As forensic audit shows sloppy finances, Trenton will spend more

New Jersey’s beleaguered capital city, awash in reports of deeply flawed spending of taxpayer resources, scored a Wall Street credit upgrade that will boost its power to borrow millions of dollars for utility upgrades and other major improvements.

Moody’s Ratings, in a May 1 report, deemed Trenton a reasonably safe risk for institutional investors that may lend it money. The city, it found, has “a stable budget and a healthy balance sheet,” in part because half of its annual revenue is in the form of state taxpayer aid.

It’s not known whether Moody’s, the financial analysis service that issued the credit upgrade, had access to a key document: a forensic audit of the recreation department that was kept from public view by City Hall for more than eight months. A financial adviser to the city said Moody’s reviewed the document, but didn’t say whether it did so during its examination, or after the audit was published by NJ Spotlight News. Moody’s declined to comment.

The audit, ordered by the state Department of Community Affairs, built on news reports in The Jersey Vindicator last year that found a broad pattern of nonstandard procurement, unsubstantiated overtime and undocumented employee reimbursements by the city’s Department of Recreation, Natural Resources and Culture.

At least $3.2 million in federal COVID-19 relief funding, designated for parks upgrades, was paid to landscaping companies in installments that fell below the $44,000 threshold to trigger fair and open bidding, public records show. None of it went before the City Council for pre-approval. One job – the clear-cutting of trees and underbrush in milelong Stacy Park, along the Delaware River — so destabilized a flood zone that the state Department of Environmental Protection halted the work and ordered the city to fix the damage.

That hasn’t happened. After Trenton paid hundreds of thousands of dollars to make Stacy a jewel of the park system, its 32 acres are returning to an overgrown state.

‘Why disclose?’

Decisions about government credit ratings reviews are rooted in data about finances, economic conditions and public policy. The findings guide investment banks and other lenders on risk when issuers, such as municipalities and counties, prepare to borrow for major expenses and intend to pay back over several years.

A forensic audit is designed to uncover waste, fraud and abuse and is key to financial crime prosecutions. No Trenton employees or elected officials, and none of the vendors named in the audit and news reports, have been charged with wrongdoing.

Trenton kept the 138-page document from public view after it was issued on Aug. 19. NJ Spotlight News obtained a copy eight months after it filed a public records request.

In a brief interview Wednesday, Mayor Reed Gusciora said it was “ridiculous” for NJ Spotlight to ask whether the audit had been made available to Moody’s to help inform its credit decision. “Why would I disclose that?” he asked.

In a news release, Gusciora said: “Our administration remains focused on responsible budgeting, long-term infrastructure investment, and creating a stronger economic future for residents. This upgrade demonstrates that Trenton is moving in the right direction.”

Neil Grossman, a financial adviser to the city, said Moody’s “has seen and reviewed the forensic audit report,” though he didn’t specify when. The document was marked “Privileged & confidential attorney work product,” and City Council members were permitted to view it only via computer and barred from printing copies.

Moody’s analyst Dan Seymour, who wrote the credit review, said he couldn’t discuss any of the material he may have examined.

“When we speak with issuers we offer them confidentiality in anything they’re willing to share with us, and therefore I can’t comment on anything an issuer shared with me or didn’t,” he told NJ Spotlight News.

A spot in City Hall

The audit was conducted amid a series of news reports that found the city failed to adhere to bidding laws and awarded lucrative work to handpicked vendors, lacked complete records to substantiate runaway overtime costs and reimbursed tens of thousands of dollars to employees for undocumented purchases on their personal credit cards.

The Department of Community Affairs is supposed to monitor Trenton operations and spending as a condition of at least $277 million in state taxpayer aid given to the city since 2010. All the irregular spending identified in the news reports and forensic audit occurred under the watch of the department’s fiscal monitors, which have a City Hall office.

Credit: (Elise Young/NJ Spotlight News)

Later, the city put Business Administrator Maria Richardson – who oversaw the procurement – in charge of approving all city expenditures above $100.

Lisa Ryan, a Community Affairs spokeswoman, said the monitors advise, but don’t make day-to-day decisions for the city. She didn’t respond to requests to interview Community Affairs Commissioner Jacqueline Suarez.

At least half of Trenton property is nontaxable because it’s owned by government, nonprofits and other exempt entities. One of the poorest municipalities in New Jersey, Trenton leans on state taxpayers to cover about 20% of its annual budget. Trenton is seeking a record $59 million in such assistance for next year.

It’s not known whether the Department of Community Affairs was familiar with the forensic audit it had ordered. In response to public record requests over several months, the department said it had no such record.

‘Sustained fiscal stability’

Federal, state and local governments issue bonds to pay for high-cost infrastructure and other projects. Investors provide the funds and set interest rates, with installment payments collected over time.

Moody’s upgraded Trenton’s credit one step, to Baa1 from Baa2, for its $210 million in long-term debt. That means Trenton has moderate-risk investment-grade credit — solid, though not top-tier. Better credit means lower interest rates, potentially making borrowing more palatable to taxpayers, who bear the costs of repaying.

“The state’s clear and increasing support for its capital city has led to a stable balance sheet, in spite of some of the city’s challenges including high poverty and significant capital needs to its water utility.” — Moody’s Ratings

The upgrade “reflects the sustained fiscal stability the city has been able to achieve, with significant support from the State of New Jersey,” Seymour, the Moody’s analyst, wrote in the Trenton review. “The state’s clear and increasing support for its capital city has led to a stable balance sheet, in spite of some of the city’s challenges including high poverty and significant capital needs to its water utility.”

Trenton this year is seeking to issue $21.7 million in short-term debt, payable over three years, for general improvements and the needs of its parking, sewer and water utilities. That transaction was assigned an MIG 1 rating, Moody’s highest for that type of borrowing, indicating that the debt has the least risk of default.

The analysis weighed in on Trenton Water Works, which serves the city and four towns and is at risk of catastrophic failure for lack of maintenance and other issues, according to the state Department of Environmental Protection. The system has a $760 million capital improvement plan, Moody’s noted. That’s more than double the amount of Trenton’s annual budget.

“We expect that this will be funded to a considerable degree by the state,” the Moody’s report states. The city “would have significant difficulty funding this capital plan on its own.”