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A Businessman's Metamorphosis
Originally appeared in:
Inside the tinted glass skyscrapers on Wall Street, investment bankers
taking
a break from capitalism gaze across the Hudson River at Jersey City, New
Jersey, a town long neglected by America's financiers. Abandoned factories,
rusted water towers, and crumbling highways clutter the waterfront view.
Beyond the riverbanks and less visible, mount troubling signs of despair and
poverty. Fewer than half of the city's residents finish high school, more
than
14. percent are on welfare.
While most bankers go home to their swanky Manhatttan apartments,
Salomon Brothers bond salesman Bret Scbundler always went home to
Jersey City. Schundler a Republican Harvard graduate, wanted to get into
politics. And when longtime mayor, Gerald McCann was sentenced to
prison for fraud in the summer of 1992, Schundler saw his opening to bring
a business background to the job of managing a city.
In a town where two-thirds of the population are black, Latino, or Asian,
few gave Schundler who is white, a chance. So when he won on November 3,
1992, with a stunning 68 percent of the vote, the national media took
notice.
Schundler was among a group of politicians profiled by Time magazine
as a new breed of big-city mayors with business backgrounds. "Wielding
corporate-style tactics, the CEO mayors are taking on city hall," wrote Time
"Managers rather than politicians, they apply private-sector solutions to
chronic urban woes and switch over to the technocratic jargon without
pause.
In his first months in office, Schundler lived up to his fiduciary promise
and brought ideas straight from the business world to run Jersey City. He
talked of "securitizing tax liens," the process of packaging financial
debt and
selling it as securities for investors. For years, many homeowners had never
bothered to pay property taxes. They knew that liens placed on their
property
by the city rarely led to foreclosure. In fact, fewer than 1 percent of
homeowners with delinquent property taxes were ever challenged in court.
Schundler attacked the situation like a business deal. He bundled
together almost $45 million in tax liens and sold them to investors on Wall
Street, an action most other mayors, wouldn't consider, much less
understand. This first-of-its-kind move. taken from his Salomon Brothers' experience, turned a liability into an asset, helped push the tax
collection rate from 78 to 90 percent, and immediately raised $25 million.
It also allowed the mayor to cut property taxes. The deal promised the city
another $19 million by 1998 - money that would otherwise take a decade or
more to collect.
"We took dormant assets sitting on our balance sheet, realized value on
them and provided tax relief," said Michael Cook, the mayor's chief of
staff,
likening the city's financial condition to that of a private business
The move paid off and several other cities later copied the innovation. With a
stable budget and a new source of funds, Schundler put an additional sixty
police officers on foot patrol in crime-ridden areas of the city. He pledged
to
put another 240 officers on the streets within the year.
But after six months, the pace of change in Jersey City slowed, and
Schundler faced obstacles they don't warn you about in business school.
Civil service opposition derailed many of Schundler's more innovative
community-policing initiatives. Hostile city council members, including
several who were elected on the mayor's slate, blocked his legislative
agenda.
Even the newly elected Republican governor - an ally! - delayed approval I
his
school choice proposals.
Schundler had been successful in managing government like a business.
In many areas he achieved his goals without needing approval. Now he was
stuck. But recognizing the realities of managing in a public environment, he
changed tack. "I spent my first year putting more police on the street and
selling our tax liens, and those were both things I could pretty much do on
my own," he said. "What I have to do next is going to take much broader
support. It's going to attract organized opposition."
To accomplish his goals, Schundler began acting very unbusinesslike
For starters, though the municipal bureaucracy was overstuffed when
Schundler took office, the mayor did not initiate layoffs. In fact,
Schundler
boasted that he had not fired a single city worker, a move he admitted would
be "politically counterproductive." Instead he planned to shrink the size of
government through attrition. By not hiring replacements and reassigning
others, Schundler reduced the city workforce by nearly 10 percent in his
first five months.
Consider what would have happened if Schundler had treated
government as a business. Shareholders would have insisted that
management cut costs and people to remain competitive with other
companies. In the banks where Schundler worked, people were laid off
regularly. It was called "rightsizing." A bank CEO would conduct a
management study and cut the organization accordingly.
Schundler needed to move more slowly than he did on Wall Street.
Launching a wild crusade to reduce bureaucratic fat might be political
suicide. In a city that was only 6 percent Republican, the mayor could not
afford to lose public support for his priority initiatives of school choice and
community policing. In addition, every city employee was also a voter and
taxpayer, a shareholder of government. And each of these employees had
friends and families who also voted. Schundler would still reduce staff, but
it would be a slower and more deliberative process.
Schundler's metamorphosis didn't stop there. When he acted to literally
clean up Jersey City by removing graffiti and trash, his proposal was
innovative but nothing like what happens in the private sector. Rather than
simply turn the task over to the low-price company that provided the best
services, Schundler held a fair.
The mayor invited residents to the Jersey City Armory - complete with
concession stands and colorful balloons for the kids - to meet the
companies bidding for clearing services. He divided the city into 133
"special improvement districts." At the fair, residents could buy a hot dog,
learn about each company's strengths and weaknesses, and vote for one to
be hired in their district. The firm with the most votes won the business.
"We want those directly affected by services to be in charge of hiring
them," Schundler said. More important the mayor wanted residents to share
responsibility for choosing city services. Bringing city residents into the
decision-making process anchored the mayor's approach to governing. A
side political benefit: Any dissatisfaction would be harder to blame on him.
Schundler's approach to economic development also underscored his
break from private-sector management techniques. He had little time and
almost no budget for marketing, an important tool for any businessman. The
mayor dismissed the idea that Jersey City could attract businesses by
putting out glossy brochures and newspaper advertisements. He called
politicians' claims that they can create jobs "the height of hubris.''
Instead,
Schundler put his efforts into reforming the core functions of government -
education, infrastructure, and public safety.
Asked to describe his philosophy, Schundler said: "I'm not a
conservative I'm revolutionary."
Unlike so many public officials, who try to run government like a
business and fail, Schundler succeeded in bringing a better life to Jersey
City residents by treating government like government. He took innovations
where he could but always recognized the difference between managing on
Wall Street and managing at City Hall.
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