A Mayor Puts Empowerment To The Test
Originally appeared in
Insight, August 23, 1993
By Kenneth Silber
For a while, Bret Schundler sounds very much like the Wall Street financial expert he used to be. The 34-year-old mayor of Jersey City is seated at a table in his office, telling a reporter about his program to convert the city's tax liens into an investment vehicle that will be sold to professional portfolio managers. Before long, however, the conversation takes on a philosophical tone, and the mayor sounds more like the clergyman he once considered becoming. Jersey City, Schundler says, "can become a light to the nation."
Both financial acumen and missionary zeal may be necessary if Schundler is to tackle the problems of Jersey City, an impoverished, crime-ridden city of about 228,000 across the Hudson River from Manhattan. Schundler was reelected to a four-year term in May, after first taking office in a special election in November. He is the city's first Republican mayor in 75 years.
His performance in the job could have an impact beyond Jersey City, influencing political developments elsewhere in New Jersey and in New York City -- and helping to determine whether the Republican Party has credible solutions for troubled cities across the country.
Schundler considers himself an "empowerment Republican" who favors enterprise zones, private-school choice and other policies that enlist markets, rather than bureaucracies, in the fight against poverty. Although such policies have been espoused by national Republican figures such as Jack Kemp, former secretary of housing and urban development, there has been little progress in implementing them at the federal level. Hence, Jersey City could become an important test of the viability of empowerment.
The test won't be an easy one. Although Jersey City's waterfront is dominated by glass office towers, a walk inland soon leads to dilapidated town houses, vacant lots and grim 1960s-style housing projects. Annual per capita income in the city is around $10,000. During the past several years, the municipal government has come under increasing fiscal stress. The end of the region's 1980s real estate boom resulted in sharply diminished property tax revenue; "Jersey City had a tough time adapting to that change" says Robert B. Edmiston, a director in the municipal finance department at Standard & Poor's.
Although it remains to be seen whether Schundler can bring about an economic revival, his presence in the mayor's office marks a sharp political change from decades of virtually unchallenged Democratic rule in Jersey City and elsewhere in Hudson County. The local Democratic organization's dominance began with the 1917 mayoral election of Frank "Boss" Hague, who is remembered in history for saying, "I am the law." During much of this century, the Hudson County Democratic machine was notorious for being able, in large measure, to dictate the outcome of local elections.
Schundler, who ultimately would break this political monopoly, was a Democrat himself early in his adult life. After graduating from Harvard University in 1981, he worked for two years on the staff of Roy Dyson, a Democratic congressman from Maryland, and then became New Jersey coordinator for the 1984 presidential campaign of Gary Hart.
Schundler moved to Jersey City in 1985, when he started to work for the investment bank Salomon Brothers. He subsequently joined C.J. Lawrence, an economic research firm, and in 1990 became a self-employed financial manager. These private sector jobs helped convert him to a Republican worldview. "As you become more appreciative of the way the world works economically, you become less appreciative of some of the Democratic Party's inclinations," he says.
In 1988, Schundler co-founded the Coalition for Fair Taxation, a group that tried (and failed) to persuade Jersey City's administration to rethink a change in local property taxes that threatened to shift a larger part of the tax burden to low-income residents. For several years, he retained his Democratic registration, concerned that a Republican would have no influence in Jersey City's one party political scene.
He switched to the Republican Party in 1991 and ran unsuccessfully for the New Jersey Senate. Calling for lower taxes, Schundler got 45 percent of the vote, about twice the percentage received by the Republican candidate in the district's previous election.
Another opportunity began to appear in February 1992, when Jersey City's Democratic mayor, Gerald McCann, was removed from office and imprisoned after his conviction
Schundler's solutions to urban problems could cross the Hudson.
on federal fraud charges. Several interim mayors held the office in rapid succession, and a special election was held in November to fill the remaining seven months of McCann's term. Nineteen candidates ran, including Schundler. The city's Democratic power brokers failed to unite behind any single candidate, and Schundler won with a mere 16 percent of the vote, a victory regarded by many observers as a fluke.
Schundler faced more unified opposition in the regular mayoral election in May. The new mayor's chief opponent, Louis Manzo, a Hudson County freeholder, was backed by both the local machine and national Democratic figures. As the election approached, Senator Bill Bradley and the Rev. Jesse Jackson came to Jersey City to campaign on Manzo's behalf.
Officially, mayoral elections in Jersey City are nonpartisan, and there are no Republican or Democratic columns on the ballots. However, since Democrats outnumber Republicans 10-to-1 among Jersey City voters, the Manzo campaign sought to appeal to party loyalty, urging residents to "vote Democratic" and emphasizing that Schundler is a Republican. Schundler tried to blunt this effort by pointing out that his running mates for the City Council are Democrats.
The mayoral candidates competed for the votes of ethnic minorities in Jersey City, which is 30 percent black, 25 percent Hispanic and 10 percent Asian. The Manzo campaign tried to link the mayor to apartheid, on the grounds that a business run by Schundler's relatives imported vermiculite, a South African mineral. In a campaign rally, Jackson declared that Manzo stood for "the values of the U.S.A., the United States of America, not.., the Union of South Africa."
Schundler's innovative plan to sell city tax liens became an important issue in the mayoral race. The mayor proposed that the city's claims upon properties for which taxes had not been paid be "bundled" and sold to institutional investors -- in much the same way that individual mortgages are combined into securities that are traded by financial institutions. A large new market thus would be created for the liens (which traditionally had been auctioned to a handful of individual investors).
Schundler asserted that revenues raised in this way would enable the city to lower its property taxes. Manzo denounced the plan as "fiscally irresponsible" and said it was designed to benefit Schundler's "Wall Street buddies"
In the midst of the mayoral race, a bill authorizing Jersey City's tax lien sale was passed by the New Jersey Legislature and presented to Democratic Governor Jim Florio. There were several delays, including a conditional veto by Florio, prompting Republican lawmakers to accuse the governor of trying to stall the legislation until after Jersey City's election in order to deprive Schundler of the political benefits of announcing a tax cut. The bill, which had gained bipartisan support among state legislators, finally was signed three days before the election.
Criticism of Schundler's proposals failed to convince Jersey City's electorate. Although many observers had expected a close outcome, Schundler won the May 11 election by a wide margin, grabbing 68 percent of the vote. Eight of his nine City Council running mates were victorious on the first ballot.
The election cleared the way for Schundler's tax relief plans to move forward. A budget adopted by the City Council in late May cut property taxes by more than 5 percent. (Schundler initially proposed a larger cut, but was deterred by constraints imposed by the state government.) The council also gave its approval for the city to receive bids from investors interested in buying bundled tax liens and authorized the formation of a nonprofit corporation to handle such transactions.
By enabling more people to pay their taxes, the tax cut may reverse the trend of rising tax delinquency that has plagued Jersey City in recent years. Schundler plans to slash tax rates further in future budgets. In addition, his method of selling liens may be emulated by other cities; New Jersey legislators are moving to authorize municipalities throughout the state to enter into such deals.
The supply-side thinking behind Schundler's tax cut also is evident in his efforts to expand Jersey City's enterprise zone program, which aims to stimulate job creation through tax incentives. The program, which helped transform the once-deserted waterfront area into the highest-priced real estate in Jersey City, recently was extended to distressed inner-city commercial districts, and Schundler now seeks to modify the criteria for participation in the zone to attract more small businesses.
Restructuring the Police Department to put more officers on the beat is another of the mayor's priorities. "Community-based policing is the first step toward reestablishing order and civilization;' he says. Schundler is moving to "civilianize" a number of the department's desk jobs to make more officers available for patrol work, but this effort has met resistance from the officers union.
Schundler's plan to set up a voucher system encompassing both public and private education in Jersey City faces opposition from the New Jersey Education Association. During the campaign, the state's largest teachers union ran newspaper ads saying the proposal would increase taxes and allow a "Branch Davidian type cult" to set up a private school financed by Public funds.
The mayor hopes that state legislation will be passed this fall enabling Jersey City to operate a voucher system that would serve as a pilot program for the rest of New Jersey. Schundler is disdainful of proposals, such as those of the Clinton administration, that would limit school choice to the public school system; he likens that to the "choice" among shoddy, state-manufactured cars that were sold in communist East Germany.
Welfare reform also is on Schundler's agenda. The mayor seeks to change Jersey City's welfare program to require that recipients work in exchange for benefits. He sees this as an important departure from the "philosophy of entitlement" that has dominated government social services for decades-- a philosophy that sought to rescue the poor simply by giving them material goods. "People will only be saved when they have a sense that their own lives have meaning and purpose,, he says.
Schundler believes that the Republican Party can boost its appeal in cities across the nation by using markets to create opportunities and independence for the urban poor. He argues that the Democrats' entitlement philosophy often exacerbated the problems it sought to solve and now is largely spent.
Schundler will be a keynote speaker at a national Republican Party platform committee meeting this summer, discussing "how the Republican Party can become more responsive to cities." He is not a fervent partisan, however. Schundler is reluctant to make an endorsement in this year's New Jersey gubernatorial race between Florio and Republican challenger Christine Todd Whitman, preferring to praise or blame specific positions taken by the candidates. "I don't want Jersey City to be taken for granted by the Democrats or to be written off by the Republicans;' he explains.
Jersey City could be crucial to the race's outcome, because Democrats rarely win statewide without a strong showing in the city. Hence, the candidates may compete intensely to win favorable words from Schundler. "He's got a very strong trump card" says Lee Seglem, the managing editor of New Jersey Reporter, a newsletter that covers state politics.
In a different way, Schundler's influence may be felt across the Hudson in the longtime Democratic stronghold of New York City. If Schundler's policies spur an exodus of companies from Manhattan to Jersey City, there will be increased pressure on New York politicians to reform their city's confiscatory tax system. Schundler criticizes New York for offering generous tax breaks to retain high-profile companies while imposing high taxes on small businesses.
There are some similarities between Schundler's rhetoric and that of Bill Clinton. The president, for example, has decried "the politics of entitlement" and refers to his proposed federal enterprise zones as "empowerment zones" But Schundler is not impressed by the Arkansas Democrat's performance in the White House. "Clinton has tried to be all things to all people" the mayor says. "That's great for the first time around, but no one's going to be fooled twice."