The Streets Were Paved with Gold (47 page)

Unlike earlier campaigns, the emphasis was not on “new priorities” for federal dollars. If there was a Maginot Line separating the candidates, it was not between who was the most “liberal” or who made the most promises, but who was primarily responsible—city or federal and bank officials—for the fiscal crisis and its resolution. On one side of the line stood Mayor Beame and former Congress-woman Bella Abzug. The thrust of their argument was that the fiscal crisis was less the fault of past city officials or policies than of federal neglect and avaricious bankers. It followed that those who caused the crisis bore primary responsibility for solving it. Though differing in style and ideology, each ran defensively: Beame was protecting his record as mayor; Bella, her liberal ideology.

Koch, Cuomo, Goodman and several others stood on the opposite side of the line, seeming to agree with the “central conclusion” of the final report of the Temporary Commission on City Finances, issued in June 1977: “The City of New York must be fundamentally reformed before its fiscal problems and the larger economic problems of New York City can be solved: incremental reform of the local government process will not suffice, even in the event that the State of New York and the federal government assume increasing responsibility for functions performed by the City of New York.” To drive home its point, Beame’s Commission challenged the conventional wisdom which holds that “welfare reform” will untangle the city’s budget conundrum. Even if the President and the Congress agreed to assume New York City’s $500 million share of welfare costs, they noted, this sum was equal to the then-anticipated 1978 budget gap. Unless the city drastically altered past spending patterns, the additional $500 million would simply be swallowed up by wage increases and new local spending. The new money would not be used—finally—to balance the budget or reduce taxes to help regenerate the local economy. It would be like offering another fix to an addict.

The report was ignored by Beame, but not by many of the other mayoral candidates. For the first time in memory, good politics and good government seemed to be in harmony. None of the contenders would promise to maintain the 50¢ subway fare—not because they
didn’t want to, but because they didn’t know where the money would come from. None promised to slash crime because none of them were sure they could. With the exception of Beame, none promised to hire more police or provide more services. It used to be that citywide candidates trembled at the prospect of being pigeonholed as “pro-business.” In 1977, each competed to capture this distinction. Business tax cuts were urged by all the candidates, as were other business incentives. Once, during a September television debate, the nine Democratic and Republican pre-primary candidates were asked which rated a higher priority: cutting taxes or raising wages. Roy Goodman said he would choose to cut taxes. The others emitted indecipherable, noncommittal responses. In previous campaigns, the candidates would have clawed and leaped over each other to promise wage increases.

If the candidates changed, perhaps it was because, in many respects, the public had as well. 1977 was a year when New York voters—like voters across the nation—were registering their distaste for high taxes. They were angry about government spending and waste, about costly municipal labor settlements, about reduced city services. “The tax collector, rather than the employer—at least in New York—is the worker’s major adversary. The same tax collector, rather than the worker, is the employer’s major adversary.” These words emanated not from some Chamber of Commerce spokesman but from Joseph Treretola, President of New York Teamsters Joint Council 16. During the fiscal crisis, the public suffered reduced services, usually without notable protest. A city that in 1969 hotly debated whether it wanted to become the fifty-first state, quietly surrendered its home rule to the Emergency Financial Control Board. A new consensus was forged: New Yorkers would do what was necessary to restore “investor confidence.”

The public chose three candidates—Koch, Cuomo and Goodman—who in prior years might incorrectly have been labeled “conservatives” because of their emphasis on “fiscal responsibility” and “mismanagement.” In this campaign, they were perceived as the anti–status quo candidates when they challenged, for example, union “ripoffs,” suggesting how much the public’s view of who was the enemy had changed. Voters rejected Beame’s everything-is-all-right theme and Abzug’s line that the federal government offered salvation. They elected Ed Koch not because he was “fresh and everyone else is tired,” like John Lindsay in 1965, or because he was against the “bosses,” as Bob Wagner was in 1961, or because
he was “a mediator,” as Abe Beame promised to be in 1973. Koch beat Cuomo and the rest of the field because he came across as the most outspoken, the most specific about how he would do more with less. He convinced people he would represent the public against the special interests. Every time a union leader attacked him, or he harshly called Beame “incompetent,” he won points. Koch helped prove that to win a primary or an election it is often better to have the political, business and labor establishment on the other side.

But, as Koch would learn, getting elected is not synonymous with governing. In the first three years of the crisis, two questions—bankruptcy and how to avoid it—dominated City Hall’s attention. The people who would help answer those questions were not average voters, or the poor, or blacks, or neighborhood groups. Their influence and power was diminished. Three businessmen were appointed to the Emergency Financial Control Board that would oversee city finances. Labor, too, had its representatives attend Control Board meetings. Yet not one representative of the poor or the city’s diverse neighborhoods was represented. Minorities, in particular, lost power. For the first time in twenty-five years, they were not represented on the Board of Estimate. By 1978, blacks, who account for 25 percent of the city’s population, held only two of eighteen Congressional seats, three of twenty-five state senate seats, twelve of sixty-five state assembly seats and five of forty-three City Council seats. In place of a far-flung securities market composed of thousands of individuals, a handful of bankers and union leaders decided whether or not to invest in city or MAC securities. A “partnership,” as they came to call it, was formed between City Hall, the banks, the municipal unions, the business community, the state and the federal government. All shared a common interest in averting bankruptcy.

Former adversaries—in 1975, the unions blamed the banks and the banks blamed the unions for the fiscal crisis—locked arms. In 1977, Jack Bigel, representing the unions, and Walter Wriston, president of Citicorp, began to meet regularly on an informal basis—leading to the creation of an ongoing committee (called MUFLE) designed to determine areas of mutual interest. To avoid bankruptcy, Mayor Beame, a man fiercely proud of his reputation for fiscal wizardry, silently suffered humiliation and a reduction of his mayoral powers. Governor Carey braved a too-close identification with the city—traditionally unpopular upstate—and risked
alienating powerful interest groups while appearing to be the Scrooge-like Chairman of the Control Board. Members of the business and banking community, abandoning the comforts of lecturing politicians, lent their time and financial and managerial expertise to the city. At one point, the New York banks consented to reduce the interest rate on almost $2 billion worth of city bonds. The federal government, stung by the backlash to the callous statements of President Ford and Treasury Secretary Simon in 1975, adopted a more behind-the-scenes role, gently prodding the local partners toward further reforms. And the municipal unions, whose members’ wages and fringe benefits form the largest share of the city’s budget, made significant sacrifices. For the first time since the Depression, they acceded to 25,000 layoffs. They agreed to defer a pay increase for one year. City workers earning more than $15,000 would defer a full 6 percent raise. To save money, the unions consented to “give back” over $40 million of previously won fringe benefits. At grave risk, employee pension funds also committed to invest $3.8 billion over the three years to keep the city afloat. It became city/union policy to shrink the work force through attrition—a tacit acknowledgment by the unions that there were too many employees. Without courageous leadership from Governor Carey, without MAC chairman Felix Rohatyn’s financial wizardry or Mayor Beame’s temperance or the sense of responsibility demonstrated by city labor leaders, New York would have gone bankrupt.

But the public made the greatest sacrifices. Their taxes went up while their services went down. Free tuition and open enrollment at the City University, library hours, sanitation pickups, city hospitals, day-care centers, the city work force—were cut back or eliminated. The transit fare zoomed 40 percent. According to an analysis for the
City Almanac
by Charles Brecher and Miriam Cukier, between 1975 and 1977 total funding for the Board of Education rose 9 percent while the staff was reduced by 20 percent and pupil enrollment by 6 percent; total refuse collection by the sanitation department dropped 2 percent; police arrests declined by 6 percent; the budget of the Board of Higher Education remained about the same—while the number of college students plunged 24 percent. In his second management report, Koch conceded that streets were dirtier, the city’s parks were in a state of “disrepair” and over half the $1.1 billion in back taxes and bills owed the city could be collected but wasn’t.

The city government also changed. The growth rate of its budget
slowed. The city’s bookkeeping system was overhauled. Under a new computerized system—called IFMS, for short—New York will soon enjoy perhaps the most advanced financial management system of any municipality in the world. Gone were the days when a Jim Cavanagh or Abe Beame could project Off-Track Betting revenues on the back of an envelope, as they did in urging the state legislature to create OTB in 1970. Gone too was the myth of “the expert”—that one individual who, alone, knew where funds were buried. Today, there are seven different auditors, including those from the Control Board, MAC, the federal Treasury and the Congress, peering over City Hall’s shoulders. The press, more attuned to the nuances of budgets, polices City Hall with greater vigor. “Two major things have changed,” observes Sidney Schwartz, Deputy State Comptroller and the Control Board’s chief auditor. “One is a change of attitude—I’m referring strictly to fiscal matters. The top management under Zuccotti and Kummerfeld, and now under Koch, realized they had to cut down. They slowed the spending rate. The other thing is, despite all the different numbers, the numbers given out are more reliable.”

Even the city’s official documents changed. Greater candor was evident, for instance, in the city’s May 1977 official prospectus to investors. Mindful of the SEC’s scathing criticism, New York’s problems were not sugar-coated. The prospectus acknowledged that that year’s pensions were underfunded by $160 million, warned that “no assurance can be given that the City will realize the projected amount of funds” from the sale of Mitchell-Lama mortgages “in a timely manner,” sketched how real-estate taxes were declining, debts rising, and how future city deficits would also grow. Displaying his commitment to the new candor, Mayor Koch announced soon after his election that he would speed the eight remaining years allowed by the state legislature to remove expense items from the capital budget. Koch would complete the task in three. He also would increase appropriations in order to eventually eliminate underfunded pensions.

The city’s management also improved. Acceding to the commands of the new City Charter and the Control Board, City Hall installed a management reporting system requiring monthly and annual productivity goals from each city agency. These goals were then monitored by a director of operations, a new office manned by a complement of full-time business executives whose salaries are
paid by their companies. Beame had begun to surround himself with a better team of executives. Koch enlarged the pool of talent and began addressing management questions his predecessor chose to ignore. He asked Albany, for instance, to exempt an additional 3,000 city managers from union membership, to reform the civil service laws. He directed his Investigations Department to hire an additional 161 inspectors and search out not just corruption, but sloth and incompetence. In the first four months of the Koch administration, disciplinary actions against nonproductive employees increased—the Human Resources Administration instituted 450 disciplinary actions, the Parks Commissioner reassigned twenty-nine foremen who were not doing their jobs and promoted twenty-nine workers who were.

New York taxes began to inch down. In 1977, Mayor Beame announced the phasing out of the stock transfer tax, a 10 percent reduction in the commercial rent tax, a slight reduction in the real-estate tax. In 1978, Governor Carey proposed and the legislature approved a $750 million reduction in state taxes. New York was struggling to make itself economically more competitive. But this change must be placed in some perspective. The tax bite, conceded Assistant Budget Director John Fava, is deeper in New York City today than it was when the market collapsed in 1975. Responding to pressure from the “conservative” Ford administration, in 1975 the corporate tax rate jumped 50 percent, the financial tax doubled, the retail sales tax was extended to personal and business services, the personal income tax climbed by as much as 25 percent, the real-estate tax soared by $1.40 for each $100 of assessed value. Still, the trend is toward reduced taxes, with the major parties—Democrats, Republicans, Liberals and Conservatives—now vying to convey their greater commitment to tax reduction.

City Hall’s attitude toward labor negotiations also seemed to change. “I believe the most dramatic change since I took over City Hall,” Koch told me in June 1978, seated in his office between Fiorello LaGuardia’s former desk and massive portrait, “is that the municipal labor leaders no longer own the mayor’s office. They did.” To demonstrate his independence, Koch took the unusual step of releasing a list of sixty-one “give-back” demands he was making of the municipal unions in their 1978 contract negotiations. The new mayor was proclaiming that he, representing the taxpayers in those negotiations, had to win something positive from the negotiations besides the negative of avoiding a strike. Elected with a
mandate to shake the cages, Koch applied his favorite expression—“I am outraged”—to actions Beame and others regarded as commonplace. Koch had higher expectations, which filtered through to his commissioners and radiated to the public, accounting for the new mayor’s 70 percent approval rating in the fall of 1978. One state auditor recalls a meeting he held with Beame when the latter was comptroller. They met to discuss a state audit which found that Beame’s employees were working an abbreviated day. “ ‘You mean your people put in a full day?’ ” he recalls Beame asking. “His attitude was, ‘Why get excited?’ ” If anything, Koch got too excited, arousing fears that he was impetuous, unreliable. But that is a fear engendered by all reformers.