The Streets Were Paved with Gold (12 page)

The shrinking capital budget drew public notice in the cold winter of 1978. During the first heavy snowfall, one of every three aged sanitation trucks was out of commission; half the 450 street sweepers were also out, as were half the snow blowers. More than 1 million axle-breaking potholes made city streets look like the surface of the moon; fifty-year-old streets that are supposed to be repaved
every twenty-five years were scheduled to be repaved every 200 years. Many of the city’s 51 water-spanning bridges were literally crumbling, warned a Twentieth Century Fund study prepared by former Budget Director David Grossman. There was concern that the city’s water supply system, dependent on just two water tunnels, could be endangered. “We really don’t know how serious the problems really are,” Water Resources Commissioner Charles Samowitz told Arthur Browne of the
Daily News
in February 1978. “What we should really do is drag [clean] the entire system. Then we’d know how well the system actually works. We haven’t dragged the entire system in a decade. It might cost $1 million. We don’t have the money now, but it could be worth 20 to 40 times that amount.” During the past three years, a 1978 City Planning Commission report lamented, the city spent an average of “only $200 million a year on legitimate capital projects.”

And, finally, the public paid when investors became alarmed at the glut of city paper crowding the securities market. One day, investor confidence would collapse—just as the West Side Highway had done.

Mayor Wagner had planned to present his final budget message before the full Board of Estimate and live television cameras in May 1965. Then word leaked out that he had schemed to close a $255.8 million budget gap by issuing short-term notes, payable within one year. All hell broke loose. Newspaper editorials screeched about “fiscal irresponsibility.” Comptroller Beame, normally a close Wagner ally, blasted the plan. “This borrowing proposal,” he warned, “is akin to a family man who lacks the will to earn a living, but prefers first to clean out his bank account to pay for his regular living expenses and then to continue to avoid working by borrowing to live in the same manner. Finally, he faces the day of reckoning. This will be the city’s blight under the proposal to borrow for current expenses.”

Wagner scratched the live-TV plans. Instead, on May 13, 1965, the same day John Lindsay announced his candidacy for mayor, he trotted out Deputy Mayor Edward F. Cavanagh, Jr., who meekly recited a six-minute message for the benefit of two Board of Estimate members. Wagner still proposed to close the gap by issuing
short-term notes. It amounted, he said, to “borrow now, repay later.” The Mayor’s message echoed the boundless optimism and rhetoric of the day: “I intend that we shall press ahead with the war on crime, the war on poverty, the war on narcotics addiction, the war on slums, the war on disease and the war on civil ugliness.”

Such “wars” cost money, and the Mayor presented a record $3.87 billion budget—up $514,299,699—plus a first-time fiscal trick to pay for it. Unlike subsequent mayors, Wagner did not hide his tricks. It was debated on the floor of the legislature, where State Senator John Marchi called it “bad budget practice” and prophesied, “We can do it next year, we can do it ten years from now, this is the effect of the proposal.” Candidate Lindsay exploded: “New York has tried to climb to prosperity on the Indian rope trick and, when the whole fantastic illusion threatens to crumble, it is propped up with the fiscal magic of borrowing $256 million against nonexistent collateral—a reckless gamble on the future to pay for mistakes in the past.”
The New York Times
scolded Wagner, Rockefeller and city and state legislators: “What we have here is an election-year refusal to impose unpleasant taxes to balance the city budget.”

Ignoring the criticism, Republican Governor Rockefeller joined with Democrat Wagner and rounded up sufficient Republican votes to pass the borrowing plan in June by a narrow margin. The Local Finance Law was amended. Instead of requiring that all revenue anticipation notes (RAN’s) be pegged to the previous year’s actual receipts, from now on they would be pegged to the mayor’s own estimate of the next year’s revenues.

With this decision, mayors were granted a new budget weapon. In addition to using the capital budget to hide borrowing for expenses, they could now use the expense budget to borrow. But short-term borrowing is fraught with danger. Unlike bonds, notes are repayable within a year. If revenues grow slowly, or if growing expenditures are not moderated, money must be borrowed again the following year to repay earlier borrowing. Soon the client is borrowing to repay not principal but interest, and is trapped like most loan-shark clients.

This is what happened to New York. In 1965, the city’s short-term debt was $526 million, or 10 percent of the total debt; its annual debt service costs were $470 million. By 1975, its short-term debt was $4.5 billion, or 36.9 percent of the total debt, and annual debt service costs were $2 billion. Almost one-third of the
city’s entire budget was set aside not for the delivery of services but to pay for borrowing and pensions.

Mayor-elect Lindsay foresaw the problem. On December 21, 1965, he declared, “I face a budget gap of almost a billion dollars for the first fifteen months of my administration.” Four and a half years later, Lindsay prepared to close his own budget gap by borrowing. Reminded of his earlier criticism by Martin Tolchin of the
Times
, Lindsay said, “It’s a lot easier to criticize when you’re not there.… You find out things aren’t as simple as you thought.”

John Lindsay was a tall, handsome prince who swept much of New York off its feet. “He’s fresh and everyone else is tired,” Murray Kempton wrote during the 1965 campaign. “He’s
gorgeous
,” women shrieked. After twelve years of Wagner, the city was ready for change. And change is what the idealistic Republican/Liberal candidate promised. An end to “cozy deals” with labor unions and “party bosses.” A return to “fiscal responsibility.” A regeneration of spirit—“Fun City.”

But not everyone was in love with the Mayor-elect, as his narrow election proved. Labor unions, for instance, fumed that he was “anti-union.” Concerned with the approaching January 1 deadline for the transit talks, Lindsay sought to cool tempers by journeying to the Americana Hotel on December 27, 1965, to meet with representatives of the Transit Workers Union and the Transit Authority. In a conciliatory gesture, he mildly requested that both sides negotiate a “fair settlement.” Then, with unaccustomed humility, he conceded, “I am not an expert on labor matters.”

Over the next sixteen days he proved this. On January 1, 1966, 34,400 transit workers struck, immobilizing New York. It was the first time the transit workers had gone on strike, and it was the most damaging strike in the city’s history. Until then, labor negotiations had involved a carefully scripted scenario. The unions would bluster and threaten a strike, the Mayor would say the cupboard was bare, then both sides would retreat to a quiet, smoke-filled room—much to the chagrin of
Times
editorial writers—and work out a settlement. The previous transit agreement, in 1963, added $32 million to the budget.

This time, the Transit Authority offered an additional $25 million;
the union countered with demands for a four-day, thirty-two-hour work week, a 30 percent pay boost, and seventy-six contract improvements. Lindsay was outraged and determined to stand fast. It was war, and the young Mayor acted like a general commanding the public’s army. He denounced the “power brokers,” inspired the populace by stubbornly striding almost six miles each morning to City Hall and went on television to plead for, and win, public support—though he did perplex his troops by requesting that “nonessential” workers stay home.

The hysteria grew. Fiery union leader Michael Quill was ordered to jail. The
Times
, apparently on the verge of a nervous breakdown, editorially thundered at the judge for
only
throwing Quill in the slammer. Quill, his Irish brogue thickening, railed at “Mayor Lindsley,” dismissing him as a “pipsqueak,” called the Times “a meddler” and huffed, “The judge can drop dead in his black robes.”

Both sides stood eyeball to eyeball for twelve days—until Lindsay, and a weary public, blinked. On January 12, a suddenly subdued Mayor capitulated, announcing that the strike had been settled at a cost of $52 million. Privately, others said the cost would be at least $70 million—almost three times what one of the three mediators, Theodore Kheel, told me should have been the price.

“The cost of the settlement is high,” read the next morning’s
Times
editorial, “but not so high that it violates Mayor Lindsay’s pledge never to ‘capitulate before the lawless demands of a single power group.’ ” In
Pravda
-like fashion, the
Times
—whose editorial-page writers were members of the new mayor’s kitchen cabinet—conceded that the settlement violated the federal government’s 3.2 percent wage guidelines. But, scrambling to defend their mayor, they added, “the breach will not be significant unless other civil service unions misread the pact as a sign that the way to get more from the city is to match the Transit Workers Union in irresponsible disregard of the principle that public employees have no legal right to strike.”

Aside from the immediate $70 or so million price tag, the strike’s costs were steep. The city’s economy lost millions of dollars in sales and other taxes, and employees sacrificed an estimated 6 million workdays. The transit fare rose from 15 to 20¢; future deficits were guaranteed when the transit system lost 2.1 percent of its riders.

There was another price, harder to quantify. The transit strike was John Lindsay’s Bay of Pigs, his first real test. He flunked it, and in so doing set a pattern for future labor negotiations. “They went
on strike—a violation of the law,” says former Mayor Wagner, “and yet as part of the settlement they were forgiven, with no penalties to any extent.” Instead, penalties were leveled against the taxpayers. Lindsay’s 1967 budget mushroomed by 24.3 percent—the largest budget increase of any year between 1960 and 1975. Appetites expanded, and over the next four years so did city budgets. According to the Temporary Commission, they grew at an average rate of 15.9 percent—almost twice the 8.6 percent of Wagner’s last term. Labor costs zoomed 89.9 percent—a full 60 percent above Wagner’s final four years. The public failed the test, too. At the end of twelve days, New Yorkers were exhausted and clamoring for a settlement. Lindsay was a general without an army, a point not lost on other union leaders. In a sense, as would be proven in later teacher and police strikes, New York didn’t have a government.

Also, Lindsay didn’t know what he was doing. Five years later, while digging through the transit pact, Richard Oliver of the
Daily News
made an important archaeological discovery: “Eight thousand retired transit employees receive not only their half-pay pensions, but an annual $500 bonus to boot—the result of a little-publicized concession to the Transport Workers Union by an inexperienced city official during the costly 12-day subway and bus strike of 1966.” Oliver found that similar bonus arrangements had since been demanded, and won, by almost all city workers, costing millions.

Oliver’s report reveals just how “inexperienced” the Lindsay team was. He learned that the three members of the Transit Authority never participated in the $500 bonus decision. “They tried to get this benefit from us for years,” complained John H. Gilhooley, one of the members. “We said ridiculous. You’d break the bank. We said no, no, no. But then these wise guys got into the negotiations.… Mastermind Price [Deputy Mayor Robert Price] left us out entirely and during the course of the evening gave away the store. Price gave it away. And when they came out of the room one of the labor guys came over to me and said, ‘Geez, you know what happened?’ I said no, what happened? He said, ‘We got the $500 pensions.’ I said, go on, you’re kidding. ‘No, no kidding,’ he said. When we raised it, Price said, ‘What’s wrong with that?’… Price’s exact words were: ‘I’m for pensions.’ After that, it was on the table and it couldn’t be taken off. It was that kind of naivete and stupidity that contributed to the whole bungle.… This naive jerk walked in and tried to settle it. Once in, he increased the total
cost of the package by 54%. This was the focal point of the problem New York faces today with the talk of the 50-cent fare.”

When Oliver talked to him in 1971, investment banker Price declared, “I can’t believe that, but if I did it, I did it. If they say I did it. I’m amazed that I had such authority. I was not experienced. Where was the Mayor?”

The Mayor could have been in a helicopter. Which is where he was on January 3, 1966, bringing tragic reports to a beleaguered city. “I’m over the Queensborough Bridge and it looks good,” the dashing Mayor announced. “Traffic is moving easily.” Standing on a nearby roof, the city traffic commissioner gently corrected his boss. The Mayor was viewing the wrong bridge. Traffic on the Williamsburg was moving easily. The Queensborough, several miles uptown, was backed up.

Nelson Rockefeller was seeking reelection in 1966. His TV commercials featured animated fish talking to each other about the clean water their governor had made possible. Polls were showing that his Irish-Catholic opponent, Frank O’Connor, was weak among Jewish and progressive voters, so Rockefeller donned his “liberal” mask. He hugged, kissed, poked and winked his charming way through an International Brotherhood of Electrical Workers union meeting in Queens. There, with a well-publicized stroke of his pen, on April 30, 1966, he dramatically signed a state Medicaid bill into law, hailing it as “the most significant social legislation in three decades.”

For poor and moderate-income people, Medicaid provided a range of free medicine not envisioned in the original federal legislation. Most New York politicians tried to steal the credit. Senator Robert Kennedy applauded the bill, as did labor leaders, newspaper editorials, Republicans, Democrats, Liberals—and both houses of the state legislature, which passed it. One of the few progressives to oppose the bill was Howard Samuels, then mounting one of his four unsuccessful quests for the governorship. Samuels warned that the true cost could be $2 billion, a sum easily calculated by multiplying those eligible by the average annual medical costs. He also cautioned that free medicine was not provided by money alone, and that a management plan and more doctors, more nurses, more beds, more
hospitals, more auditors, would be needed as well. Without providing these, the state was promising “free” medicine without the means to deliver on that promise.