The Streets Were Paved with Gold (16 page)

What Beame (and the voters) didn’t know was that times had changed. And Abe Beame didn’t know how to change with them. He was the victim of cautious instincts nurtured by years of inching up the civil service ladder—from accountant to budget examiner to assistant deputy budget director to budget director (ten years) to comptroller (eight years), finally, to cap a dream, becoming New York’s 104th mayor. Beame followed the same route within his beloved Democratic party, rising from doorbell ringer to district captain to esteemed party leader. When others were turning their back on the Democratic organization, Beame remained a party man, rewarding the faithful as he had once been rewarded himself. Proudly, he described himself as a “conciliator,” a “negotiator,” a man searching for the middle ground. Abe Beame was a survivor, not a shaper of events.

Beame was also a victim of a lifetime of personal habits. He was a kind but also a guarded man. He held his emotions under strict control. He stiffened in the presence of most reporters and strangers. He tended to work alone. The one official he relied on in 1974 and 1975, First Deputy Mayor James Cavanagh, was in many respects a carbon copy of his boss—a career civil servant who had served in the Budget Bureau and who played his cards close to the
vest. “There aren’t regular strategy meetings,” said an aide. “Most of it is done on the phone. That’s how Beame operates.” By direct phone contact with all his commissioners, by notes on long legal pads and scraps of paper stuffed into his pockets. Each day, Beame made lists of things to do, staring at his pad and crossing off items while munching on a daily tuna fish sandwich. When he returned from a public appearance, he would empty his suit pockets and pile the scraps of paper on the desk. Immediately, a flurry of terse phone calls would commence: no
How are ya
’s, no
This is Abe
—just twenty, thirty seconds’ worth of business so the scrap of paper could be discarded. Because Beame did not pause to sort the scraps, preferring to follow the accidental order in which they appeared on the desk, sometimes a commissioner would receive four or five separate calls in a matter of minutes.

That’s how the Mayor kept in touch. He was a slave to routine. At the end of the day, most of the items on the legal pad had been checked off, his calls returned, the scraps of paper exhausted. But by immersing himself in such detail, Beame, like the accountant he was trained to be, often lost sight of the larger picture.

Perhaps the most revealing question of the 1977 mayoral campaign was asked not by a reporter but by Ed Koch. In a public TV debate, each of the candidates was allowed to ask the other a question. Beame asked Koch about one of his votes in Congress. Koch surprised Beame with a more general question: What, Mr. Beame, do you regard as the greatest accomplishments during your four years as mayor? Beame took a moment to reflect. Then the Mayor of New York, unbelievably, said his greatest accomplishments were getting the 1976 Democratic convention and the Fourth of July Op Sail celebration.

As the city slipped further into debt and investors grew wary, Beame acted as if nothing had changed. His first budget (1974–75) was business as usual. Instead of making painful cuts to cope with the $1.5 billion deficit he said he inherited, he raised taxes by $44 million; smuggled $722 million of expenses into the capital budget; borrowed $520 million in notes by creating the Stabilization Reserve Corp., a vehicle to float new borrowings; discovered $280 million by advancing the date of sewer rent collections and siphoning what he called “excess” pension earnings.

“What led to Beame and Cavanagh’s undoing was the fact that these two guys were unable to adjust to changes in the new intergovernmental ball game we have,” says Herb Ranchburg of the
Citizens Budget Commission. “The city came to depend for 40 to 45 percent of its budget on state and federal funds. They could not shuffle these funds. It used to be that the hallmark of a good budget director was when the mayor called and said, ‘I need $7 million,’ the budget director could do that. As budget director, Beame could do that. He was dealing with small amounts. What happened in the Lindsay administration was that the technically balanced budget became an end in itself. The figures were much larger and there was less control.

“City Hall did not adjust to the situation. He still continued to claim ’savings’ based on expenditures not made, and which never would have been made to begin with. The city claimed hundreds of millions in savings for people they could not have hired. It was as if my washing machine broke and my wife got it repaired for $50. Abe Beame would claim a $250 saving since he didn’t have to go out and buy a new washing machine.”

In addition to his budget habits, Beame’s political performance in late 1974 and early 1975 undermined confidence in his—and, therefore, the city’s—credibility. He appeared more interested in avoiding blame than solving problems. When a huge budget gap loomed, he acted as if he were a stranger to city government, blaming the $1.5 billion deficit he “inherited” from Lindsay—“If it weren’t for that, we would be in good shape now.” When City Comptroller Harrison Goldin said his budget deficit figure was too low, on December 2, 1974, Beame blamed Goldin for the city’s 9.5 percent interest rate. To reduce the gap, over the next two months Beame separately announced Phase One, Phase Two, and Phase Three of city layoffs. Yet on February 1, he proudly announced that the layoffs had been averted. It almost appeared as if the crisis was over. Two weeks later, Beame projected a $1.7 billion budget gap for the following year. The financial community warned of the need for cuts. In March, Beame said, “Very frankly, I think I’ve done all that can be done without crippling services.” Pressure mounted to cut the budget. Beame responded by blaming callous Republicans in Washington. Then he blamed Albany. Then the banks. Finally, on May 29, before live-TV cameras in the City Council Chamber, he denounced the “conspiracy” fostered by the banks and “editorial columns” to create “an atmosphere of doubt and uncertainty about New York’s securities.” The answer, he declared, was “an immediate Congressional inquiry” into “who started the whispering campaign to denigrate our fiscal integrity.…” His speech was greeted
by thunderous applause. Congressman Ben Rosenthal said he would proceed immediately. “Anyone who doesn’t stand by the Mayor in his struggle to avoid these massive layoffs,” intoned Council Majority Leader Thomas Cuite, “I would consider a traitor, in the classical sense.”

Beame and his city cohorts treated the crisis as a public relations problem, as they had always done. On July 7, 1975, after the city had been shut out of the credit market, after the state Municipal Assistance Corporation (MAC) was formed to police city finances, as the city teetered near bankruptcy, Abe Beame sat calmly behind his City Hall desk and told a roomful of reporters that the fiscal crisis was “behind us.” Over the summer, Governor Carey briefly pondered removing Beame from office; by September, the state legislature formed the Emergency Financial Control Board to declare fiscal martial law and advertise to investors that Abe Beame reigned but no longer ruled New York.

The Mayor retained iron control of his emotions, courageously resisting the wounded importunings of his son Buddy that bankruptcy was preferable to humiliation. But the personal pain rankled. The new state overseers sniped at him, disdained him, thought he was in the way. Even after the events of the past year, Beame didn’t understand. He saw himself as working hard, holding late-night meetings at Gracie Mansion, trying his best. He still rose early, made his lists of things to do. He followed through on phone calls and correspondence. He didn’t understand what
those people
, as he called them, expected of him. Didn’t they know he was working hard? Wasn’t he sacrificing? Didn’t he cut more employees from the city’s payroll than any other mayor in history—and without strikes? Didn’t he sacrifice his old friend Jim Cavanagh when the state and the banks insisted that he be fired? Didn’t he bring in Deputy Mayor John Zuccotti and other capable executives? He was too controlled to say so, but it drove him crazy. The city’s new fiscal rulers expected him to be something he was not. They expected him to be a leader when all his life he had been a survivor, a match for Ambrose Bierce’s definition of perseverance: “A lowly virtue whereby mediocrity achieves an inglorious success.”

“Abe Beame could have done much more much earlier and paid much less,” state Budget Director Peter Goldmark told me in 1975. “In fact, if the city were willing to get honest with its figures last winter and presented a two- or three-year fiscal plan and agreed to
limit its borrowing, there could have been an agreement with the financial community and there would have been no need for Big MAC.” Or the Control Board. Or some of the pain of the fiscal crisis.

One of the biggest trades in New York history did not involve George Steinbrenner’s Yankees. In 1962, the tristate Port Authority, architect and toll collector on many a bridge, tunnel and road, made a swap with the governors of New York and New Jersey. In exchange for its agreement to take over and modernize the Hudson River commuter rail link between the two states, the Port Authority received permission to build a world trade center in lower Manhattan. The legislatures of the two states also passed covenants solemnly pledging that the Authority and its bondholders would never again be asked to take over a deficit-plagued mass transit system. Since such systems chronically lose money, the covenant effectively prevented the rich and powerful Authority from investing in mass transportation. It also reassured bondholders that their investments would continue to be secured by revenuegenerating projects.

Years passed. The Authority’s surpluses grew. Mass transit revenues shrank. Slowly, a chorus of critics also grew—lashing out at the Authority’s refusal to invest in mass transit, at the $850 million lavished on the World Trade Center, at the miles of “profitable” concrete ribbons strangling New York. The leading critic was labor attorney Theodore Kheel. He filed suit in federal court, challenging the covenant as unconstitutional. He organized citizens’ committees to support the worthwhile goal of improved mass transit.

By 1973 and 1974, political support for repeal of the covenant was widespread. Before turning over the reigns of state government to Malcolm Wilson in late 1973, Governor Rockefeller extracted a pledge that he would repeal the covenant. On April 30, 1974, Governor Brendan Byrne of New Jersey signed the repeal. The legislature of the State of New York also voted repeal. But Governor Wilson hesitated. He worried, he said later, that repeal would “overturn a solemn pledge of the state.” Kheel responded: “Repeal
of the 1962 statutory covenant will in no way impair the security of Port Authority bondholders.” Wilson was attacked by fellow Republicans, who warned that failure to repeal would lead to failure in the November elections. Hugh Carey and Howard Samuels, the two Democratic challengers for governor, blasted Wilson, as did the City Bar Association,
The New York Times
, and just about everyone in politics, including me. As Samuels’ campaign manager, I gleefully encouraged the attack on Wilson, even helped write it. Meanwhile, a handful of bankers prattled about the loss of something called “investor confidence,” whatever that meant.

Just moments before the June 15 veto deadline, Governor Wilson relented and signed the repeal. After an agonizing appraisal, he said, it was determined to his satisfaction that the repeal was constitutional. The courts disagreed, deciding in 1977 that repeal of the covenant was unconstitutional.

But the damage had been done. This strange term “investor confidence”—which couldn’t be tasted, smelled, measured or quantified because, like air, it is invisible—suddenly took center stage. According to former state Banking Superintendent John Heimann, repeal was “a critical first step” and had a “profound effect on investor confidence” in government securities. “The abrogation of this covenant without consent or compensation, I believe, is not only illegal, but shortsighted,” wrote Staats M. Pellet, Jr., of the Firemen’s Fund American Insurance Companies to Paul Belica of the state HFA. “You are aware that credit rests not only on covenants between borrower and issuer, but also importantly on trust. With this action, the bond holder’s faith in New York State has been shaken.…”

Repeal came at a bad time. Following the Arab oil boycott, energy costs were soaring, the national economy was in a recession, there was an international crisis, the financial community was suffering losses and had less cash to invest in tax-exempt bonds. And since a credit market is tissued together by faith as well as facts, repeal signaled to investors that what the state giveth, the state can taketh away. Investors took this as a sign that the governments’—or, more precisely, the politicians’—word was no good. Since the State of New York’s “moral obligation” bonds were predicated on the
word
of politicians, repeal of the covenant contained enormous psychological implications, as the state would learn in February 1975.

The sixty-four-page annual report of the state Urban Development Corporation (UDC), the powerful housing construction agency, began: “1975 can be a banner year.…” It was, of sorts.

On January 1 of that year, Governor Carey captured banner headlines by blasting the housing agency’s “mismanagement.” Fifteen days later, UDC President Edward J. Logue—sounding like Abe Beame would a few months later—charged that his agency’s inability to borrow was due not to mismanagement or revenues that did not equal expenditures, but to a refusal to “knuckle under” to the dictates of the banks. State Comptroller Arthur Levitt, sounding like a broken record, again deplored the UDC’s reliance on “moral obligation” bonds, claiming that they avoided the constitutional requirement for voter approval of all state bonds. Levitt also castigated the banks for “cooperating with a vengeance” to reap handsome profits from the UDC over the years.

The UDC was in trouble. The moral obligation debt of the state had grown by about $8 billion between 1964 and 1974, with the UDC as the largest benefactor. By 1974, the state had almost onequarter of all the outstanding nonguaranteed long-term debt in the nation. Rushed through the legislature in 1968 by Governor Rockefeller, ostensibly as a memorial to the slain Martin Luther King, the UDC had extraordinary powers to slice through red tape and build housing. The UDC was a national model. But its revenues fell short of its debt service payment needs because most of its projects were not self-sustaining. By late 1974, the most powerful housing agency in the nation was enfeebled, and the incoming governor, Hugh Carey, ordered a task force to seek ways to prevent its collapse.