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The Boss

By David Dayton McKean
This Web version, edited by GET NJ, COPYRIGHT 2003

As tax rates have gone up in Jersey City, so has the debt; Hague has not followed the pay-as-you-go plan. A city debt represents only deferred taxes; a sovereign state may inflate its currency so as to reduce its debt, but a city cannot. When Frank Hague became mayor the gross bonded debt (i.e., including self-supporting debt, such as water-system bonds) was $18,792,082. For a city of 207,000 that was not at all unreasonable, $90.78 per capita. The present gross bonded debt is $71,987,000, or $239 per capita. The per capita gross debt has more than doubled. The net debt is $181 per capita, not much less than the gross debt and twice what the gross debt was when the regime began. The net debt per capita is higher than that in any American city in the same population group. The debt service charges amount to $6,045,327 for 1940; in 1917 the entire city budget, including debt service and schools, was $3,994,502. Payment on the debt now costs a million dollars a year more than the maintenance of local schools.

Under the terms of the New Jersey Bond Act of 1935 the maximum permitted net city debt is 11 per cent of assessments. There appears to be an accountants' dispute as to what proportion of Jersey City's debt is self-liquidating, so that there is some doubt as to just how close the city is to its statutory limitation. The accountants of the State Chamber of Commerce calculate that Jersey City's net debt is 10.34 per cent; the city comptroller alleges 9.67 per cent. In either case the city is so close to its debt limit that it cannot permit any substantial reduction in assessments without its debt's going above 11 per cent. The narrowness of its margin of safety probably accounts for the high tax rate; the Mayor and his associates doubtless would have preferred to borrow rather than to impose a tax rate of $53.13, but they did not dare to do so. The loss of any important taxable property, such as would occur with the exodus of a large industry, might reduce the total of assessments so as to wipe out the power to borrow further. It is conceivable that the political organization might induce the legislature to raise the debt limit, but the resulting publicity would be most undesir- able.

The last report of the city comptroller shows that the city is paying from 24 to 6 per cent interest on its debts. It has during the middle thirties it took advantage of the prevailingly low interest rates to refund more than half its debt at had to go as high as 5 1/2 per cent to sell refunding bonds, but between 4 and 5 per cent, although these rates are not as low as those that may be obtained by cities whose debt position is better than Jersey City's. As the comptroller, Mr. Greer, said in the affidavit he presented to Judge Fake, these refunding operations saved the city from bankruptcy and enabled it to resume payment on its debt; but at the same time its record of default must have compelled it to pay a higher rate of interest than would otherwise have been necessary.


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