Is Jersey City’s Buyout Offer to Hundreds of Employees A Sign of What’s to Come for Other Municipalities?

As COVID-19 lockdown continues, and with relief from federal CARES Act yet to arrive, municipalities in NJ are facing fiscal emergency and tough choices
Credit: NJTV News
Jersey City Mayor Steven Fulop

On Monday and Tuesday, Jersey City sent out emails and letters to some 400 employees, offering them voluntary separation packages in an effort to stanch what the city estimates will be a $70 million budget impact due to the COVID-19 health crisis.

“We’re hemorrhaging money,” said Mayor Steven M. Fulop. “Every year we have a lot of employees, like every municipal government, that are kind of on the fence about whether they should retire or not, and we think that this structure might help them make that decision and ultimately save us money long-term.”

Only employees who are nonessential and have worked for the city for 15 years or more are eligible for the separation packages, and, if vacated, Fulop said, many of those positions will not be refilled. The mayor declined to specify what city departments or positions received notices of eligibility, other than to say, “it’s across the board.” He added that there has already been interest. “Maybe this environment today has changed their perspective on what they want to do with the rest of their lives.”

Fulop estimates that the combined total salary of the eligible employees is $22.7 million, though he said he doesn’t expect everyone to take a buyout, which offers $20,000 or 25% of their salary, whichever is greater. “If we could get $5 or $6 million out of this process, I’ll take it and then we’ll move on,” he said. “The next conversation is going to be around furloughs, if need be.”

First in the state but unlikely to be the last

Jersey City is one of the state’s hardest-hit municipalities by COVID-19. According to Fulop, the city now has “well over 2,000 cases at this point and 54 fatalities that are documented.” On April 6, one of its city council members, Michael Yun, died of complications from the disease.

The city is the first municipality in the state to broach employee buyouts in an effort to mitigate the staggering — and still mounting — financial fallout from the COVID-19 pandemic. It is likely not the last to face such tough choices. Fulop confirmed that other urban New Jersey municipalities have contacted him with questions about how the city is structuring the buyouts.

One of them is Newark, the state’s largest municipality. Earlier this week, city councilman Anibal Ramos Jr. reached out to Fulop to discuss the fiscal impact of the COVID-19 crisis on their cities. “We had our council meeting this week, and I talked about having the opportunity to discuss with our business administrator some measures that we can agree on here in Newark that would better prepare the city to weather the storm,” Ramos Jr. said. “I did raise the issue about the Jersey City buyout program and that it’s something the [Newark] administration should look at as well.”

“Any municipality not considering this today is probably going to make their life much more difficult,” Fulop said. “The sooner you can start making decisions around where to cut and how to restructure the budget, the better you’re going to be.”

But John Donnadio, executive director of the New Jersey Association of Counties, expressed some concern with Jersey City’s decision to shed employees in an effort to mitigate budget impacts. Donnadio pointed to Gov. Phil Murphy’s April 4 executive order allowing retirees to return to state and local government employment without impacting their retirement pensions.

“From the staffing level, we are really struggling to continue, because government is open and we’re struggling to provide the services that we need to provide,” Donnadio said. “I would advise municipalities to talk to their financial officers and look at staffing levels and maybe reassigning staff as opposed to [buying them out].”

When asked in his daily briefing on Wednesday, Murphy said he had “no insight into Jersey City’s voluntary separations,” but added, “we need all hands on deck, I’ll say on behalf of the state.”

Increasing stress, extra costs

“Some of the same unfortunate responses that were necessary following 9-11, the 2008 recession, and Sandy are going to be looked at again, which included consideration of early retirement, furloughs, layoffs, outsourcing service, adjusting work hours,” said Mike Cerra, assistant executive director of the New Jersey League of Municipalities. “I think Jersey City is a little bit ahead because of the very significant impact of [COVID-19] in the city and on its work force.”

The Jersey City buyouts highlight the increasing fiscal stress that municipalities across the state are facing since New Jersey’s lockdown order went into effect on March 21.

On March 23, the Murphy administration froze nearly $1 billion in planned fiscal year 2020 spending, some of which includes a combined $186 million freeze on municipal aid programs and Homestead property-tax relief benefits. With nearly 577,000 unemployment claims since the lockdown, many residents are facing financial hardship and could lapse on bills like property taxes, which are vital to municipal coffers.

On top of that, municipalities large and small are having to invest in personal protective equipment (PPE), additional cleanings of firehouses and police stations, overtime for essential employees, and other unexpected measures to operate within the state and federal directives that have so far been changing on a near-daily basis. The smaller the municipality gets, the more impactful even the most trivial expenses, like signage to indicate park closures, become.

Too early to assess impact at Jersey Shore

In the tiny beach towns of the Jersey Shore, mayors and municipal administrators have gradually come to grips with the fact that they must close their boardwalks and beaches — places that attract crucial visitor dollars, even in the much-quieter winter months. But in the offseason, the vast majority of traffic in these tourist enclaves is that of nonessential construction workers, and now they too have been ordered to stay home. A lockdown that extends into the summer season would be disastrous for these fragile, tourism-based municipalities.

“If this cuts into the summer season, then all of a sudden a lot of Shore communities might be looking at dramatic responses” like Jersey City’s, said Cerra. “There’s going to be impacts — it’s to what degree at this point.”

So far none of these municipalities have reported the kind of measures that Jersey City has taken. “Some part-time employees have been furloughed because of the statewide closing of nonessential facilities,” said Doug Bergen, public information officer for Ocean City, in South Jersey. “It’s still too early to assess the financial impact overall.”

“I’ll be the happiest guy in the state if the Shore is able to be on its feet by the time summer comes around,” Murphy said in Wednesday’s briefing. “But, again, please stay in your primary residencies — the Shore does not have the infrastructure, particularly health infrastructure, to be able to withstand the sort of challenges we have right now.”

So far, little help from CARES

Following the passage, on March 27, of the $2 trillion CARES Act, there was mounting concern among state and federal lawmakers that the record-breaking aid package would be insufficient in supporting local governments like Jersey City, the state’s second largest municipality with a population of about 270,000, not to mention those of tiny towns like Ocean City.

The catch is that, in the CARES legislation, localities with populations under 500,000 cannot receive stabilization funds directly — despite being the most populous state in the nation, none of New Jersey’s 565 municipalities come close to having a population of a half-million or more. (Newark, the state’s largest, has a population of 285,000.)

New Jersey Rep. Tom Malinowski (D-7th) is among the sponsors of H.R. 6467, introduced in the House on April 7, which specifically addresses the need to provide “an enhanced Coronavirus relief fund for units of government with a population of 500,000 or less.” The bill would provide $250 billion in direct payments to these localities. “Hopefully this will be done sooner rather than later,” Cerra said.

Fulop has been among the New Jersey officials who have been vocal about the need for additional coronavirus legislation that addresses municipalities with populations of less than 500,000. “As it stands today, no municipality in New Jersey would have any direct aid,” he said. “It’s really a pass-through from Trenton, and any time there’s another layer of government involved, the pot gets less and less.”