The Streets Were Paved with Gold (15 page)

The city’s spending did not reflect what was happening to its revenue base. Lindsay’s expense budget rose 16.6 percent from 1970 to 1971. Overall, the city’s budget expanded by 10.2 percent from 1971 to 1975, exceeding the growth rate from 1961 to 1966, when the economy was on the rise. During Lindsay’s second term and Beame’s first two years, the number of city employees increased by 30,000. Their wages also jumped between 1970 and 1976, when Lindsay and Beame presided. The Temporary Commission disclosed that the pay of policemen went up at the same rate in those years as it did between 1965 and 1970. Lavish pension agreements were conferred, including twenty-year retirement plans for city clerks. (The state legislature embarrassed Lindsay by turning down this agreement in the early 1970’s).

Of all John Lindsay’s bad and good decisions, perhaps history will judge that this non-decision to recognize economic reality was his most important. His thoughts were elsewhere—on running for President in 1972. But the Mayor was hardly alone. His Budget Bureau, for instance, also chose to ignore reality. The budget grew even though Budget Director Edward K. Hamilton told the
Times
on April 15, 1971, “there’s no natural growth of revenues.” It grew because, as a former Lindsay budget aide explains, “Our budgets were calculated based on what we expected to spend, not the revenues we expected to receive.”

This ostrich-like behavior was sometimes innocent. Many public officials didn’t follow the “numbers,” might not have understood them, and probably wouldn’t believe them if they did. New York, after all, was the Big Apple. There was a genuinely optimistic belief that the turnaround in the national economy would reach New
York—it had always been thus. Besides, for years it had been more or less assumed that New York’s economy was a reflection of government, not private, spending.

Abe Beame promised to change that. His 1973 mayoral campaign vowed to beef up the city’s Economic Development Administration, to appoint a council of economic advisers, to devise a plan. By 1975, the city had a plan—a twenty-four-page document labeled
Agenda for Economic Development.
The centerpiece of the strategy was the development of twelve industrial parks, eight wholesale markets, and the “revitalization” of 575 miles of city waterfront. If the strategy worked, city officials said, 25,000 jobs would be created—the same number the city was losing every sixteen weeks. That year the Council of Economic Advisors stopped meeting. The “beefed-up” agency relied on one staff member and a secretary to attract and retain businesses. A considerable task, since there were then 172,090 businesses in the city. Unlike its counterparts in other localities and states, this agency was given only $1 million of flexible capital funds to buy and lease land for faltering firms. In 1975, 80 percent of this budget was used to assist just one firm, the Elmhurst Dairy—saving 300 jobs. Without flexible tax incentives or training funds, the head of the agency, Alfred Eisenpreis, was really like a waiter in a restaurant without a kitchen. Not that he could have been anything more. The former marketing executive, who never forgot that he had the opportunity to immigrate here from his native Europe, was so grateful for his new job that he was afraid of losing it. In the spring of 1975, this keeper of the city’s economy—who wondered whether you would know when you were dead—peered at me through his Coca-Cola thick eyeglasses and declared, “We are not losing our economic base. Our economic base is shifting.”

“New York City has had a total, planless economic development,” complained Herb Bienstock. “In 1965, John Lindsay put together a group which proposed that a Council of Economic Advisors be set up. Nothing ever came of it. When Beame came in he set up a Council. The only thing is that after he announced the appointees they discovered it didn’t have an economist on it.… I was asked to serve on Governor Carey’s Economic Development Task Force. I attended one meeting. It was a waste of time.… No one has ever put together a group of economists to work on New York City. Really put them to work—with resources and dollars—and said, ‘Here, don’t come out with a study, come out with a set of
policy recommendations.’ All that comes out now is bullshit.”

Which is precisely what came out of John Lindsay in 1977. Talking about the city’s 1975 fiscal crisis, the former Mayor broke a long silence and told writer Harry Stein, “As long as I live I will insist I wouldn’t have let it happen. We would have acted quick! Decisively!” Pounding his desk twice with an open hand, he continued: “That was our way, to confront problems head-on, to do anything that had to be done.”

Faced with an emergency cash shortage, in 1942 the State of New York for the first time issued budget notes. Such notes require repayment within a year, and, in this case, were promptly repaid. In fact, to underline the emergency nature, the 1942 legislation said notes were permissible in times of “epidemics, riot, flood, storm, earthquake or other unusual peril.”

Looking at the city’s recent history, it appears that epidemics, earthquakes and floods were annual events. A truly “unusual peril” confronted John Lindsay in 1971. To balance the budget, city officials ballooned their forecast of federal aid—a device pioneered by Governor Rockefeller, who used it to balance the state budget. When Congress failed to pass revenue sharing, the city was caught short by several hundred million dollars. No problem, soothed Rockefeller, cracking the whip on the legislature to permit issuance of city budget notes. On June 17, 1971, the Governor signed an amendment to the Local Finance Law allowing the city to patch its deficit. If the city couldn’t meet yearly installment repayments by 1974, the legislation said it could return to Albany and the state “will make a first instance appropriation.”

That month, Lindsay issued more than $300 million of budget notes to cover inflated revenue estimates. The following April, he asked for permission to issue $400 million more. Instead of repaying a part of the original notes each year, as the legislation stipulated, the city merely rolled over this debt, folding it into new borrowing. No heed was paid to the warnings of the Citizens Budget Commission. On April 16, 1972, the Commission issued a study that criticized the issuance of budget notes because it “enables the city to live beyond its means in a given fiscal year” and creates a “double burden” for future taxpayers who must both repay the debt
and maintain the spending programs the debt made possible. Asked to comment, Budget Director David A. Grossman said the borrowing was “legal” and “taxpayers would be concerned if we had to raise anything like the $400 million from taxation. It was because of his feelings that the taxpayer was already too heavily burdened that the Mayor instructed me to prepare a plan that would not involve extra taxation.”

By 1974, when the original notes were due, the city was saved by a state election. Malcolm Wilson, the conservative Republican who was Rockefeller’s Lieutenant Governor and automatically became Governor when Rockefeller resigned, wanted to prove he was a friend of the city’s. At Mayor Beame’s request, he signed into law, on May 30, 1974, a bill creating the New York City Stabilization Reserve Corporation. It’s purpose: to issue new notes.

Had the investors read the legislation, perhaps the credit market would have closed in 1974, not 1975. The legislation states:

After this legislation sailed through, the city did not act as if there were a “crisis.” Expenditures continued to swell. And the city continued to borrow. The Stabilization Corp. merely allowed the city to borrow to repay borrowing, to pay interest on interest. These notes helped turn New York into a short-term note junkie. The city’s short-term debt pyramided 350 percent between 1970 and 1975, from $1.3 to $4.5 billion. By the spring of 1975, the city faced a true “peril.” New York City accounted for almost 30 percent of all the municipal notes sold in the country—and within less than a year, needed a $7 billion fix of new securities.

1973 was a pretty good year for wine and a lousy year for city budgets. City budgets always suffer in mayoral election years. But
this year was special in two respects. First, its deceit was to the art of budget ballet what Baryshnikov is to Lincoln Center. Second, the budget was unusual in that it was jointly crafted by two artists, outgoing Mayor Lindsay and incoming Mayor Beame.

The gimmicks pirouette across its pages and include: (1) the invention of $148.5 million of “increased revenues,” achieved primarily by postponing—with City Council support—the statutory repayment of $96 million to the “rainy day” fund; (2) a one-year rollover of the $308 million of budget notes issued in 1971; (3) the placement of $564 million of expenses in the capital budget, a $290 million jump from the previous year; (4) $100 million of “special” funds suddenly discovered by Comptroller Beame; (5) the assumption that the anticipated tax revenues meant the city’s economy was expanding, though it had not for the past four years; (6) the elimination of $17 million set aside for wage increases, though it was commonly assumed the increases would far exceed this; (7) at midyear, the city’s arbitrary termination of existing transit subsidies for schoolchildren and the elderly, pretending (a) that the need or the recipients would disappear or (b) that the state and/or federal government would spring to the rescue; (8) the budget’s authorization, to match a Beame campaign pledge, of the hiring of 3,000 more cops, though there were 2,250 police vacancies; and (9) the city’s outright declaration of a deficit of $211 million, summoning the state legislature, or God, to close it.

It is this 1973–74 budget that Mayor Beame blamed for his later difficulties, protesting that he “inherited a $1.5 billion budget gap.” His logic will be of greater interest to psychologists than historians. Since Beame had been the City Comptroller the preceding four years, his fingerprints were all over the document. He attended breakfast meetings with Lindsay on June 11 and 15, 1973, hoping to agree to what they announced would be “a balanced budget.” Beame was considered a budget expert, and since he was the clear favorite to become the next mayor, members of the Board of Estimate and the City Council deferred to his leadership. On June 18, a joint statement was issued: “Agreement has been reached on a proposed 1973–74 Expense Budget by the Mayor, the Comptroller, the Board of Estimate and City Council leaders.” Everyone was smiling, or, as the New York
Post
accurately reported, “This was the first year in the past four that Lindsay and Beame practiced budget politics of consensus instead of confrontation.” The next day, Lindsay issued another press release: “Like all budgets, it contains
compromises. It includes a number of items and the use of some financial techniques which I would not have preferred.” He went on to thank Beame for his “cooperation.”

Looking back on this budget, a prominent official in the present City Comptroller’s office said, simply, it was “outright fraud.” Looking back on it in a June 1975 memo to private citizen Lindsay, David Grossman, his last Budget Director, used different words to achieve a similar conclusion:

Hair still wet from a morning shower, Mayor Abraham Beame rushed to Manhattan’s garment district in July 1975 to proclaim a new traffic control program. The Mayor couldn’t stand to be late; he was as proud to be punctual as he was to be called a fiscal wizard. And yet this morning Beame was both late and humiliated. To restore investor confidence and avoid bankruptcy, just days before a state agency had been created to police the city’s fiscal affairs.

The five-foot two-inch, sixty-nine-year-old patriot swallowed hard and took it, all to save his city from bankruptcy. But it hurt, and today he had his mind set on proving that neither he nor his government had been crippled by the fiscal crisis. Standing on a street corner, all but hidden by a forest of microphones, he read a
prepared statement. The blare of truck horns drowned his voice, as did two local merchants who interrupted to scold their mayor, denouncing his program as “a publicity stunt.”

Determined to proceed, Beame sauntered across Seventh Avenue to inspect a new low street curb which would permit the easy movement of clothing carts. Suddenly, he halted. Befuddled, he gestured toward a large automobile blocking the city’s new low curb. “Yes, Mr. Mayor,” sighed the guide, Transportation Administrator Michael Lazar. “It’s an illegal park taking place right before your eyes.”

The fiscal crisis of 1975 also took place right before Abe Beame’s eyes. The new mayor was as blind to the gathering fiscal storm as Lindsay had been to the city’s economic decline. It was supposed to be different. “This time let’s elect a mayor who can do the job!” chimed Beame’s campaign commercials. “Let this day, the first day of our administration, mark the rebirth of faith in our city and confidence in our city government,” concluded the new mayor’s January 1, 1974 inaugural address. The torch had been passed from the promiscuous Lindsay to the frugal Beame, the man who “knows the buck”—or so voters thought.