Over the years, state and federal governments have adopted policies favoring the creation of suburbs:  most notably road building, tax advantaged mortgages for single family homes and electrification.  Technology also played an important role in making urban centers less important as telecommunications, trains, power generation and eventually container shipping spread manufacturing out of town. [1]

These policies and technologies, among others, led to urban decline over the last 50 years.  Urban renewal and the riots in the late 60s were just nails in the coffin.

These are powerful mega-trends but their influence is waning and new mega-trends are taking over:

1. Cities are more energy efficient than suburbs and going forward this is important for our economy
2. Half-full cities are dangerous places.  Witness the difference in crime rates between half-full Detroit and Camden vs. full Dallas and Knoxville.
3. Food production has become super efficient allowing a very low proportion of the population to be involved in agriculture
4.  Humans are more innovative together than apart.  This has always been the case and recent research proves and quantifies the point.  [2]

Given that our future evolution as a society centers on the city, how can New Jersey, as one of our country’s most dense states, lead the way in reforming our urban economies? 

There are “Four Big ideas” for how the State could Re-invent Trenton and New Jersey’s other urban centers

Any one of these big ideas would turn around a city like Trenton and be far less expensive that providing aid year after year.

• Create integrated county-wide school systems
• Fund urban development tax credits
• Create Urban Income Tax Zones
• Squash the criminal gangs

Let’s integrate schools at the county level. 

No one talks about this, but integrated county-wide schools would take away the single biggest impediment to Trenton’s success.  I’ve made this argument before and it’s still a basic truth that our Governor should consider.  I know that suburbanites might recoil at racial integration, but we have a Republican Governor.  Like Nixon going to China, only a man of the suburbs can make this happen.

The positives for a large reduction in school districts are many.

Integrating the schools will increase not only racial diversity but also socio-economic diversity.  This will even out performance levels in county schools but the theory is that the positive impact on urban schools will be greater than the negative impact on suburban schools.  It’s not necessarily the schools themselves that provide a sub-par education; it’s really the impact of the students in the school.  Change the mix of students and you’ll change the success of the school.  And we have to remember that just because a school’s test score average goes down, that doesn’t mean students, individually or as a whole go down as well. 

Twenty-one County districts in New Jersey will be less expensive than 591 independent districts.  However, given that the bulk of education expense is for classroom teaching and buildings, we shouldn’t expect financial miracles.  We’ll still need administrators and if we integrate, our dependence on busing should go up, not down.  But there will be savings.

The state role in funding education should go down as the county’s goes up.  State funding, in particular Abbott funding, is only one mechanism for redistribution of wealth.  With county-wide schools, this funding redistribution would happen naturally.  It’s a good thing to untangle the intermingling of funding between levels of government.   Both cities and the state would be mostly out of the school business.  Therefore our income tax burden in New Jersey would be reduced with an offsetting increase in property tax.  The state could restrict its role to oversight and perhaps some subsidization for poorer counties.   Suburbs will get the benefit of trading state control of their tax dollar spent on urban schools in return for local control of their spending. 

Other than the fears of suburbanites it’s difficult to justify New Jersey’s current system of independent school districts.  Southerners and other opponents of desegregation tried in the 50s and 60s and we decided as a country then that separate but equal (i.e. Abbott) was not in our interest.  Fifty years later, it’s still not right and not right for the future of New Jersey and the urban districts that are its future.

Stop funding urban low income housing and provide investment tax credits instead

Today’s state and federal funding regime for urban areas, centers on affordable housing.  For instance much of New JerseyMFHA’s funding has income restrictions tied to it. RCA payments are still being made to cities by suburbanites.  The federal government is still funding low income urban housing like HOPE VI.  Unsophisticated local governments are taking this money without understanding that it costs them more to support the eventual development in the form of municipal and school services than they collect in taxes.  

We’ve created an affordable housing industry in New Jersey and the US that is now perpetuating itself.  This industry will lobby for the continuation of government funding long after it’s shown to be harmful to cities. 

This is wrong headed and the state will do Trenton and other New Jersey cities a big favor by eliminating this kind of funding in favor of investment tax credits.

Tax credits aimed at stimulating non-income restricted housing in cities would change the balance of growth in our state.

With $500M in tax credits spread over the next 5 years, developers could leverage that money up to $2.5B in ratables for Trenton.  This level of investment would allow the state to discontinue aid to Trenton within the next 10 years and make it a better place to live in the balance.  A wise Governor will find a way to redirect funds that would have gone to big infrastructure projects like the ARC to rebuild taxpaying urban centers in our state.

The Fix Trenton’s Budget Committee has modeled Trenton’s budget going forward and it is clear that without a shot in the arm of investment, Trenton will have trouble achieving the kind of escape velocity it needs to be self-sustaining.

Create Urban Income Tax Zones in New Jersey 

The Governor and all 8.7M New Jersey citizens know that our income taxes are on the wrong end of the Laffer curve.  The Laffer curve is the economic principal that describes why low taxes don’t maximize government revenue and neither do high taxes.  New Jersey is on the high tax side of the curve and we’re reducing revenues by forcing residents out of the state.

We can fix this.

Just as the state has created UEZs (Urban Enterprise Zones), it can also create UITZs (Urban Income Tax Zones).  These zones will serve to attract new residents and new investment to cities like Trenton. 

What if in a UITZ, the income tax rate was only 2% for the $150,000 income range?   Higher income New Jerseyeans and tax refugees from surrounding states would flock to Trenton and other cities.  The low tax rate might not convince everybody, certainly not those with school aged children, but it would certainly make a difference.  Of course we don’t know exactly how much of an effect it would make, but shouldn’t we try it?  I believe I can speak for the citizens of Trenton and the Mayor in volunteering Trenton to be the test market for New Jersey’s low tax experiment.

The math works as follows.  The 2010 New Jersey income tax rate for middle income citizens (earning $75K to $500K) is 6.37%.  For a $150K / year professional that would be $9.6K / year. 

At 2%, the same $150K/year professional would now pay $3K. 

The impact of an UITZ in Trenton on state revenue is not that high.  There are 20K households in Trenton with an average income of $35K.  Assume an average income tax rate in the city is 5% as we don’t have many households making over $75K.  In our UITZ, the state would take a 3% hit (5% – 2%) on income tax collections.  This amounts to 20K x $35K x 3% or $21M / year.

For just $21M / year, less than  transitional aid, New Jersey could create an income tax oasis right in the middle of the state.  We would attract high income residents from the rest of the state and from other states.  UITZ cities would become economic engines rather than drains.

If just 1000 families moved to Trenton with household incomes of $150,000 the impact would be enormous.  Those people would buy homes 3 times their salary (the typical ratio) or $450,000 a piece.  Each home would yield municipal property tax at an effective rate of 3.5% of $15,750 a piece.  For 1000 homes this amounts to $15.8M in property tax revenue to Trenton.  But more importantly, each home that is sold in Trenton makes the home next to it more attractive and also draws more retail business into the city which has a knock-on impact on property values.  Anything the state can do to stimulate immigration of middle and upper middle class residents in to the capitol city is worth doing.   New Jersey will spend less to support a population centered in urban cities that it does today to support a sprawling population.

My hope is that creative thinking will play a part in our government’s attempt to re-invent how our state interacts with our cities.  I don’t claim that my analysis or math is perfect, but I’m pretty certain that what we’ve been doing won’t work and we need big ideas that fundamentally change the rules in New Jersey.

Squash the gangs

Every urban center in New Jersey, and Trenton is not an exception, has a gang problem.  The gang problem isn’t just a neighborhood or city problem, the big gangs are statewide and many are national. 

As many have said before me, gangs are much more of a terroristic threat to our country than are radicals in Somalia.  It seems that gangs, not Islamic radicals, should be our state’s number one public safety priority. 

Solving the problem is under-resourced.  In fact, Trenton is currently operating without a gang task force.  If the New Jersey State Police with the support of the federal government could step up to own the gang problem in the New Jersey, we would have taken a quantum leap in revitalizing all of our cities.   If New Jersey could own and fix the gang problem at the state level, Trenton and our other cities would have their number one issue resolved.

In addition to policing the problem, the state has a role to play in toughening sentencing guidelines and in expanding prison and rehabilitation programs.  The economic research is clear on the benefit of keeping criminals off the street. 

New Jersey needs to come out of the shadow of being the Sopranos state and into the light of being the most hostile place on earth for a criminal gang to operate.

We Hope to Seriously Develop and Propose Ideas Like These 

With its state aid severely cut, the City of Trenton will be on the forefront of redefining how it and possibly other urban centers interact with the state and the counties.  This is important work not just for New Jersey but for the country as a whole.

[2]  “A Physicist Solves the City” by Jonah Lehrer, New York Times Magazine, Dec. 17, 2010.

In the late 60s when most school systems including the ones in New Jersey were going through racial integration, New Jersey dropped the ball.  Sure enough the schools were integrated but at a city level and with predictable results.  With racist fear in their hearts parents began leaving Trenton and stepped across city lines to Ewing, Lawrence and Hamilton.  That drain of stability and capital led to a gradual decline in both school performance and the tax base necessary to fund basic services.  Like it did in many school systems across the state and nation, a vicious cycle of decline set in.

We are where we are.  Now there is no way that an inner city school system like Trenton will reach academic success levels better than the surrounding townships in our lifetime.  Anyone who says it’s possible, hasn’t been paying attention to the failed efforts over the past 30 years.

Meanwhile, in the South, schools were integrated at the county level rather than city.  This made all the difference and it wasn’t because southern governors were enlightened, instead they were forced at gunpoint by the federal government.

In cities like my hometown of Winston-Salem, kids were bussed all over the county to achieve racial balance. It was expensive, messy and uncomfortable.  However, it also helped to avoid “white flight” because there was no where to which to fly.

Today, cities like Winston-Salem and Charlotte have grown in population and have retained much of their economic vibrancy.  Neighborhoods have remained stable and over the years, as the country and the South have become more racially tolerant, neighborhoods have become integrated.

I’ve previously referenced a Harvard study on school segregation that finds the most integrated schools to be in the South.  That same study lists New Jersey as the fourth most segregated in the country.  This shouldn’t be a surprise to the calm and rational social observer.

Had New Jersey’s state leaders been more enlightened they would have followed the Southern model.

Governor Christie is proposing to cut the cord on the very cities that have felt the brunt of New Jersey’s failure as a state to practically integrate schools.  I caution our suburban neighbors not to do that as the results will create vast holes of lawlessness that will spill over at alarming rates into the adjoining suburban sprawl.  It isn’t far-fetched to remember Mario Van Peebles’ 1991 movie, New Jack City as a point of social reference.

There are options for turning the tide in Trenton but none of them involve a dramatic reduction in funding.  Rather the goal should be a gradual reduction in state aid over the next 20 years.

One of the options on the table should be State tax credit investment in urban market rate development.  The current investment climate is a non-starter for private urban development.  The market has simply been made too risky by a combination of city and state policy.  Large, market shaping investment on the order of $100s of millions of dollars is necessary to stimulate any kind of meaningful increase in Trenton’s ratables at this point.

However there are two other less expensive and potentially more socially beneficial options that the Governor and legislature have so far ignored.

1. Consolidate our schools into 21 county-wide school systems
2. Offer vouchers in urban districts

Either option fundamentally changes the picture in urban centers like Trenton.

County-wide consolidation is the most straight-forward approach and has the advantage of 40 years of experience.  With a stroke of a pen and a modest investment in transportation, Governor Christie could simultaneously reduce overall school costs in the state through shared service, eliminate the #1 reason for disinvestment in urban centers and improve race relations.

Whenever this topic is mentioned, well meaning people say our suburban neighbors will never go for it and home rule prevents it.  I’ll remind the naysayers that the South didn’t exactly go quietly.  Southern leaders didn’t go for it at all and their main argument (i.e. excuse) was “state’s rights”.  History has proven them wrong.  New Jersey is wrong as a state to simultaneously create dangerous hotbeds of social unrest and spend excessively in the process.

Integration will cause students with non-education focused backgrounds to mix with students who have education as a family priority.  The blending will be uncomfortable for both but students who have the ability to succeed in a positive environment will for the first time have one.  Students who are bused out of their suburbs into the city will find a new appreciation for diversity that will help them live a more meaningful life (the writer speaks from experience).

The transportation necessary for this transition won’t be cheap but will pail in comparison to the cost of the social unrest the Governors current plan will unleash.  And we’ll be a better State for it.

The second option is vouchers. Offering vouchers to families in urban cities will not likely improve overall achievement, rather it will create a stimulus for families to move into the city.  The beauty of an urban voucher program is that a $5000 / child voucher would reduce overall spending on public schools.  Spending $5000 per child and having the parent pay the balance of a private school education is a bargain compared to a $16,000 public education.

Overall spending on education doesn’t go down and neither does the demand for teachers, rather the spending is shifted to parents who are seeking to find more affordable housing options in cities like Trenton and will gladly make up the difference in school tuition over and above a voucher amount.

The exact amount of the voucher is important but whether its $5000, $10,000 or even $15,000 the effect is the same.  We would reduce overall spending per pupil and stimulate new investment in the urban centers where the program is offered.  It’s a nifty, no cost way of revitalizing cities like Trenton.

Of course the education unions have spent decades opposing any new thinking in educational funding.  As a society we can no longer stand for that attitude.  Trenton’s schools are not what we want and its time for the unions to get out of the way.

“Reinvent Trenton” takes and economic view towards revitalization and sometimes that means taking aim at the elephant in the room.  Perhaps this is right time and right Governor to make the most important change in the way our state operates.

Let’s review the situation. It is true that on average New Jerseyans pay some of the highest taxes in general and property taxes, in particular, in the nation. However, let’s remember that our taxes fall in to two big buckets (for the most part). First, the state taxes us to pay for road construction, social programs, parks, enforcement of laws and also a large portion of our local school cost. Second, municipalities tax us for city services like police and fire, the balance of school costs and their portion of county administration costs.

Each level of government sets its own budget and its own tax rate. At the municipal and county level, the preponderance of tax revenues is collected in the form of property tax. The State collects income and sales tax.

In theory, local governments either manage their affairs poorly or perhaps decide to offer up gold plated services that will have large budgets and therefore high taxes. However, there are many forms of poor management. Some wealthy towns have big budgets but relatively low tax rates. This is because they’ve managed to attract high value property to their town. I’ll use Princeton as the classic example: They have a gorgeous municipal library and great schools yet their tax rate is just over 2%. Trenton is the opposite example. It has attracted very little high value property and therefore has a very high tax rate (just under 5% and climbing) and failing libraries and schools.

Another form of poor management happens when towns and schools refuse to share services. We’ve all heard that New Jersey has more school systems than Texas so it shouldn’t be a surprise that Texas and New Jersey are on opposite ends of the tax burden spectrum.

Voters in Trenton and other high tax rate cities should be angry. They should be angry enough to seek out candidates who will turn around their cities and eventually lower taxes. They should be reminded about their tax problem, which is of their own making, and have their noses rubbed in it every time they pay their tax bill.

Enter the property tax rebate. The State is promising to help get local politicians off the hook by subsidizing their mismanagement.

But where does this tax rebate money come from? Why the same tax payers, of course. This is a shell game that shifts responsibility for bad municipal management from local politicians, where it belongs, to state politicians who are unaccountable.

Voters in healthy towns should be outraged at the notion of paying for the mistakes of voters in unhealthy ones.

There’s nothing wrong with the state giving taxpayers rebates. However, the state should be rebating your income tax not your property tax. Let’s please demand that we keep responsibilities for spending and raising money aligned. When they’re not aligned you get … well, you get New Jersey.