’s rating. Because government entities buy energy credits to run its facilities and equipment well into the future, a strong rating can also lower its rates for gas and electricity. A recent bid netted the county a 25 percent cost reduction, which translates to a savings of $500,000 at the municipal utilities authority.
“And we’re not finished,” Cappelli said. “We’re continuing to find ways to manage costs and improve our credit rating.”