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Tales of 2 cities define rivals in governor's race
Originally appeared in the Star Ledger on 09/09/01 BY JOHN HASSELL
When two thirtysomething Ivy League graduates named Jim McGreevey and Bret Schundler became mayors in the early 1990s, the times were grim. The nation was in recession. The state was hemorrhaging jobs. Gas cost $1.20 a gallon -- $1.56 in today's dollars. One of the top songs on the radio was "The End of the Road."
The municipal landscapes the two men faced were equally bleak. Both replaced mayors who had been indicted while in office. Both inherited severe budget deficits, artificially low tax rates and woefully outdated accounting systems. From the moment they took office, both men faced tough choices.
Now, a decade later, as Schundler and McGreevey campaign for governor, those choices and their consequences have become touchstones in the race, as the candidates seek to draw contrasts on issues ranging from taxes to crime to debt.
The constant comparisons have produced a bumper crop of accusations based on wildly skewed statistics. But a thorough reading of the record suggests that Schundler and McGreevey each met most of their goals, and brought a measure of stability and professionalism to the governing of two of the state's six largest communities. Both have been re-elected twice by overwhelming margins.
At the same time, the record illuminates two very different management styles. McGreevey, the Democratic mayor of Woodbridge, emerges as a nuts-and-bolts pragmatist who confronted budgetary shortfalls with a mix of belt-tightening, tax increases and borrowing that Republicans deride as tax-and-spend liberalism. Schundler, the former Republican mayor of Jersey City, displayed a more innovative flair with finances, finding ways to avoid tax increases that Democrats say deferred problems to his successor.
Those differences have become underlying themes in the gubernatorial campaign, as New Jersey faces many of the same problems Schundler and McGreevey confronted when they took office. The national economy is slumping. State revenues are falling short of projections. And gas is selling for $1.44 a gallon. No matter who wins, the next governor faces tough choices.
'A VERY DEEP HOLE'
McGreevey was the first to take the plunge into municipal politics, winning the Woodbridge mayoralty in Nov. 1991 after a raucous battle against an incumbent, Joseph DeMarino, who was cleared of bribery charges by a jury only a month before Election Day.
The administration McGreevey inherited was in severe disarray. DeMarino had dropped the tax rate from 87 cents per $100 of assessed valuation to 62 cents as an election-year gimmick, and had virtually depleted the surplus. After he lost the election but before he left office, DeMarino saddled McGreevey with additional baggage, including a tax settlement that paid one of the biggest oil refineries in town $2.1 million, and 21 new patronage employees.
DeMarino also left behind a deficit estimated at $24.9 million by the accounting firm of Ernst & Young -- at a time when the market value of the town's property tax base had declined by 13 percent in only three years. "We were staring up from the bottom of a very deep hole," said John McCormac, McGreevey's chief financial officer.
To handle the crisis, McGreevey did three things. He reduced the town's work force by 7 percent, through attrition and by firing DeMarino's post-election hires. He raised the tax rate from 62 cents per $100 assessed valuation to 77 cents (still less than the 1990 rate of 83 cents). Finally, taking advantage of a shift in state policy under then Gov. Jim Florio, McGreevey moved the township from a calendar-year budget that began on Jan. 1 to a fiscal-year budget that began on July 1.
The move cost Woodbridge six months of state aid. But it also earned McGreevey state permission to borrow $34 million through the sale of bonds -- enough to make up for the loss of state aid and pay off the township's deficit. The bond sale increased Woodbridge's municipal debt by 70 percent and led Moody's Investor Service to reduce the township's credit rating slightly. But Moody's also praised the McGreevey administration for a "willingness to make difficult but prudent financial decisions."
LOOKING FOR OPTIONS
When Schundler won a special election in November 1992 to fill the unexpired term of Mayor Gerald McCann, who was serving two years in jail for fraud, he made national headlines as the city's first Republican mayor in 75 years.
The glowing publicity helped, especially because Schundler faced re-election just six months after he took office. But if he was going to win again in May 1993, he needed to lift himself out of a hole at least as deep, if not deeper, than the one McGreevey faced -- and he had fewer options available to him.
For one thing, McCann had already taken advantage of Florio's fiscal-year adjustment policy, borrowing $128 million to get his administration out of several short-term jams -- further complicating matters for the incoming Schundler. The resulting debt payments were $12 million a year, a significant expense in a city with an annual municipal tax levy of approximately $100 million.
Overall, the budget deficit Schundler faced was estimated at between $29 million and $40 million by the city's accountants. A financial recovery plan prepared by an outside auditor offered only drastic solutions: Cutting the city's work force, including police and firefighters, by 15 percent and raising the tax rate by 50 percent.
"The Democratic machine handed us a grenade and figured they would let us detonate it, then come in afterward and pick up the pieces," said Tom Gallagher, Schundler's former chief of staff. "But it didn't work out that way."
Drawing on his experience as a bond salesman at Salomon Brothers, Schundler came up with a novel solution: He packaged the city's tax liens -- the claims the city held against properties with unpaid taxes -- and sold them to Wall Street investors. The move earned Schundler national praise as an urban innovator, and the initial transaction provided the city with $25 million in cash, and a $19 million promissory note.
"The naysayers said it couldn't be done," Schundler said in a recent interview. "But they were wrong."
The deal eventually fell millions short of revenue projections. But the first infusion of cash gave Schundler the ability to avoid layoffs and tax increases. And six months after he took office, he was re-elected with 69 percent of the vote.
DUELING STATISTICS
As the governor's race heats up, the campaign has become a battle of dueling statistics. In many cases, the comparisons are virtually meaningless, given the vast differences between the two communities -- one urban, the other suburban. But in a range of categories, it is possible to offer some analysis of the two mayors' performance in the years since they handled their original crises.
On municipal taxes, for instance, Schundler has held the line much more strictly than McGreevey has -- using the last nonelection year before each man took office as a baseline.
According to figures from the New Jersey Department of Community Affairs, the tax bill paid by the average homeowner has gone up 3 percent a year in Woodbridge since 1990. During the same period, the average tax bill paid by homeowners statewide has risen by 4.2 percent a year, and inflation has averaged 3.2 percent a year.
In Jersey City, the tax bill has gone up 1.4 percent a year since 1991. During that period, the average tax bill statewide has risen by 4.8 percent a year, and inflation has averaged 2.8 percent a year.
The tax numbers do not tell the whole story, however. Schundler has done some extraordinary financial juggling to keep the city's tax bills down. Among his moves: He squeezed surplus funds from the city water utility, and sold the Cavens Point ballfield to the board of education for $8.7 million. That bill fell to state taxpayers because of Jersey City's status as a special-needs district.
Schundler's critics say this sleight-of-hand budgeting left his successor with deficits similar to the ones he inherited. But Schundler disputes that, and defends his budget moves, arguing that keeping taxes down was central to the recovery of a city in which the tax collection rate was only 78 percent when he took office. (It is now 99 percent.) "Everything we did has to be understood in the context of a city that was in crisis," Gallagher said.
McGreevey, meanwhile, has avoided the kind of creative budgeting Schundler employed, choosing instead to raise taxes in nonelection years to keep up with the growing cost of township services. Each time he has run for office since 1995 -- twice for mayor and twice for governor -- he has kept the tax rate flat. In the three off years, the tax rate went up -- by 8.5 percent in 1996, 11.2 percent in 1998 and 7 percent in 2000. McGreevey argues that he has kept tax increases below the rate of inflation; his critics say he could have worked harder to cut spending.
McGreevey and Schundler have both increased the net municipal debt. According to figures from the state Department of Community Affairs, net debt in Jersey City rose from $263.9 million in 1992 to $293.4 million in 2000, an increase of 11.2 percent. In Woodbridge, net debt grew from $90.5 million in 1991 to $115.5 million in 2000, an increase of 27.6 percent. In both places, however, that debt represented a small percentage of municipal property values: 2.1 percent in Woodbridge and 5.5 percent in Jersey City.
In terms of crime, Jersey City and Woodbridge have experienced overall reductions during the years Schundler and McGreevey have held office. Because the nation and the state experienced similar drop-offs, however, it is difficult to know what effect the mayors' policies have had.
Under Schundler, total crime dropped by 38.7 percent, while the state experienced a 32.6 percent drop. Violent crime went down 36.2 percent, compared with 33.7 percent statewide. During McGreevey's tenure, total crime has decreased by 38.2 percent, compared with 37 percent statewide. Violent crime in Woodbridge, however, has gone up by 13.4 percent, while it has dropped statewide by 34.3 percent.
Another measure of the mayors' performance is the extent to which Schundler and McGreevey addressed the issues raised by auditors after they took office.
In Schundler's case, the firm of Deloitte & Touche found 15 "significant deficiencies" in the city's organizational structure in 1992. The firm also made 107 recommendations to improve the city's management. By 1999, the city's official audit included 33 recommendations, but no "significant deficiencies."
In Woodbridge, the firm of Ernst & Young found five "material weaknesses" in 1992, and made 99 other recommendations. In the township's most recent audit, covering the fiscal year ending June 30, 2000, there was only one recommendation: "We suggest the township issue its dog tags in sequential number." James Davy, the business administrator, said: "We can live with that."
In the end, the data from Jersey City and Woodbridge suggest that both McGreevey and Schundler have shown strong management skills, ever since they took office under inauspicious circumstances in the early 1990s. And while the two candidates will no doubt attack each other's records between now and Election Day, each has a personal reason to appreciate his opponent's success: McGreevey spent his early childhood in Jersey City, and Schundler spent his in the Colonia section of Woodbridge.
Staff writers Josh Margolin, Jonathan Schuppe and Robert Gebeloff contributed to this report
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