The Mob That Whacked Jersey. How rapacious government withered the Garden State

City Journal.com ^ | January 16, 2007 | by Steven Malanga

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When Cy Thannikary left India to come work at the UN in Manhattan, he settled in Flushing, Queens, and loved the excitement of living in the city. After starting a family, though, he traded New York’s hubbub for Freehold, New Jersey, a quiet suburb with lower taxes and affordable housing. That was 25 years ago. These days, Thannikary sometimes feels like he’s back in Gotham as he watches his taxes soar and hears neighbors grumble. He has started a new group, Citizens for Property Tax Reform, to fight the special interests that have turned both state and local government into profligate spenders. “Politicians in New Jersey have treated their citizens as ATMs,” he complains. “They have no idea how to restrain spending, and more and more people are saying they can’t afford to live here anymore.”

For more than a century and a half, New Jersey, nestled between New York City and Philadelphia, offered commuters like Thannikary affordable living in pleasant communities. Wall Street tycoons, middle managers fleeing high-priced Gotham once they’d married and had kids, and immigrants who settled first in New York but quickly discovered that they could pursue the American dream more easily across the Hudson—all flocked into the Garden State. Eventually, New Jersey’s congenial living attracted even corporations escaping New York’s rising crime and taxes. The state flourished.

But today Jersey is a cautionary example of how to cripple a thriving state. Increasingly muscular public-sector unions have won billions in outlandish benefits and wages from compliant officeholders. A powerful public education cartel has driven school spending skyward, making Jersey among the nation’s biggest education spenders, even as student achievement lags. Inept, often corrupt, politicians have squandered yet more billions wrung from suburban taxpayers, supposedly to uplift the poor in the state’s troubled cities, which have nevertheless continued to crumble despite the record spending. To fund this extravagance, the state has relentlessly raised taxes on both residents and businesses, while localities have jacked up property taxes furiously. Jersey’s cost advantage over its free-spending neighbors has vanished: it is now among the nation’s most heavily taxed places. And despite the extra levies, new governor Jon Corzine faces a $4.5 billion deficit and a stagnant economy during a national boom.

Unless Garden State leaders can stand up to entrenched interests—and the signs aren’t promising—the state may find itself permanently relegated to second-class economic status. New Jersey “could become the next California, with budget problems too big to solve without a lot of pain,” warns former Jersey City mayor Bret Schundler. “The old way of raising taxes to solve budget problems has been tried, and it’s done nothing but make things worse.”

Once a farming corridor connecting New York and Philadelphia, the state that Benjamin Franklin called “a keg tapped at both ends” began its rapid evolution in the nineteenth century, spurred by the growth of the railroads. Enterprising New Yorkers like merchant Matthias Ogden Halsted led the way. In 1837, he repossessed a 100-acre farm in Orange, New Jersey—about 12 miles west of Manhattan—and built a magnificent mansion, featuring Corinthian columns that one historian celebrated as “unlike anything the area had ever seen.” He subdivided the rest of the farm to provide homes for city friends. These new suburban commuters even chipped in to help build a railway station on the nearby Lackawanna train line—a stop that still serves commuters today.

In 1853, following Halsted’s example, Manhattan drug wholesaler Llewellyn Solomon Haskell bought land along a ridge of the Orange Mountains, laid down roads, and built grand homes. Thus was born Llewellyn Park, America’s first gated community. Described by the New York Times in 1865 as “a rough, shaggy mountain site, now transformed into an enchanted ground,” Llewellyn Park soon attracted such eminent residents as Thomas Edison, and it boasted magnificent houses designed by noted architects, including Stanford White, Charles McKim, and Calvert Vaux. Soon the entire area around the Oranges blossomed, with stylish homes on broad boulevards. Fashionable New York stores like B. Altman and Best & Co. turned the area’s dazzling main shopping strip into the rightly nicknamed “Fifth Avenue of the suburbs.”

Jersey’s development accelerated during the second half of the nineteenth and the early twentieth centuries, as more and more workers opted for suburban comfort. A new railroad line here, a bridge or road there, would unlock a whole new swath of the state to commuters, igniting countless mini-real-estate booms.

Two rail lines transformed Montclair in the mid-nineteenth century from a sleepy trading post into a bustling New York commuter town, filled with spacious Tudor- and Queen Anne–style homes. Montclair’s biggest houses, on a ridge at the foot of the Watchung Mountains facing New York, would one day house many of Gotham’s financial elite, including, during the late 1980s, the chief executives of three of Manhattan’s biggest banks. In the same way, a causeway over the Shrewsbury River in 1870, linking farmland communities like Fair Haven and Rumson to ferries on the Atlantic, prompted a number of New York financiers, including Jacob Schiff, to build estates in the area and begin commuting across New York harbor to work.

Some 60 miles north of Rumson and 50 years later, construction of the George Washington Bridge, connecting upper Manhattan and the Bronx to northern New Jersey, led to a different kind of housing boom in places like Teaneck, a middle-class town where developers erected English Tudors, Dutch Colonials, and smaller houses of stucco and brick. In the decade leading up to the bridge’s opening, Teaneck’s population grew fourfold, part of a population upsurge that remade northern Jersey.

As inexpensive mass transportation expanded, Jersey sprouted a dense network of middle-class suburbs, home to many Manhattan middle managers—the traders, back-office managers, and salesmen who serve as corporate New York’s foot soldiers. In the 1960s, the Levitt family, famous for converting Long Island farmland into the middle-class suburb of Levittown after World War II, replicated the project on a more modest scale in Somerset, New Jersey, building nearly 1,000 houses in William Levitt’s classic Cape Cod design. Middle-income New Yorkers came in droves. Farther north, in Hillsdale, where the Hackensack & New York Railroad once had a terminus, hundreds of modest two- and three-bedroom prewar colonial houses, originally built for railroad workers, formed the core of a housing market dominated by Manhattan commuters. Eisenhower-era ranch houses in Middleton, Morristown townhouse developments, condos on former industrial land in Jersey City and Secaucus—all attracted commuters, so that now more than 300,000 Gotham workers call Jersey home.

Jersey would even cultivate its own patrician dynasties of Gothamites. Shortly before launching the New York–based financial magazine bearing his name in 1917, B. C. Forbes moved his family from Bay Ridge, Brooklyn, to Englewood, New Jersey, on the western slope of the Palisades. After his magazine took off and Forbes became prominent within Englewood—by then home to many of Manhattan’s financial elite—his son Malcolm married one of the town’s finest, Roberta Laidlaw, whose family owned the New York investment firm Laidlaw & Co. The pair moved into a baronial estate in the rolling hills of Somerset County, deep in the Jersey heartland. Among their neighbors: Aristotle and Jacqueline Kennedy Onassis, former secretary of state Cyrus Vance, and longtime Dillon Read chairman and ex–treasury secretary Douglas Dillon.

The commuters have given New Jersey the highest average family income in the country—$74,000-plus a year. In one five-year period during the mid-1990s, Jersey had a net gain of $2.8 billion in family income from New York, thanks to between-state migration, the Empire State Foundation found.

The ex–New Yorkers who formed the Jersey towns favored small government and low taxes, which came to define the state’s politics. As early as 1840, the mayor of Jersey City—then a settlement of just over 3,000—boasted of his town’s “small amount of taxes levied to support state, county and city government compared to New York and Brooklyn” (an independent municipality at the time). Jerseyans could be downright ornery about taxation. During the Depression, the state’s Republican governor, Harold Hoffman, enacted a sales tax; so great was the backlash that the legislature quickly rescinded the levy. By the early 1960s, Jersey was one of only two states without a sales or an income tax; New York had both. Jersey ranked 40th among states in total tax burden, 13 percent below the national average.

The presence of a white-collar commuting workforce—and the low-tax economic climate it helped create—would help New Jersey lure firms fleeing New York. By 1910, more than half the state’s urban and suburban residents worked in office jobs, as clerks, typists, managers, and executives. When Gotham’s corporations, at first seeking space and then, beginning in the sixties, pushed by high taxes and escalating crime, began to abandon the city, Jersey was an attractive option. AT&T, Chubb Insurance, American Standard, Bristol-Myers Squibb, and others began flocking to where many of their employees already lived. Technological advances also helped Jersey draw the back-office operations of major finance players like Merrill Lynch, which kept its Manhattan headquarters but now employed thousands of support workers in cheaper Garden State digs, connected by phone and computer.

The New York corporate exiles nourished New Jersey’s economy, just as the commuters did. Starting in the 1950s, Jersey’s economy began growing at twice the pace of New York State’s and easily outperformed it for most of the rest of the century. Even in finance, New York City’s economic engine, New Jersey has almost matched Gotham’s growth in recent decades. It added 143,000 financial-sector jobs between 1970 and 2000, compared with 154,000 new jobs in New York City over the same period, as financial wizards no longer chose only to live in the Garden State but also to work there. Even soon-to-be New York mayor Michael Bloomberg got in on the action. From a small Princeton office in the late 1980s, the mayor’s company, Bloomberg LP, grew to employ 1,500 in New Jersey by the early twenty-first century.

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