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Sunday, August 29, 2010

Jim Callaghan On Political Promises and "What's A Contract Among Friends?"

Jim is an excellent reporter and writer. I for one think that he is too good for the NY Teacher, a rag that focuses narrowly on UFT events that promote UFT management and members who are "in the right" at their schools - i.e., they have not questioned anything and are in no danger of being re-assigned and possibly charged under 3020-a. (picture above re-posted from The Chief article August 27, 2010, "UFT Fired Me for Organizing Staff, Reporter Says"

Betsy Combier
Former UFT staff member

Ailing City’s Golden Rule: Some Never Feel Pinch
One-Sided Sacrifices in Crises

By JIM CALLAGHAN, The Chief, August 20, 2010

The recent publication of “The Man Who Saved New York,” reviewed here recently by Richard Steier, dealt with former Gov. Hugh Carey’s role in saving the city from fiscal collapse by, in part, imposing higher transit fares, ending free tuition at the City University of New York, cutting services, and laying off 30,000 city workers.

This figure included firefighters and cops, which gave the criminals the signal that the sheriff had left town and all was fair game, which was underscored when half of Bushwick was looted and burned during the 1977 blackout and The Bronx was meeting a similar fate as landlords paid drug addicts and professional arsonists to torch their properties with impunity, leading to 13,000 fires in the borough in 1975.

City Was Technically Bankrupt

What has come to be known as the city’s “fiscal crisis” was, in fact, masking a much deeper problem—excess borrowing by the city and a lack of accounting by the banks that were happy to be cashing their bond coupons every month. Technically, the city was bankrupt in the mid-’70s, and only skillful legerdemain and labeling the fact that the city had no money to pay its bonds as something else—anything except that scary word—made it sound more palatable.

HUGH CAREY: Saved city, but at what cost? In 1975, there were political debates among a few city officials and union leaders—very few—about whether Mayor Abe Beame should have stood on the steps of City Hall, filed an actual bankruptcy plan and waited to see if a Federal judge would order him to take care of bankers first or pay the city’s workers to keep it running while it figured out how to deal with its loans.

The leaders of the banks—many of the same ones that later had no shame about accepting hundreds of billions in TARP money either because they were goniffs or didn’t learn how to count at Wharton, were scolding the city’s unions for being too demanding, while liberal congressional leaders like Wisconsin Sen. William Proxmire were calling the city’s spending “profligate.”

GEORGE STEINBRENNER: The boss of city handouts. Ready to Make Bankers Wait

While most New York pundits remember the famous Daily News headline: “Ford to City: Drop Dead,” there was a far more important headline that was never written, which would have read: “Ford to Bankers: Wait in Line.”

Lost in a tsunami of Wall Street press releases at the time was a proposal by President Ford that a new section be added to the bankruptcy statute that would allow the City of New York to file for re-organization plans. But the bombshell that never got press traction was Ford’s plan for the city to issue new debt that would leave old creditors (think General Motors) holding a tin cup and a tambourine for their money while essential city services were maintained. The Daily News reported it thusly: “The Federal court then would be authorized to accept jurisdiction over the case, Ford said, resulting in an automatic stay of suits by creditors so that the essential functions of New York City would not be disrupted.”

ABE BEAME: Took the bullet for the bankers. President Ford’s proposal in 1975 came two years before a damning Securities and Exchange Commission report that ended Abe Beame’s career but not those of the important folks who operated in a stealth manner to dump city paper from the large investors to smaller ones, knowing the paper was risky. (Sub-prime mortgages and TARP, anyone?).

ED KOCH: Benefited from Beame’s woes.
The Chief-Leader/Michel Friang In a fair playing field, the bankers should have gone to the slammer for what they pulled off, but the anger—after the July blackout, the widespread and uncontrolled looting and Son of Sam —was directed at Beame, who finished third behind Ed Koch and Mario Cuomo in a crowded Democratic primary.

Ratings Agencies Punted

The same SEC report that damned the judgment of Beame also had this to say, according to the Daily News: “Standard and Poors and Moody’s “failed . . . to make diligent inquiry into data which called for further investigation or to adjust their ratings of city securities” when it was clear the city was in trouble. It gets worse: Faced with a marketing problem caused by the saturation of the market through previous billions of dollars of city bond issues and growing doubts of the financial opportunity as to the city’s financial status, the city and underwriters reached out to the smaller investors, which had the effect at least in part of shifting the risk [emphasis added] for financing the city from the city’s major banks and large institutional investors to individual investors.

A SPOKESMAN FOR HIS CLASS: Instead of inveighing against repeal of the Bush tax cuts for the wealthy, Mayor Bloomberg, the author argues, should be demanding national relief for big cities awash in debt due to ‘the national economy, neglect of the infrastructure, poverty, and a national Republican Party policy that has had an anticity agenda since the end of World War II.’ Yes, that was written in 1977, not last year or the year before when the house of cards built by bankers collapsed again—and we came to their rescues to save them from their greed and incompetence.

In today’s bash-the-workers world inhabited by the privileged, pampered publishers of newspapers, there is an eerie similarity to the chaos of the 1970s. Having a state budget passed four months late is the least of it, as the city and state spend money we don’t have for things we don’t need, and lack a clear vision about how to get to where we need to be without stripping workers of their benefits, laying them off, furloughing them or firing them.

For a reference point, it is necessary to find a book that has been hidden in plain sight (except at the Strand Bookstore or Amazon) since 1977.

Raised Fare to Appease Bankers

The book, “The Abuse of Power,” by the late authors Jack Newfield and Paul DuBrul, has an outrageous quote about those fiscal crisis days from Donna Shalala, then serving as president of Hunter College and a member of the board of the Municipal Assistance Corporation, which was created by Carey to “assist” the city in straightening out its bollixed finances.

Shalala told the authors that basically no one really knew what they were doing when they raised the subway fare: She said the fare-hike discussions were “irrational and uninformed.”

She said: “There was tremendous pressure to get the Mayor to do something. The people on MAC who knew the money market told us that a symbolic act for investors was necessary. They thought raising the fare was the symbolic act and something we could get the Mayor to do. There was possibly a half-hour of discussion about raising the fare. There was never a set of staff papers prepared, so we could study it. We did no background work. We had no hard facts. That’s the horror of it. We were just throwing together a list of things that might be cut. There was no conspiracy to screw the people . . .We were told this decision would open up the markets. Now we know there was nothing we could have done to open the market. I should have stuck to my guns and opposed the fare increases. I’m sorry we misled the public that the money markets would open.”

Ending Free Tuition At CUNY

Despite that act of perfidy, Shalala was appointed to a cabinet post by Bill Clinton.

It didn’t take long for the Wall Street piranhas to go after their next target—free tuition for the poor and working class at CUNY that had existed for more than 130 years (when most of the students were white). It was a tougher sell, because five CUNY Trustees resigned in an act of conscience. They were easily replaced, however, and the “hit” was done. Presidents of private colleges held champagne glasses aloft.

Looking back over the last 35 years, and considering what we now know about bankers (we only suspected back then), the question is, what did Carey really save? He “saved” Wall Street from itself; he saved capitalism and he surely saved those who had caused the near-collapse in the first instance from the indignity of public trials.

The city’s fate had been sealed for years long before the fiscal crisis because, for all our real or imagined flaws, New Yorkers are decent and generous and we wanted to help those in need and to provide decent wages and benefits and good housing for our workers. We were up against corporate America, resentful Washington politicians, tax breaks for companies to abandon New York and take hundreds of thousands of jobs with them, and the boodle boys who wanted to build an interstate highway up the west side of Manhattan instead of rebuilding our subway system.

Mayor Wall Street’s Front Man

Not much has changed since then except that the Edgar Bergen press lords and their Charlie McCarthy stenographers have ratcheted up what sounds like a game plan incubated in the catacombs of the Republican Party, the National Association of Manufacturers, the U.S. Chamber of Commerce, and the hedge fund oligarchy. They have the best one-dollar-a-year publicity man in the history of America— New York’s own Mike Bloomberg, who gets more apoplectic when asked about “taxing the rich” than he does when asked about how he was allegedly taken for a cool million by a well-known political operative in the “Independence” Party.

It is a brilliant playbook and it is working just fine. When city and state workers tell reporters they would accept a Hobson’s choice of forgoing a raise rather than be laid off, you know the spin machines are at the most efficient level of their speed cycle.

The message from nearly every print and TV news organization is clear: It’s the workers’ fault!

They retire too early! They have free health insurance! Instead of the response being: “You’re damn right, and we aim to keep our benefits,” too many leaders of our city and state have curtsied for the powerful and seem willing to accept the loaded dice coming from Albany and New York City. If you don’t break your contracts—or accept new ones with small or no raises, your members will be laid off.

Banks Take Priority Over City

They have bought into the argument that the city and state are broke, that the Metropolitan Transportation Authority is broke and that everything we are supposed to be doing to create a greener city (more transit, not less) must be sacrificed at the altar of “saving” the banks that are too big to fail, but a city of eight million is not too big to fail, which is what is happening with the budget cuts.

In the ’70s, Carey and Beame wanted to spend billions to build a highway; Richard Ravitch was being bailed out on one of his projects, as Juan Gonzalez wrote in the Daily News: “But those with short memories forget boondoggles like Manhattan Plaza, another Ravitch development project. After he built Manhattan Plaza as private housing in the early 1970s, Ravitch got Mayor Abe Beame to approve earmarking most of the city’s Federal Section 8 housing certificates for one year to his building.”

State Comptroller Arthur Levitt found that the MTA had been hiding $56 million (sound familiar?) and the New York Yankees, under the new, enlightened ownership of George Steinbrenner, had their hands out for $100 million to renovate Yankee Stadium. The original projected cost was $24 million, a figure we later learned was determined as “a ballpark estimate” by one of Mayor Lindsay’s budget whiz kids.

Not-So-Independent George

Steinbrenner’s entire fortune—the team’s estimated worth in April 2010 was $1.6 billion, according to Forbes magazine—was built with public subsidies, most recently with the municipal vandalism of tearing down what should have been a landmarked stadium, throwing poor kids off their parkland and getting “tax-free” bonds and other welfare subsidies to build a new park, complete with a brand-new $95-million train station. (Didn’t your neighborhood get one?)

Through it all, he chiseled the city on its rent payments, cooked the books, and started the Yes Network (now worth $530 million) that couldn’t be broadcasting inside a publicly owned stadium were it not for the largesse of city officials, most of whom —unlike Governor Paterson—never paid for a ticket in their lives.

“Tax-free” bonds means the government is not collecting taxes while 25 ballplayers earn over $206 million for 162 days of actual work—similar to the Teachers’ contract—and get rewarded when a city that is “broke” blows a few million bucks and closes down the economy of downtown Manhattan with a parade that also empties the schools.

If city planners were building a new city, they would not spend $2 billion up front (plus $120 million in interest per year for 30 years) to build a subway station that goes eight blocks south and three blocks west—in a city of walkers—with only one stop. It is just not good business from the businessman Mayor—unless the “business” is for real estate pals of the Mayor while the rest of us get the business.

A Troubled Contractor

It is not good business to give that contract to Parsons-Brinckerhoff, which paid $400 million in penalties to avoid criminal prosecution in the “Big Dig” project in Boston, admitting it falsified records, allowed unsafe conditions to prevail and had prior knowledge about defects in slurry walls. That company is also working on the Second Avenue Subway, which was just discovered— surprise—to have “unforeseen” problems in drilling through rock that is millions of years old. As every New Yorker over the age of reason knows, “unforeseen” means only one thing: hold on to your wallets, here come the cost overruns and more delays.

Sharp city planners would not watch as the MTA lost tens of millions of dollars every month because the Mayor refuses to do one simple thing that costs nothing: create real “Bus- Only” lanes on every major avenue of the five boroughs, at least during rush hour. Washington, D.C. seems to have figured it out.

Eight years ago, the Mayor said traffic congestion was good because it showed we had a healthy economy. Then he said it was bad because it caused asthma in poor neighborhoods, poisoned our lungs and contributed to billions of dollars worth of wasted productivity.

Savvy businessmen would not give no-bid bus contracts to bus owners who admitted paying bribes to city inspectors for advance notice of safety inspections, thereby putting the lives of our students at risk. Smart city managers would not give a contract to a bus owner who pulled a gun at a negotiating session—unless the lobbyist for the company was Tom McMahon, brother of Staten Island Congressman Mike McMahon and husband of Bloomberg Deputy Mayor Linda Gibbs.

A Mayor who was really on top of things would go back and read his own consultant’s report—buried in the last paragraph of a New York Times story—that said, “School bus companies are ripping off the city.” The report cost us $17 million.

A Gorilla of a Debt

Today, the MTA board, with the Green Mayor appointing four of its members, is working to drive ridership (and revenue) down by increasing fares because the 800-pound gorilla is not allowed to be discussed in the media—the mounting debt on its botched capital projects, not one of which is coming in at cost.

Not that the MTA is alone in wasting money on capital projects. The Mayor and the Governor are building a 700-car parking garage disguised as a courthouse not far from where I live in Staten Island. Not counting the inevitable overruns, its cost will be $220 million up front and another $12 million a year for 30 years to pay the bonds, on a site that’s within walking distance of 16 bus lines and the Staten Island Railway, which serves 20 neighborhoods along the Island’s South Shore. Not to mention free ferry service to Manhattan 24/7. In other words, more than enough mass transit, even with the cutbacks, to encourage people to leave their cars home, which the Mayor swears is a priority for his administration.

Instead of flying to Washington to defend his friends, Bloomberg should call former Secretary of State James Baker, who was traveling the world in 2003 asking countries to “forgive” $128 billion in debt to Iraq so it could “rebuild.” We have seen how that turned out.

Bloomberg should be demanding that Congress save big cities from strangling debt caused not by generous union benefits but by the national economy, neglect of the infrastructure, poverty and a national Republican Party policy that has had an anticity agenda since the end of World War II, starving places like New York for billions of dollars in aid.

And one way, for now, is to tell the bond-holders to get in line. The screams will be heard loudest from the same people who told Ed Koch that if the city went bankrupt, it would never be allowed back in the bond market. He wrote in his book that it wasn’t true because Orange County, California had no trouble getting back in the market after it said “No Mas” to debt.

The Taxing-the-Rich Fallacy

Of course, such thinking would mean the Mayor would have to get off this one-trick pony and stop talking about “taxing the rich” into oblivion or Florida, where folks like Tom Golisano are permitted to spend 181 days a year to avoid paying New York State income tax.

We have been taxing the rich (almost) since the day Congress passed the income tax bill in 1913 (a flat tax had been ruled unconstitutional), which was based on a truly socialistic notion which, roughly translated, meant those who have more pay more. The rates began at 1 percent and rose to 7 percent for taxpayers with income in excess of $500,000. What would Bloomberg have said then, that he was moving to Bermuda for good?

The same company—CitiGroup— that is making Fred Wilpon of the pre- Madoff New York Mets even richer by giving him $400 million for naming rights to a stadium used just 81 times a year just recently forked over $75 million to the SEC so as to avoid more investigations into how it scammed its investors in a $40-billion subprime mortgage racket. As Andrew Sorkin reported in the Aug. 3 Times, taxpayers, who now hold an 18-percent share in the firm, will pay part of that settlement. Today, years after the fiscal crisis, there is no “free market” on Wall Street or the automobile industry and the bond market was saved by all of us, especially public employees.

Spare Hedge Funds, Tax Clothing

Nonetheless, the bankers, and the 667,000 millionaires in New York City (not all are friends of the Mayor; it just seems that way) through their editorial page writers, have re-defined the word chutzpah when they tell unionized workers it’s time to sacrifice— all, naturally, for the greater good. The Friends of Mike got the tax on hedge-fund bosses scuttled in the Albany budget deal, but didn’t say one word about the re-imposition of the four-percent state tax on clothing under $110. The thinking was that New Yorkers would not travel to New Jersey to do their shopping and would also move to Connecticut so they wouldn’t have to pay one penny per ounce for sugared drinks, which would have raised over $450 billion a year.

Breaking contracts with the Yankees for naming rights (if the Mets are worth $400 million to CitiGroup, what are the Yankees worth?) shouldn’t be a big deal for the Mayor. If he breaks his deal with Wilpon, forcing him to “give back” (just like city and state workers are being asked to do) that $400 million to the city and gets another $400 million from the Yankees, that is a lot of loot for saved firehouses, new housing, libraries, schools and senior centers.

He told us what he thinks of laws in his biography, “Bloomberg by Bloomberg.” Describing how he was starting his company, he wrote that he and his colleagues sneaked into office buildings in the middle of the night to install the wiring for his computers. “We drilled in other people’s furniture—all without permission, violating every fire law, building code and union regulation on the books. It’s amazing we didn’t burn down some office or electrocute ourselves,” he wrote proudly.

With that as his modus operandi, it doesn’t seem like a big stretch to say the same thing to the city’s debtholders: “What’s a contract among friends?”

Mr. Callaghan, until last week a staff writer for the New York Teacher, has been writing about city politics since 1978. He can be reached at