PATERSON, NJ – Unable to afford the $8.9 million in debt due this year, the City of Paterson is planning to borrow more money to cover the payments.
Under an $11.6 million restructuring plan outlined at Tuesday night’s City Council meeting, Paterson would reduce its debt payments this year by almost $5 million. The city’s 2014 payments would drop by $4.2 million and its 2015 debt by $2.3 million.
But its debt payments in 2020 would rise by $4.3 million and the extra cost in 2021 would be slightly more than $7 million.
Over the eight-year life of the new bonds, Paterson the restructuring will produce a total of $3 million in additional debt for the city.
City officials clearly were not happy with the plan, one that’s similar to the practice of taking a cash advance on one credit card to pay off another one.
“This is not something that I would recommend anyone doing,’’ said City Council Finance Chairman Kenneth Morris.
But the New Jersey Department of Community Affairs is mandating the bond restructuring as part of the agreement that will provide Paterson with state Transition Aid this year, according to Morris and City Finance Director Anthony Zambrano.
“I don’t think we have much of a choice on this one,’’ said Councilman William McKoy.
The city has done smaller debt restructuring deals each of the past two years in an effort to resolve budget crises.
Paterson’s problem is not that it has a great deal of debt, according to its financial advisor, Neil Grossman. The $86 million in bonds that the city would end up with under the proposed deal is less than half the $200 million maximum under state law, officials said.
But the size of the payments strains Paterson’s limited financial resources.
The proposed 2013 budget currently includes about $3.9 million for debt payments. If the city were to try to make good on the full $8.9 million that is due, the current structural deficit in the budget would grow to $13.5 million, officials said.
The proposed restructuring is scheduled for an initial vote on December 18 and a public hearing and final vote would be held in January.
In conjunction with the restructuring, the city also plans to issue $22.5 million in bonds to cover sewer, street repair and other projects thatdate back to 2008. The city has been using short-term Bond Anticipation Notes to cover those costs, which would have required a $1 million payment on principal this year. But officials have decided it would be best to convert the short-term debt into long-term bonds to take advantage of the current low interest rates.