The Streets Were Paved with Gold (22 page)

“I’ll tell you who’s really at fault,” blurted Bernard Nussbaum, the city’s SEC attorney. “It’s the media. They treated the people who created the gimmicks as if they were geniuses. If the press treats you like a genius it increases your chances of reelection, and so it encourages more gimmickry. The problem with the press is, one, it’s incompetent. Two, it doesn’t work hard. And three, it’s sensationalist.”

Ultimately, all the excuses fit quite nicely with the city’s official defense. Underlying that defense is the unspoken assumption that no one is responsible. We are all victims. Leaders are not supposed to lead. Telling the truth can be harmful. The political system won’t allow it. A variation of the no one-is-responsible thesis was expounded by Lindsay’s former corporation counsel, Norman Redlich, now dean of NYU’s School of Law. “The fiscal crisis was not created by Robert Wagner, John Lindsay or Abe Beame, either individually or collectively,” he wrote on the Op-Ed page of the
Times
, “and it is grossly unfair to our former Mayors to make them the villains of our urban tragedy.” The “tragedy” was caused, he said, not by city officials but by such historical forces as the movement of poor people into New York and the exodus of middleincome residents; other levels of government were to blame for not picking up more city costs. Could the budget have been cut? No, he implied, because New York had “hallowed institutions (such as the City University and the municipal hospital system) that imposed financial burdens vastly greater than those faced by any other city.” And what about high taxes? Not so, implies Redlich: “Every year, the body politic of this city, led by some state and local elected officials, insisted that the taxes were not needed.…” Redlich ends Lindsay’s defense (and his own) with a familiar refrain: “It is time, however, that we cast a true light on his past. And by doing so, we might be better able to deal with the problems of the present.”

It is unfair to make Lindsay
the
culprit; to ignore the many good things he did as mayor, including keeping the streets cool during a very difficult period, bringing zest and idealism to City Hall, introducing
the concept of “productivity” and management reform, renewing interests in our parks and architecture. But, like a lot of other city and state officials, he made some dreadful mistakes, told some whopping lies. And, like a lot of other people, he and his mulish apologists should at least exhibit the grace of contrition.

Looking back, one sees that the reality gap almost equaled the budget gap. Redlich, I think, suffers it now, as does his pouting former boss who refuses interviews. And Abe Beame suffered it in 1974–75. One reason Beame failed to make the tough decisions is that he and others honestly did not believe the market would close, honestly did not believe this crisis couldn’t be handled just as previous ones had been. “Beame was warned of the fiscal dangers,” says one of his attorneys, Marty Lipton. “I don’t think he understood it.” Beame treated the fiscal crisis as if it were a public relations crisis. The city’s “failure to make meaningful disclosure,” said the SEC report, “prolonged the agony of the City’s fiscal crisis, and delayed major necessary corrective efforts.”

It was a swindle. To date, no one has been punished. Perhaps no one should be. Perhaps Beame’s loss in the primary is a sufficient punishment. He and Lindsay and others have been humiliated. Rockefeller is retired from politics. The city’s bookkeeping methods have been improved. But, as usual, the public pays. As I write, the snow is falling heavily and the city sanitation commissioner is complaining that 40 percent of his snow removal equipment has broken down. The city cannot borrow money and is again pleading with Washington that without federal assistance bankruptcy is inevitable. People have been laid off and the round-trip $1 subway fare can cost more than lunch. City workers’ pension funds are dangerously overextended. The debt is growing and debt service costs consume more of the city’s locally raised revenues than welfare and Medicaid combined.

And, as I write this, Abe Beame is appearing on WNBC-TV as a well-paid urban affairs commentator and has become chairman of the federal Commission on Intergovernmental Relations. John Lindsay is plotting to run for the U.S. Senate in 1980. The banks have escaped—freed of their city notes, most of their city securities converted to more secure MAC bonds, and the statute of limitations for bondholder suits or federal fraud charges is quietly expiring. Harrison Goldin won reelection and is the frontrunner as the Democratic candidate for state comptroller in 1978. Robert Wagner is a venerated political name, an intimate of governors, the new U.S.
ambassador to the Vatican. James Cavanagh is employed by a foundation, draws a $29,000 city pension and has been consulted by Mayor Koch. Nelson Rockefeller is writing art books and advising the Saudi Arabian government. William Simon has written a book blasting the city and is scheming to run for President in 1980. Edward Hamilton is California Governor Jerry Brown’s new budget guru and runs a lucrative consulting business.

Neither the SEC nor the U.S. Attorney for the Southern District has pushed the prosecution of former officials. Like the
Times
editorial, the SEC has focused on the future, quietly summoning all the officials named in their staff report to determine how they have improved their bookkeeping and disclosure techniques. Why had the SEC sought no indictments? According to Andrew Rothman, their Washington spokesman, “The Department of Justice and the U.S. Attorney have all the information. We referred everything to the appropriate federal agency.” There it has remained, buried.
Why no indictments?
A major SEC official thought a long time, began several sentences, then stopped. “We probably could have sought indictments,” he said finally. “Why were there no indictments? There is a thing called the
scienter.
It means that someone must do something viciously and willfully. Applying that test to Mayor Beame and Goldin and others, I think that in their heart and soul they really believed the city couldn’t collapse, even though the evidence was there. You don’t indict people for that.”

Perhaps. But many people have gone to jail for less.

I
N THE
J
APANESE
movie classic
Rashomon
, there are four eyewitnesses to a killing. Each observed the same crime, the same weapon, the same victim. Yet the witnesses offer four very different versions of what they saw.

That is an approximation of what’s happened throughout New York’s marathon fiscal and economic crisis. In this case, the victim is New York City. There are multiple eyewitnesses. There is no dispute that the victim is bleeding. Where witnesses differ, however, is in whether they observed an attempted murder or suicide.

New York officials claim that Washington is committing murder. The city’s economic ills, Senator Daniel Patrick Moynihan exclaimed on July 15, 1977, “are in substantial measure … the consequence of policies of the national government.” The “true cause of the urban fiscal and economic crisis,” Richard Morris writes in his book
Bum Rap on American Cities
, is the fact that New York and the Northeast do not get their fair share of federal assistance. This is a familiar refrain, sounded by most city officials and, according to polls, by a majority of New York residents.

A very different view is heard in Washington and around the country. New York, they say, has been committing suicide. They can point to a Treasury Department study revealing that in 1977 New York ranked first among the fifty states in federal dollar aid and enjoyed the largest increase—$1 billion—of any state; a National
Tax Foundation study showing that in 1977 New York State paid 82¢ for each dollar it got back from Washington. “We think it makes sense for New York City to do more for itself rather than spinning new schemes for federal help,” warns Elinor Bachrach, a key aide to Senator William Proxmire, Chairman of the Banking Committee, which must pass on most city aid legislation.

“We don’t seem to be talking the same language,” worries MAC Chairman Felix Rohatyn. “It’s scary.” The gap between New York and Washington is wider than the city’s budget gap. New York officials claimed long-term federal loans would end its need to return to Congress for yearly fixes; many in Congress claimed it would worsen New York’s addiction. City unions complained they had made too many sacrifices; Washington complained they had not made enough. The state and the banks said they were overextended; Washington said they were underextended. New York screamed that bankruptcy could topple our federal system; Washington cried back that deepening involvement in local affairs could topple it sooner.

Murder or suicide?

To probe the question, Senator Moynihan and I agreed to lunch in early 1978. The former Harvard professor chose to meet in the Edwardian Room of the Plaza Hotel. His costume, appropriately, was Ivy League—slate-gray suit, pale yellow button-down shirt, simple polka dot bow tie. I asked a simple question and was dragged on a detour through Keynesian economics, past the fascinating rubble of different academic methodologies, ending with a lengthy discourse on how New York State had actually “recovered” from the 1969, but not the 1973, national recession.

After a time, I was reminded what an engaging man Moynihan can be. But also that there has always coexisted within the junior Senator from New York two parts academic and one part ham. In the contest between the two, sometimes the ham wins. The contest—and the question of murder or suicide—is crystallized vividly in Moynihan’s current search-and-destroy mission. “My hypothesis,” he argues, “is that the federal government is systematically deflating the economy of New York State.” The state, he charges, sends about $36 million to Washington and gets back only $29 million, leaving “a deficit” of over $7 billion. Others have arrived at a higher number. The Northeast governors forged a coalition to lobby for their fair share. “There are no sufficient reasons for the absolute decline of our state, not even our own considerable mismanagement of our
affairs,” Moynihan told the Senate on June 27, 1977. “To the contrary, I have reached the conclusion that our decline has come about as the largely unintended, but nonetheless direct and palpable consequence of the policies of the Federal government.” The “deficit,” he said then, was $10.6 billion.

That was the ham speaking. Shortly thereafter, the Temporary Commission on City Finances issued its 398-page final report, documenting some of the city’s self-inflicted wounds. In what could have been viewed as a direct challenge to Moynihan’s thesis, the Commission said, “The ‘captive-of-events’ theory is also popular because it tends to absolve the local political process of responsibility for the fiscal crisis and buttresses the also popular view that the solution to the City’s financial problems lies in increased State and Federal aid rather than local political reform.” The Commission noted, for instance, that federal aid to New York City has increased twenty-three-fold since 1961.

On July 15, 1977, Moynihan cited the same sentence in a “revised edition” of his speech, with a new five-page introduction. “What the Commission says is true,” he declared, “and it is vastly important that it be said … many perceive a conflict between what we say and what the Commission says. I believe there is no such conflict.…” Acrobatically, the Senator who on June 27 said the federal government was “largely” to blame now described that speech as setting forth “the proposition that the exceptional economic difficulties we have faced in recent years are in substantial measure—not altogether, not even in greatest measure, but in substantial measure—the consequences of policies of the national government.” He also pronounced, “We now calculate a ‘gap’ of $17.1 billion”—up $6.5 billion in eighteen days.

Caught between common sense and his constituency, Moynihan tried to please both. To common sense, he blew the Commission a five-page kiss and continued to make compelling points about past city and federal mistakes. To his constituency, he railed and thundered and vowed never to rest until the federal government surrendered. The press ignored the five-page revision and headlined Moynihan’s charge of murder, as they had once headlined his UN attacks on Uganda’s murderous Idi Amin. Moynihan now had what every politician craves—a torch issue—generating attention but not criticism from constituents. New Yorkers stood up and cheered as their righteous Senator marched off to slay the federal dragon.

Immediately, he dispatched his speech and arithmetic to the
White House, requesting that Jimmy Carter stand up and declare himself. Three months later, and somewhat vaguely, Carter did so. “Your statement on the impact of federal programs on the economy of New York,” he wrote Moynihan in September, “has raised a number of important issues that will receive the full attention of this Administration.” With considerable glee, the Senator released this letter, as he later released a string of “Dear Pat” letters from Treasury Secretary Blumenthal, Commerce Secretary Kreps, Chairman of the Council of Economic Advisors Schultze and domestic policy chief Eizenstat.

The Senator was pleased but not placated. The President’s advisers conceded the need to know more about the impact of federal policies on states, conceded that federal aid formulas did not take into account New York’s higher cost of living. But they specifically did not concede Moynihan’s “gap.” No matter. Moynihan pressed on. “I would contend,” he said on September 27, “that the more we learn about this issue, the more it will emerge that the ’balance of payments’ is indeed a good rough measure of the federal impact on a state.” He insisted that in calculating what New York received from the federal government the feds were arbitrarily apportioning and crediting $14.3 billion of foreign aid and interest on the national debt to New York State. If this sum were subtracted, rather than a surplus, the state’s “balance of payments” would show a $7.4 billion “gap”—down $9.7 billion in seventy-four days.

Moynihan did not relent. He continued to flail away at the book-keepers in the Carter administration. Finally, perceiving it as an academic point, on January 11, 1978, the federal government hoisted the white flag. They would, wrote the Director of the Community Services Administration, no longer credit the $14.3 billion to New York. The title of their reports would be changed from
Federal Outlays
to
Geographic Distribution of Federal Funds.
Viewing this as a major victory, Moynihan summoned the press. The front page of the next day’s
Times
celebrated the victory, somehow ballooning the $7.4 billion “deficit” to $10 billion. The
Post
and the
Daily News
applauded, boasting that their gladiator had emerged with proof that New York was being murdered. Senator Moynihan had made his political point.