Dear Friends,
I am writing to share what I have learned concerning the $4.2 million bill that the City of Hoboken has received from the State Division of Pensions and Benefits. I understand that everyone is extremely angry over this situation, and at the very least I believe the public deserves a full explanation on this matter.
It appears that the Early Retirement Incentive Program (ERIP) that was prepared by the Administration and approved by the City Council last February was illegal.
New Jersey law permits municipalities to implement ERIPs (sometimes called "buyouts") only as part of a downsizing process in which jobs are eliminated as a result of "inter-local agreements" – that is, agreements to provide governmental services on a joint or consolidated basis.
Hoboken has not entered into any such agreements, and, therefore, cannot legally implement an ERIP.
Even when an ERIP is authorized by law, it still cannot be implemented without prior approval by the State Department of Community Affairs (DCA). Such approval requires the municipality to demonstrate that the incentive program would result in a reduction in the number of employees and employment costs to provide government services. For reasons that are still unclear, it appears that Hoboken did not seek the approval of the DCA prior to implementing the plan.
Most importantly, even if an ERIP is authorized by law and properly approved by the DCA the municipality is required to pay the increased pension costs resulting from the incentives. The cost is determined through an actuarial analysis and the City is directly billed for those costs.
In summary, it appears we implemented an illegal ERIP that should never have been permitted at all. Our Corporation Counsel, Steve Kleinman, and our then business administrator Dick England, should have known this, and they should have advised the Mayor and the City Council of that fact prior to even spending the time drafting the ERIP.
We were also never advised that the City would be responsible for the increased pension costs, a cost that we would have incurred even if the plan had been legal. That cost was not budgeted for, not included in the economic analysis provided by Mr. England, and not disclosed to the City Council in any way.
Still, we would have discovered the error in time had we submitted the ERIP for approval to the DCA as required. The DCA would have advised us that the plan was not authorized by law, and would not have permitted us to implement it. But the Administration implemented the plan without obtaining the required prior approval from the DCA. In fact, one person retired on January 1 before the resolution to approve the plan was even presented to the City Council on February 6th last year.
Based on the misrepresentations made to it by Mr. Kleinman and Mr. England, the City Council passed this illegal and inadvisable plan unanimously (Council members LaBruno and Castellano recused themselves because of conflicts). Had we been given the correct information I believe this plan would not have passed. I know I would not have voted for it.
Potential options to solve this crisis:
Understandably, Hoboken taxpayers are outraged by this situation, and many have asked why the program cannot be rescinded.
This option is being explored, but the concern is that it may open the City up to 25 lawsuits from the people who already took the retirement package in good faith.
Another option may be to bond to spread this expense over the long term. Doing so would require special approval from the state, because bonds are not typically permitted in circumstances like these. While I am generally against bonding to cover up our overspending and other mistakes, I would consider this option now because it is obvious that the Hoboken taxpayer cannot possibly bear another increase in the 3rd and 4th quarters.
I understand Mayor Roberts is making pleas to the State and his political friends to get Hoboken out of this mess. I am not optimistic but I hope that he is successful.
This situation is inexcusable. Those responsible for promoting and misrepresenting this irresponsible plan to the City Council and the public must be held accountable.
Right now I am still on a fact finding mission, and will be in touch with more news as soon as possible.
Best regards.
Dawn ◦
