The “Reinvent Trenton” Guide to Fixing the Budget

Trenton’s numbers don’t tell a pretty story.  By anyone’s measure it’s currently an unsuccessful city.

  • Trenton has 17.5% unemployment,
  • We have a $20M budget shortfall,
  • We will be bankrupt in 2012
  • We have the highest taxes in NJ
  • We have the 2nd highest crime rate in NJ
  • And, we’re losing population

This is not a good situation.

We’ve been doing the wrong things

In my eight years of observing Trenton, its clear that while there has been a good deal of effort expended towards “revitalization”, the effort has not been well directed and has had little effect.

Our numbers show that we’ve been moving backwards

  • Trenton has lost ground in per capita income growth compared to the rest of the state.
  • We’ve lost population and
  • Our budget situation has gone from weak to dangerous.

There’s no formula for turning around a city like Trenton

  • The administration, state and city council have largely been operating from a conventional wisdom shared amongst other US cities in similar situations.
  • Our general plan of attack has been to raise taxes, ask the state for more money, build affordable housing, get tough on developers and do our best to solve our own crime problems.
  • These tactics have born little fruit as they are akin to attacking an elephant with a fly swatter.

It is not enough to decide how to cut the budget, rather we must use the budget to fix our economy and resulting structural deficits.  Cuts only, will continue the death spiral.

So how can we re-think our city?

Both government officials and citizens are responsible for working through the bold steps that will be required to revitalize Trenton.

Elected and appointed officials have a role

Our elected officials will need to rethink conventional wisdom and stop assuming our hands are tied.  It may take a rather extreme set of actions to right Trenton’s ship.

Perhaps our form of government is in the way? Perhaps the state is in the way?

Let’s dictate our terms and force the legislature to help. Or, if they can’t or won’t help us, go our own way and agree as a city that the state will have to physically stop our revitalization efforts.

Voters have a responsibility

We can’t expect our city officials to act boldly unless the citizens empower the right officials and give them a mandate to act.

As Trentonians begin the process of attending political fundraisers and debates over the next several months, I encourage them to ask candidates about their recovery plan.  You can be sure I will.  I encourage citizen participants at City Council to implore that body to lead rather than follow.  Finally, I’ll offer yet again, to help the current administration work out a recovery plan that the citizens of Trenton can believe in and support.

Use the budget to reach Trenton’s goals

As a city we need to

  • Know where we’re going
  • Make major structural changes to our revenue and cost structure
  • Learn to use the budget as an instrument of policy
  • Revamp our budget process

You can’t get there unless you know where you’re going

Yet politicians, and Trenton’s are no exception, are loathe to set measurable goals for the future.

The first step in this journey is to imagine what a revitalized Trenton’s budget would be like.

The best measure of economic rebirth would be for Trenton to pay not 12% of our total municipal and school budget, but rather 50% (as do Hamilton and other middle class cities).

If we were able to pay 50%, we would

  • Be at less risk of suffering catastrophe at the hands of a dipping state budget,
  • Have built up a much larger economy, and
  • Enjoy the resulting amenities both from that larger economy and our ability to fund city services.

To be in a position to pay 50% of our own budget, it stands to reason that just like Hamilton; we’ll need to have a per capita income (CPI) that’s about average for the state.

Today Trenton’s CPI is about $16,600 which compares unfavorably to Hamilton’s CPI of $30,400 and New Jersey’s CPI of $33,200.

See “My discussion for the role of incomes on revitalization” to understand the impact of a higher per capita income.

The second step is ask, “Why we are here?”

This is an easier question than one would think, yet Trentonians spend an awful lot of time debating a foregone conclusion.

Trenton has two reasons to exist as a city.  Numbers three through ten don’t even register.

  1. Trenton is a bed-room community to New York, suburban NJ and Philadelphia
  2. Trenton is the home to state, county and some federal government

A recent survey of new residents showed that 90% had chosen Trenton because its housing stock was less expensive and more interesting than suburban or big city options.  10% chose Trenton because it was both less costly and closer to their government jobs.  Of the 90% that commute “from” Trenton, all were influenced by lifestyle decisions such as affinity with a community (urban black or gay), appreciation of old buildings or had post-urbanism views on cities such as “green living”.

None of the respondents had children and no one moved to Trenton for the schools.

Our budget should enhance these good reasons to be here rather than attempt to fix the reasons to stay away.

Trenton should be the “best” urban bedroom community on the northeast corridor.  By best, we’ll want to be rated as the most livable city of over 50,000 inhabitants.  This means low taxes, low crime, wonderful housing stock, amenities and access to jobs.

We can already check off one of the five, access to Jobs.  Trenton lies in the middle of the largest job market in the US.

The theory is if we’re a great bedroom community our population will grow with a disproportionate number of middle to high income people.  Eventually we’ll move back to having an average per capita income.

Finally we need a ten year plan that shows how we can reach our goals

Our 10 year plan should show how our annual city budgets will be used to achieve measurable goal of fiscal health.  The very tangible goal I recommend is to move from receiving 88% of our municipal and school funding from the state to 50%.

Such a change in our revenue structure inherently de-risks the budget as we would necessarily be more dependent on property taxes generated by a much wider variety of commercial and residential interests.  Today, when the legislature coughs we catch pneumonia.  This is no way to run a city.

Make major structural changes to revenue and cost

There are six structural changes I recommend to reach the 50% self-sufficiency goal

  1. Impose a non-citizen wage tax for no more than 10 years
  2. Change our property tax system from value based to land based taxation
  3. Invite every law enforcement agency available to help us crush our gangs
  4. Re-invent the inspections function to be developer friendly
  5. Re-orient spending towards attracting high income residents
  6. Sell off all city owned properties

The first two changes will undoubtedly be controversial and will cause conflict with the state.

By instituting a non-citizen wage tax aimed at raising $20M per year we will plug our budget gap.

  • Of course we will make Trenton a less desirable business destination in the balance, but business growth isn’t our immediate goal.
  • Furthermore, most remaining jobs in Trenton are in the relatively immovable government sector.
  • A non-citizen wage tax is a reprehensible non-democratic measure and is a last desperate measure therefore we must not take it lightly and insure that the tax is repealed within ten years.

Value based property tax penalizes investment and therefore prevents economic recovery.

  • A land tax on the other hand, penalizes property owners who leave their land vacant, in speculative hopes of a good price.
  • By switching from a land tax we put our revitalization interest back in line with our tax policy.
  • The land tax can be implemented in such a way as to not greatly affect current tax bills.
  • For instance, a gradual system can be put in place that taxes land at a different rate than structures.
  • We can also index parts of the city differently over time in order to soften the change

Steps 3-6 are directly within our control

  • Timing the use of state and federal law enforcement “surges” with efforts to revitalize specific neighborhoods will let new development take hold
  • Re-inventing the property inspections function to be the best in the country is a matter of budget, inspired leadership and management priority
  • Spending towards attracting high income residents is a matter of political will and understanding the principals of urban economic development
  • Selling off all city owned properties “for nothing” is simple math as every year we hold out for a great price, is a year we don’t get tax revenue

Trentonians have been living with a crumbling infrastructure, sparse amenities and no real economy for many years. However, even with the Water Works sale, we’re facing enormous tax hikes for the foreseeable future.  Within the next 3 years, unless something is done, our tax payment will likely exceed the average homeowner’s mortgage payment.  This will depress home values and drive some homeowners into bankruptcy.

Use the budget as an instrument of policy

In any organization, the budget is the major instrument of policy.  If a company wants to expand sales, it increases the marketing budget.  To cut cost, it reduces expense budgets.  A city is no different.

Step back from the line items and ask what a budget is supposed to do.

If the budget is basically the same as it has been for the last several years, is there any reason to expect a different result in the pace of revitalization?  Common sense suggests not.  Yet Trenton’s budget has seen only incremental changes over the years.

Tax rate hikes penalize newcomers and reward long time residents.

This may be good politics but its terrible policy and offensive to new residents.  A rate hike disproportionately taxes new homes and recent home renovations as the assessed value is more up-to-date. Meanwhile the resident who’s lived here for 30 years and has stood by watching Trenton fail, skates by with an 30 year old assessment  while the newcomer who breathes new life and capital into the city gets fined. Furthermore, every rate hike makes Trenton less attractive for future newcomers.

Re-assessments are part of the solution and can be combined with a shift to land based property taxation

Invest in the budget areas that will fix the problem.

Inspections and Economic Development are two departments that can help right the ship.  Even though both departments have problems, throwing money at them is likely to the good.  There are good ideas floating around on how to make these departments more relevant.  Recreation and Culture also  makes the city more attractive to newcomers.

Essential services like fire, police, and public works may have indirect impact on investment.  However, the linkages are not well documented and are likely non-existent without a specific plan to capitalize on improvements in these areas.

As the efficacy of these essential services is largely unknown, I recommend neither raising nor lowering the budget amounts.  Raising the budget including the police budget would be irresponsible without understanding how the budget change will directly lead to improvement in quality or life or in increasing ratables.

A much better solution to our crime problem is to opt for a temporary solution that allows economic development to take hold and have its good affect on crime.  Inviting the NJ State Police to Trenton has been proposed and would serve as a viable temporary option.  Any such “surge” in police presence must be backed up with aggressive and targeted economic development activity.

There are many non-essential services the city provides as well.  Unfortunately these budget items don’t directly contribute to economic development and must be cut until Trenton can afford them.

Revamp the budget process

While the budget has received more attention over the past year, the process itself is still poorly understood and obviously ineffective.  Several improvements to the process are in order and should be demanded by council and the citizenry

Budget material needs to be easy to obtain and analyze.

  • Excel files of the working and statutory budget should be made available to Council and the public.
  • All files should be made available on the city web site.
  • The administration should look for creative ways to educate all citizens about the budget, the review process and the policy impacts.

A clear timeline should be published for council and the public.

  • There should be no confusion from any admin official, councilperson or activist about the process and timeline.
  • While there are state checks on the city budget, these must be managed rather than used as an excuse for inaction
  • Budget goals can be set before revenues are known and adjusted in a second phase

The process should include a “results” conversation

  • We (through our council) need to be in the position of changing the conversation to one of efficacy not staffing and expense levels.
  • We should understand the output of each department
  • Do they produce enough output for the money we put in (e.g. what’s the cost of animal control catching a dog, what do we spend for each crime cleared)?
  • If Trenton’s cost to clear a crime were the best in the nation no one would bat an eye.  If every dollar spent in economic development yielded $100 in new ratables  I’d stop complaining.  If our addiction levels in Trenton actually went down I wouldn’t bemoan dollars spent on recovery centers. If per capita income in Trenton actually outpaced the NJ’s average increase, this blog wouldn’t even exist.
  • If the Administration doesn’t force these conversations then City Council must.

Council should demand justification for each budget.

  • A system of zero based budgeting process should be put in place to help force discipline over the next several years.
  • The budget should be accompanied with textual notes explaining each line item.
  • In addition, Directors should be required to explain how their budgets will serve to accomplish the goals of the city.
  • The Business Administrator and Mayor should be required to explain how the budget will ensure the overall health of the city especially its fiscal health.

Public review needs to be a central element of the process.

  • We can’t expect citizens to support bold action without providing clear explanation of the budget and its proposed impact on the city
  • The public needs excellent analysis and information before the review sessions.
  • There needs to be a set citizen review format that reduces the need for micro-management.
  • Administration and council representative needs to be present to answer questions.
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13 Responses to “The “Reinvent Trenton” Guide to Fixing the Budget”

  • I agree with most of what you have to say, but I do differ on the tax plans and the notion that we need more high income bracket people. Naturally if we improve the schools / public safety we will have a mix, but I don’t feel any need to market redevelopment efforts towards them.

    With regards to the property tax, I am open to most ideas, but I wonder if we shouldn’t just bite the bullet and commit to a city wide reval. I believe that the “threat” of a reval hinders property values more than the actual reval will when it is finally finished.

    I strongly agree that some of our zoning should be easier for developers, as long as we have strong zoning laws they can fit into. Our current system with numerous boards getting veto power over almost any development, plus the wink wink system of the redevelopment zones that dominate the city are ripe for the perception of (if not actual ) corruption that would scare off interrested developers.

    Final note: Yes! Sell off / give away all of the properties. Forgive the tax notes on 5+ year delinquent properties as long as they are sold at a public auction with deed restrictions.

    (well, that’s all I can comment on for now. You did write a small book here. Good work.)

  • Hi Mike, thanks for reading through the book. Its a serious topic and needs serious attention.

    As for the need for high income residents. I’m curious as to your justification. Read the analysis in this exchange between former councilman Coston and myself.

    It’s hard to imagine how we can generate economic activity without income and therefore spending flowing into our homes, our restaurants and shops.

    Also read

    which is a more scientific analysis of the drivers for economic revitalization.

  • I would welcome people in any tax bracket. I believe that we already have most of the neighborhoods that would appeal to someone in a higher tax bracket if the city took on more of a positive image. The larger problem is that the city does not have the middle or lower working class residents needed to rebuild some of our neighborhoods. A lot of our neighborhoods sit with abandoned properties due to low demand.

    We have a lot of foreclosures happening now, but at least some of those foreclosures involve > $100K in tax debt (unbelievable on properties with < $2K annual tax bills) that should have been foreclosed on over 10 years ago. If we push these abandoned properties that are not collecting taxes into private hands and stay at it, the city will become a very attractive place, starting with the working class neighborhoods.

    The added benefit is that many of the lower and middle class that become successful will have ties to Trenton that could benefit us for decades.

  • Mike,

    I invite you to do the math on income distribution.

    We need to add 16 times the population of Lambertville and with their CPI just to get to average.

    That is, we need to add around 60,000 new residents. Our current neighborhoods aren’t enough. We need new neighborhoods and all of them have to be mid to upper income (like Lambertville).

    Cities just can’t work without wealth. There only around 20 households in Trenton with over $200K in income and that’s still middle class. I suspect there are no high net worth or high income people at all. We need that to help build our community.

    The math doesn’t work when we keep focusing on low income residents. It hasn’t for the last 20 years.

  • Maybe I am wrong on this, but is there any change in revenue to the city if a given business increases their profit? Without a PILOT, that is.

  • I don’t see how.

    Businesses pay sales tax but to the state.

    Sometimes they expand which leads to more property tax.

    You’re asking the right question. How does our revenue increase? What levers can we pull to increase it? What are the second order things that can be done to affect revenues?

    For instance lower property taxes decreases revenue directly but has a 2nd order effect on increased investment. It’s important to make good assumptions about these 1st and 2nd order effects AND the timing involved.

    As far as I know, retail business has no impact. The building owner is already paying property tax whether the building is occupied or not.

    The first order of business (as I believe you said) is to get our assessment process working.

    I proposed income tax as well, which is more closely tied to profits.

    Further to my argument for high income residents is that they buy expensive homes and therefore pay more property tax. We’re a good example as we’ve almost doubled the value of our property through our renovation. I should think Trenton needs more of that. You don’t get by attracting more low income residents.

  • OK, so if commercial property owners pay the same tax whether they take in $50K in profit or $5 million, then there is really no need to “upscale” the use, just to fill the properties and make sure that taxes are paid (which I am questionable on now).

    The difference in property taxes paid between some of the largest homes in Trenton to some of the least expensive is only a 3 or 4 to 1 ratio. If you figure that we need 60,000 low income residents, then we would need about 15-20K of the wealthier variety. I would rather welcome the working class / young urbanites and give them an easy path to building themselves up in a low tax / close to work and transportation environment sink that we should be. We now have the added Train Station development, but it appears that we are locked into bad development agreements in the immediate vicinity that may tie up the area with empty buildings due to Pilot programs that last decades. Furthermore, the city has really dragged its feet on developing a plan to improve entertainment districts like Chambersburg and the like. Given the low cost of Taxi service ( a true asset) in the city, we should be able to utilize an entertainment district anywhere in th city through taxi’s and public transportation. I would live to see the buildings on 129 become more commercial as they woulld rise in value for their ability to generate revenue from suburban visitors.

    With a solid working class, I think that you have greater potential for increased revenues, rather than established upper class residents whose spending potential may have already reached its max.

    Personally, I think that the home improvement tax is too much. There should be no extra tax for an added bathroom or a finished 3rd floor or basement if you don’t change the footprint of the building. Plus, the added tax that we add on for building out when you don’t really change its use or significantly change the look should be much lower / no difference in your property tax. That way people can update their homes a little more worry free. Plus, they won’t worry about filing the proper papers with city inspectors to get the job done right. This could particularly help businesses looking to adapt older buildings.

    I am of the belief that as much as 10% (or $5 million) in tax revenue is never collected from abandoned / city owned properties. Add to that some possible lack of collection for traffic tickets and other fines and you probably have only about $7 million in unrealized revenue.

    After that, the city should really look at its costs. We pay way too much in annual debt service, which shows a historic case of mismanagement. We need to address this problem now. After that we should look at unneeded services. We should look at the consultants we hire without even knowing it. From the article in today’s Times, it was mentioned how we have already been hiring a business administrator as a consultant. Then they have the gall to say that at $75 per hour for 1,000 hours / year the new “assistant” BA would do more work than two full time lower paid positions putting in 2,000 hours EACH.

    Overall I believe that we have about $2 million in poorly documented (in the budget binder) and possibly unneeded “Professional, Consultant, and Specialized Services” line items, including $1 million between the Mayor’s office and Administration alone.

    Bottom Line: Our goverment should be in the business of streamlining services and cutting expenses and not in the business of finding new revenue simply through new taxes. Utilizing utility service and generating revenues from outside of the city is much preferred. That is why I am so against the sale of the Water Utility. This year alone we should be making AT LEAST $7 or $8 million in profit. The potential for revenue coming from outside of the city in future years with the outlook of water costs is enourmous. Cutting off the utility at the borders only adds $4-5 million in annual costs to city residents through increased rates and a loss of $2-3 million in city revenue, and any profit taking would only equate to the most regressive of taxes for one of the most essential services, water.

  • Mike,

    Good back and forth but you went all the way from business tax to Water Works in that one.

    You’ve got some beliefs and philosophy baked in to your comment that are seperate from what will actually balance the budget.

    You “believe” that low income people ought to be prioritized. This implies that you “believe” they are a privileged class. That’s OK lots of people agree with you.

    We have lots of government spending that provides privilege to the poor over the rich. In general middle class people seem to hate the rich. For reason’s of jealousy I suppose.

    It seems a shame that we should hate productive, wealth creating people so much so as to not welcome them in to our community.

    This is a strong and troubling thread in Trenton and I think an underlying sociological reason for our problems. Trentonians simply reject successful people.

    We must, so few live her.

  • I don’t believe that I ever said that the lower class should be prioritized, much less make the case that they are priviledged. I was simply making the case for their value vs. your suggestion to prioritize the upper class.

    Outside of that, we aren’t too far apart on the property tax ideas. I feel that some allowance for improvements is ok, its just that taxing extra for installing some plumbing is silly. Plus, taking it out of the equation should make assessments easier (and cheaper)

    As for the TWW comment, well… just a bit of a plug ahead of the October 14th court date (look, another plug : ) )

    As for the reason why so few wealthy people live here… well the larger housing stock isn’t here, plus there are other competing townships with no public schools or other amenities like Princeton. Its not because the middle or lower class hate them. They have their uses. : )

  • Kevin Hogan:

    Could both you guys run for city council please?

  • Eric Maywar:

    I would add
    • Temporary 8% pay cut for council and anybody making over $100,000 at City Hall, until the budget is stabilized. This was done in Newark recently.
    • Implementation of a more aggressive Vacant Lot Registration Fee program that will both spur development and raise funds. A plan like this, in Wilmington, caused 380 vacant lots to be occupied and raised over $400,000 in direct revenue for the city in 2005.
    • The City Clerk’s Office does not have a complete inventory of Trenton businesses, which means they are not collecting all the business taxes that they could.

  • I like all 3 of those ideas Eric.

  • I agree, all good ideas.

    Lot’s of different ways to skin #2 but a Vacant Lot Registration Fee is probably easier than either a fine (Coston used to promote this idea) or a Land Tax (my idea and certainly couldn’t be short term).

    Now this is the kind of back and forth I like. Perhaps I should republish the “Guide” to deal more squarely with McGrath’s questions and to include Eric’s ideas :)

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