Shakedown: The Fleecing of the Garden State

Carl J. Mayer profiled mostly legalized corruption twenty years ago on Sixty Minutes:

This segment yielded a book that, sadly, remains timely. Excerpts follow:

Every elected official, every staff member, and every precinct captain is caught in the maw of a perpetual money machine that leaves almost no time for the important business of governing: enacting legislation, planning, thinking and creating. The system forces politicians to become full-time beggars rather than full-time thinkers. (page 35)

There is a hidden legalized graft tax that all of us pay. It is the most expensive tax in America, more costly than anything in society and it is affecting the way each one of us lives every day. It drains our pocketbooks, damages our natural environment, and changes the character of our neighborhoods and communities. In New Jersey it is the Garden State Shakedown…..In New Jersey, there is massive frustration that automobile rates are the highest in the country. Multiple explanations are advanced, but the debate rarely centers on the fact that insurance companies collaborate on prices and have unusual say in the political process. (page 36)

New Jersey taxes are so high, not just because of inefficiency or runaway government spending, but because of the Garden State Graft Tax. Consider, for example, the e3xpnsive and costly incinerators that dot New Jersey’s landscape. Municipalities are paying twice the market rate to dispose of garbage because incinerator companies and investment bankers pressured the political system to build these behemoths. In the mid-1990’s a handful of Wall Street investment banks donated more than $288,000 to both political parties in New Jersey. These same firms received over $56 million in fees for underwriting billions in state bonds that were floated to back the incinerators. None of these fees was awarded on a competitive basis. Now taxpayers are bailing out these failed projects, in effect paying to poison themselves. No democratic decision making process would ever have arrived at this outcome, but when the corporate interests are in charge, the citizens pay. Taxes are high because contributors to the political system expect goodies in return. (page 37)

If an insurance company wants a rate increase or a casino mogul wants a tunnel built, the government is only too willing to oblige. But when it comes to improving New Jersey’s quality of life, there is precious little relief for middle class and poor citizens of New Jersey. (page 45)

Ultimately, the only solution to rising auto and other insurance rates will be to subject the insurance industry to the same type of regulation that other financial firms like banks and securities houses face – federal regulation. (page 54)

Missouri Insurance Commissioner Jay Angoff says state regulation has survived because the insurance companies want it. As he told the Wall Street Journal: “They’d rather be regulated by 50 monkeys than one big gorilla.” (page 55)

This was the “logic” behind building incinerators throughout New Jersey. The result everywhere is the same: the projects are unmitigated disasters that either are never built or, once built, charge twice the market rate and can’t find customers. The state is now asking every taxpayer in the state to bail out these White Elephants. (page 59)

Quite apart from the health arguments, incinerators are White Elephants that represent the most expensive method of disposing of garbage known to humankind. (page 61)

The average incinerator’s disposal fee is $56 a ton, twice the $28 average at dumps.” The Journal concludes that: “The garbage crisis, though it appealed perfectly to the nation’s collective guilt over throwing away so much stuff, was more fiction than fact.”…Why wold elected representatives ever commit us to build a massive, expensive and dangerous incinerator adjacent to a populated neighborhood? There is no logical, rational or public interest explanation. But Ogden-Martin spent thousands hiring lobbyists to convince elected officials to commit our tax dollars to build incinerators. And the other groups profiting from the planned Mercer incinerator – investment bankers and lawyers – also contributed heavily. Certainly, these groups have greater access to power and more influence than the ordinary American affected by such projects. (page 62)

Jefferson’s dictum that “information is the currency of democracy” assumes added importance in the medical arena, where the right to know can be a matter of life and death. (page 108)

Perhaps the most insulting user fee the State of New Jersey ever passed is the fee requiring citizens to pay for information supplied by the State. If information is the currency of democracy, this state is bankrupt. The notion that taxpayers have to pay in advance, in exact change, for information that should be free in a democracy is astounding. It’s bad enough that taxpayers pay for this information when we fund our government officials, but to have to pay for it twice is an insult. (pages 127-8)

Corporations, by contrast, pay at most 35 percent of their income in federal taxes, making American corporate tax rates among the lowest in the western industrial world. (Many European nations impose a 40 percent corporate tax rate, while Germany, for example, taxes corporations at a 50 percent rate.) (page 130)

The tax system reflects the increasing power of the corporate lobby. After World War II, the nation’s tax bill was shouldered about equally between corporations and individuals. But after decades of loopholes, the corporate share of the burden has declined to about one fourth of what individuals pay. (A similar trend has emerged concerning state tax revenue.) (page 134)

The tobacco lobby is so brazen in New Jersey that its chief lobbyist, Dale Florio, is also the campaign chair of a Republican congressman and one of the key advisors to Republicans statewide. (page 157)

The county bosses and corporate interests today control New Jersey to such a degree that, by any yardstick, New Jersey has one of the least robust democracies in the country. (page 163)

The key to New Jersey politics is the unholy alliance between the corporate special interests and the county bosses. Everything is controlled at the county level. In a 1998 series call “Pay to Play,” the Home News and Tribune explained how the system works in one county that happens to be controlled by Democrats. “The well-oiled money machine known as the Middlesex County Democratic Party takes in large donations from many of the major professional organizations hired by the county and its municipalities. The money is used to secure the Democrats power base in the county…Contributors are paid back handsomely with lucrative contracts and the smug knowledge that they have a virtual stranglehold on professional services in their fields in Middlesex County.” The newspaper concluded that “Democrats Buy It All in Middlesex County….The law perpetuates the old buddy network of lawyers, developers, engineers and other professionals who see the county as a cash cow.” (page 165)

The grip that the bosses have on the twenty-one counties in New Jersey extends even to the selection of candidates for office. In truth, there is no democracy in New Jersey. Candidates for virtually every office are handpicked by the county bosses and power brokers in each county. Rather than have open primaries, like virtually every other state in the nation, the New Jersey system allows the county chair to handpick the Democratic or Republican candidate for any office. (Some county organizations pick the candidate through conventions that are rigged or have few rules.) Hardly anyone ever challenges the county organization’s choice for a party nomination. (page 166)

The road to political reform in New Jersey, and in the nation, is a long, arduous path. Two measures are essential. The first is to ensure that citizens have more complete information about, and easier access to, government. The second requires fundamental campaign finance reform. Without these basic changes, the Garden State Shakedown continue. Any reforms must also be enacted at the local, state and national level because all three levels of politics inevitably intersect. (page 173)

Making democracy more deliberative, as envisioned by the Framers of the Constitution, is even more important in an era when television distorts the debate. (page 175)

The Framers of the Constitution established a division between the three branches of government: executive, legislative and judicial. But they never foresaw the power of insurance companies, HMO’s, tobacco companies, real estate interests and other powerful private actors to hijack our government and become almost a fourth branch of government. (page 180)


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