NJ’s Municipal Governments and Trends in Select Small Cities

Trenton’s Historical Challenges

Trenton’s economic and political challenges cannot be examined in isolation. They must be viewed in comparison to other similar sized cities in NJ. This is done to benchmark differences that may assist in uncovering pathways toward municipal functionality, best practice and protocols to normalcy recommendations. To this end, the beggining of this narrative identifies four NJ cities of comparable demographics and size to demonstrate Trenton is not atypical in the challenges we face. These cities were chosen based on the robust analysis of their histories conducted in the “The Cost of Poverty: The Perpetuating Cycle of Concentrated Poverty in New Jersey Cities: A Comprehensive Budgetary Analysis of Four Urban New Jersey Municipalities,” conducted by the John S. Watson Institute for Public Policy in partnership with the New Jersey Urban Mayors Association for the NJ Anti-Poverty Network. The four cities consist of Bridgeton, Passaic, Perth Amboy and Trenton. We are driven to point out that this analysis, is a particularly excellent historical compilation and the comparisons herein are briefly examined in relation to the impact of state budget and tax policies that force, negatively or positively, the ability of the municipality to sustain itself and deliver constituent services.

These cities are old, with significant records in the industrialization of the country and America’s formative history; particularly true in regard to the NJ State capital. “Trenton’s American Revolution history is a matter of national record, as the repository of Washington’s Delaware Crossing, its Hessian Barracks and as the temporary Capital of the then evolving United States of America. Perth Amboy, founded in 1683, was one of the most important cities in America during the Colonial period and was a rival to New York City for several decades to claim the title of America’s premier commercial city.”[1] Bridgeton is cited as “the center of Southern New Jersey’s early economy, serving as a trading post for the region’s natural resource deposits (lumber and bog iron) and early manufactured goods. Passaic was an early Dutch settlement, benefiting from its position on a wide segment of the Passaic River after the Great Falls and the meeting of the Saddle River”[2]

Each city was a critical driver in developing a NJ economy based on location (strategically situated between two of the country’s major markets, New York and Philadelphia with entrance to global markets; Trenton does not exploit this well). Each had access to resources (specifically lumber, coal and iron), and through their transportation networks, were able to become industrial centers in the developing economy of the nation. Each was on the front end of the nation’s distribution network with cutting edge transportation delivery systems. Trenton commanded the Delaware and Raritan Canal, allowing for the shipment of industrial products between New York City and Philadelphia. Perth Amboy was a part of the first major railroad project in the United States during the 1830s, which forced the Delaware and Raritan Canal into obsolescence by offering a cheaper way to get goods to and from New York and Philadelphia markets.

“Passaic and Bridgeton also benefited from having access to train lines very early in their history, with Passaic benefiting from Paterson’s early industrial preeminence and Bridgeton being on a line to move both iron, lumber and agricultural products to the Delaware River. Bridgeton also offered regular steamboat service to Philadelphia and was uniquely connected to other cities and towns in its region by the pioneering Bridgeton-Millville interurban system that emerged in the 1890s.”[3]

Trenton was a center of iron and steel (Roebling) and specialized in various sectors of heavy industry until the mid-20th century; other commodities included rubber, machine tools and porcelain. These cities grew wealthy and the proliferation of entertainment, cultural institutions like theaters and museums; and prominently concentrated downtown's of department stores with satellites of smaller businesses developed to meet the growing needs of the residents in each of these industrial centers. Concurrently, much of the wealth of each city was built on the backs of the sometimes-exploited labor of European immigrants, members of the Great Migration [African Americans,] and immigrants from Mexico, Central America, and South America.

As the 20th Century continued, and especially after successful initiatives by organized labor to raise wages and better working conditions, the middle class grew — with the caveat that whites saw a deeply disproportionate share of the gains… the de-industrialization that followed this era of prosperity is perhaps, all too familiar, but is unfortunately the case in each city."[4] De-industrialization and the decline of the manufacturing base in heavy industry, much of it brought on by changes in road infrastructure and local polities’ preoccupation with corporate abatements for suburban manufacturing centers, the ability of these cities, with economic sectors cross fertilized by the first phases of industrialization, saw their municipalities lose the ability to support their tax base.

Across New Jersey both residents and businesses left at a greater scale and moved to the suburbs in greater numbers for a host of reasons ranging from real estate prices, to the federal subsidy of the highway system which often cut through the heart of city neighborhoods [often corralling the residents who remained there and other means of serial displacement]. The industries and downtown department stores of Trenton and Passaic gave way to the office parks and shopping malls of West Windsor and Wayne.”[5]

The Policy Institute’s report goes further “...the most overtly discriminatory and racist practices such as redlining, unfair lending practices, exclusion from labor unions, and exclusion from the better positions at industrial/ commercial concerns, corresponded with the flight of business and industry from the cities, resulting in acute and debilitating spatial mismatch (i.e., the concentration of people who need jobs the most, primarily in places distant from commercial centers).” This is a critical point. While much of the current understanding of Trenton’s residents, its political observers and others, deftly point to the decline of the local economy in response to the civil rights activism and unfortunately, riots of the sixties — the decline of the local economy was already in motion and the civil unrest of that period was simply the “icing on the cake,” leaving Trenton and other communities like it bereft of investment and capital to rebuild their economic base.

Because of the flight of higher wealth families and commercial/industrial enterprises and poor municipal planning regarding abatement and RCA utilization, the need to provide social services became more acute for those who remained, while at the same time, the ability to fund these services locally - diminished profoundly because of the very same exodus”[6] These cities, which used to be relatively diverse according to income, race, and ethnicity (or at least more in line with national trends), are much more homogeneous today… middle and higher income individuals, who were far more likely to be white, left for the suburbs[and] poverty is now highly concentrated.[i]

Trenton’s Current Challenges

Currently, Trenton remains pressed to address high service needs (police, fire, education, water, municipal efficacy, impactfulness and a burgeoning need for more social services) in the context of severe budgeting constraints. It searches for ways to build community cohesion in the face of significant demographic changes, a low skilled workforce, chronic crime, violence, unemployment and a lack of regional planning support to address the “structural poverty” concentrated here. Further, New Jersey maintains ongoing reliance on local property taxes as the central revenue source municipalities use to fund their budgets. In Trenton as and other cities across the State, the municipality’s revenue burden is based on a shrinking tax base.[7]

Trenton also remains under State supervision (since 2010) through the Department of Community Affairs and its Division of Local Government Services’ (DLGS) ‘Best Practices’ Program. This means "… the release of the total annual amount due for the current fiscal year from Consolidated Municipal Property Tax Relief Aid to municipalities is subject to the following condition: the municipality shall submit to the Director of the Division of Local Government Services, a report describing the municipality’s compliance with the “Best Practices Inventory” established by the Director of the Division of Local Government Services and shall receive at least a minimum score on such inventory as determined by the Director of the Division of Local Government Services; provided, however, that the director may take into account the particular circumstances of a municipality. In preparing the Best Practices Inventory, the director shall identify best municipal practices in the areas of general administration, fiscal management, and operational activities, as well as the particular circumstances of a municipality, in determining the minimum score acceptable for the release of the total annual amount due for the current fiscal year”[8]

What is Trenton doing to come out from under DCA's property tax relief program? “These burdens, combined with an inability to fund needed services, reinforces existing conditions of low opportunity and limited revenue.”[9] Further, concentration of high poverty areas, fuel ‘self-fulfilling prophecies’ of more poverty for individuals and families… “in the same way, [at the macro level] concentrated poverty creates structural conditions for municipalities that practically guarantee year after year of budget deficits, fiscal distress and an outsized local property tax burden for residents.”

The City has also been a receiver of funds from other New Jersey municipalities to provide affordable housing under the Fair Housing Act. Revenue from Regional Contribution Agreements is dedicated to affordable housing with a portion permitted to fund administrative costs. Some of Trenton’s poverty is in response to RCAs that allowed contiguous and other State or County towns to avoid their burden of servicing the poor and transitory in their districts. The Mount Laurel Doctrine, which prohibits economic discrimination against the poor by the state and municipalities in the exercise of their land use powers, was the first case of this type in the nation and is widely regarded as one of the most significant civil rights cases in the United States since Brown v. Board of Education (1954).

Now repealed, Regional Contribution Agreements allowed wealthy towns to pay to get out of up to 50% of their obligation by funding the rehabilitation of housing in inner city neighborhoods. The sending municipality would pay a negotiated fee for each unit transferred. Affluent communities sold their obligations to needy towns. Urban centers, such as Trenton accepted these funds to a fault, and found, that while shouldering larger populations of low-income residents if used correctly, they also concentrated poverty.

Trenton practiced a liberal acceptance of Regional Contribution Agreements prior to recent freezing by Christie’s challenge to the NJ Supreme Court. Trenton also demonstrated some difficulty in managing these funds. In 2008, Trenton increased the Trenton Rehabilitation Program appropriation using RCA funds to awards grants to city homeowners to help pay for upgrades on their properties from just over $1 million to $3.7 million (enough to pay for upgrades to about 200 housing units) after being pulled from the docket in June, “because the money was originally appropriated for a job training program, and it must be used for housing.”[12]

In a far more egregious example of Trenton inefficiency to monitor the use of these funds, 2015 saw Trenton affordable housing developer Kahn sentenced to two years after admitting he lied on a $6.4 million construction loan from Roma Bank which diverted funds for personal use, including a down payment on a condo. Kahan was a city-designated developer under former Mayor Douglas Palmer. Kahan’s company, Tara Developers, received thousands of dollars in federal and state funding to build affordable housing projects in Trenton. No one else was charged in the scheme. Project funding came from the state Department of Community Affairs, the Federal Department of Housing and Urban Development and other municipalities in the state through Regional Contribution Agreements, which allowed for the transfer of affordable housing obligations to Trenton.[13]

Trenton has manifested much fiscal wastefulness that follows from inefficient financial oversight and practice. There are many other flagrant examples include:

Trenton City Council on March 17 of 2016 year approved its $207.7 million budget, 15 weeks before the fiscal year ended. The 2017 fiscal year began July 1st 2016. The tax rate increased by six cents to $3.95 per $100 of assessed value. For a house assessed at $100,000, the tax bill is $3,950 a year.[15] The budget delay, it seems was partly blamed on DCA given the efforts of the City to meet the DCA mandates cited above. The approval of the current fiscal year’s budget in the last quarter of its appropriations and spending surely doesn’t seem to suggest good fiscal practice and is structurally fraught with inefficiencies.

Trenton Council also approved (somewhat recently) “an emergency appropriation” to pay the Internal Revenue Service for payroll tax deposits that had already been made by the City to its former payroll service, Innovative Payroll Services (IPS) in 2015, but which had been embezzled by IPS’ owner, John Scholtz between Apr ’15 and Jan’16. The method being used by the City – a municipal General Obligation bond – removed this $4.7 million liability from the current year’s budget… in the next-to-last month of the current fiscal year.

The prospect of having to come up with nearly $5 Million would have meant an immediate, drastic, unwelcome special property tax assessment from the city’s beleaguered private property owners. Floating this obligation as a bond strings out payment of this liability over a period of many years – 10, 15, 20, 30. Cities (states and the Federal government) typically use this kind of long-term funding to finance items like buildings or roads, with a long-term life and benefit to the community.[16]

This solution to the city’s poor administrative oversight of its vendor further reinforces inefficiency. As recently as 01/2017 the Trenton created a new position to oversee the city's payroll process, but officials said the move was not a response to the embezzlement scheme that cost the city nearly $5 million; that responsibility is in the finance department, not the administration. The city asserts internal controls are now in place so the taxing authorities get paid on a regular schedule but have not conducted a forensic audit to that might identify inefficiencies and needed improvements to ensure such theft cannot occur again.[17]

Settling litigation as a means of managing the myriad of law suits that plague the city is another problem. As of this belatedly published narrative, a series of nine settlements could be unearthed by Googling “Trenton Council settles…” from between July of 2009 and October of 2016. The total litigation the city has settled against its debilitating financial worthiness over this time, from a cursory review, is approaching how many millions dollars and counting.[18]

What's Next?

Trenton deservedly has a significant record in the industrialization of the country and America’s formative history. It was a critical driver in developing the NJ economy based on its location with entrance to global markets and had access to resources (porcelain, rubber, machine tools and iron) through its transportation networks. It became an industrial center in the developing economy of the nation; particularly where steel was concerned and remains a major transportation hub on the Northeast Corridor rail and interstate systems. The city’s industrial expansion helped it grow wealthy and fostered the proliferation of entertainment, cultural institutions like theaters and museums. A prominently concentrated downtown of department stores with satellites of smaller businesses thrived.

In the first half of 20th century, Trenton was the pride of a culturally diverse community wholly supported by its industrial expansion, access to resources and geographic location. it was not however, where minorities were concerned, free from practices of overtly discriminatory and racist practices against these segments of its citizenry. These included redlining, unfair lending practices, exclusion from labor unions and exclusion from better positions at industrial/ commercial concerns. These practices corresponded with the flight of business and industry from the city during the suburbanization boom. Coupled with strained community race relations and friction between its well defined and guarded neighborhood (ethnic) borders, the City’s fabric was primed to be torn irrevocably.

While much of its decline is historically indicated in response to the civil rights movement and riots of the sixties, the data shows the constricting of the local economy was already in motion as suburbanization rampantly expanded and that the civil unrest of the period was simply the “icing on the cake,” leaving Trenton bereft of investment and capital to rebuild their economic base. The flight of higher wealth families and commercial/industrial enterprises in tandem with the municipality’s expanding need to provide social services became more acute for those who remained; particularly as RCA’s became a development vehicle of choice.

The last generation has also seen Trenton inefficiently manage and execute its responsibility for ratables, grants and funding requirements, use of authorities and their bonding capabilities, and an inability to create economies of scale that generate other revenues. This has been detrimental to the city’s economic growth and the gainful development of its citizens. “The way cities are organized is often reflective of a political reality, business influence, or policy directive. The funding mechanisms for cities are also often based historically, on a more even distribution of wealth among residents and the presence of prosperous commercial and industrial concerns.”[19]

The decline of government funding has become increasingly central to Trenton’s financial health; but need not be a death knoll regarding public services or a political hot potato. Trenton does not manage its revenue streams prudently and proactively. Poor municipal management is the significant factor to be blamed for many of Trenton’s regressive revenue and impoverishment woes. This is in addition to sacrificing needed programs and paying more for essential services.

The city has been utterly incapacitated by its fiscal ineptitude and its treasury is hemorrhaging. Its inability to curb litigation costs and stave off culpability, inability to deter theft through supervision of its vendors and staff, inability to conduct effective risk management, inability to to manage contracts without a litany of cost raising inefficiencies, inability to meet federal grant requirements and competitively pursue funding – is ongoing. The fiasco with the pools and the YMCA in the summer of 2016 is one example; the IPS debacle is another; the loss of Weed and Seed funding and inability to replace this funding, is another dated case that illustrates the extended length of incompetency. In the long run, these inefficiencies cost the city more money in additional management costs because of administrative neglect.

In tandem with the bevy of literal non-assurances to foster hope in the administrative integrity and machinations of the municipality, our leadership’s political structure, its misaligned precedents and poor advocacy in the people’s interests must be challenged. How do we unequivocally undergird and re-establish normalcy in municipal efficacy and integrity? In Trenton, the factors as have been described above, all exist in a state structured amalgam, superimposed with the precedents of corruption, establishment politics and home rule in NJ. In all things administrative, and across each sector of functioning in the public domain, the city must search for ways to establish corrective action and proactive responsiveness to its serious management challenges in its vision for the 21st economy.

This overview, purposefully pointed to changes in the economic structure of early industrialized centers of commerce, that have not yet been rectified in the context of contemporary realities for the taxpayers and for the urban poor residing in this city. A formula appears to have been found in Jersey City, perhaps in Newark and Camden to some degree; but Trenton continues to lag behind. We are not convinced the established leadership - this includes Gusciora, will be able to face its inability to take corrective action in the areas we described in this narrative. Nor will it be able to assess itself through forensic examination of its processes and mandates, to determine if the municipality is meeting the city’s most critical needs. This should be examined in tandem with an open posture to the gentrification mission creep slowly encroaching downtown – without consideration of opportunities for the bulk of Trenton’s residents in the revitalization and its impact - this approach is misguided.

Considering significant demographic changes, a low skilled workforce, chronic unemployment; lack of regional planning support to address the “structural poverty” and "serial dislocation" that exists here, also requires a concentrated and leveraged examination of Trenton's robust nonprofit economy to make room for a different vision – a more concentrated, crystalized, aggressive direction in solving the city's social ills. This should be coupled with municipal planning and economics that prioritize protecting the city's financial and fiduciary interests, while developing historical tourism, critical infrastructure and most importantly the social capital of people and their workforce development assets; and doing it outside the usual way of doing things and the corrupt political culture of Trenton. We wish the refreshed standing (as of the June 12th election) of the establishment indicated that this was a consideration, but we digress...

[1] Thomas Edison State University/The Anti Poverty Network - The cost of poverty: the perpetuating cycle of concentrated poverty in New Jersey cities. http://www.antipovertynetwork.org/resources/Documents/CostofPovertyReport.pdf

[2] Ibid., pg. 26

[3] Ibid., pg. 27

[4] Ibid., pg. 27

[5] Ibid., pg. 28

[6] Ibid., pg. 28

[7]http://www.nj.com/opinion/index.ssf/2016/06/nj_needs_new_ways_to_ease_tax_burden_on_urban_cities_opinion.html#incart_river_index

[8] http://www.njslom.org/letters/2016-0707-alert.html

[9] Thomas Edison State University/The Anti Poverty Network - The cost of poverty: the perpetuating cycle of concentrated poverty in New Jersey cities. http://www.antipovertynetwork.org/resources/Documents/CostofPovertyReport.pdf

[10] http://www.trentonnj.org/uppages/6-28-11%20DOCKET%20CITI.pdf

[11] "Marlboro will pay Trenton to take affordable housing," News Transcript, June 18, 2008.

[12] http://www.nj.com/mercer/index.ssf/2011/11/trenton_council_oks_3m_to_aid.html

[13] http://www.nj.com/mercer/index.ssf/2014/07/trenton_affordable_housing_developer_faces_40_years_in_prison_for_skimming_funds.html

[14] https://www.moodys.com/research/Moodys-downgrades-317M-of-Trentons-GO-bonds-to-Baa1-removes--PR_323395

[15] http://www.nj.com/mercer/index.ssf/2016/03/trenton_city_council_approves_207m_budget_near_fis.html

[16] Moriarty, Kevin, And Another Thing, Junk… http://www.kevin-moriarty.com/blog/?p=6287.

[17] http://www.nj.com/mercer/index.ssf/2017/01/new_payroll_position_not_a_reaction_to_embezzling.html

[18] Moriarty, Kevin, And Another Thing, ERA… http://www.kevin-moriarty.com/blog/?p=6650

[19] Thomas Edison State University/The Anti Poverty Network - The cost of poverty: the perpetuating cycle of concentrated poverty in New Jersey cities. http://www.antipovertynetwork.org/resources/Documents/CostofPovertyReport.pdf

[i] Spatial mismatch is the concentration of people who need jobs the most primarily in places distant from commercial centers.