Patrolmen’s Benevolent Association for half-pay pensions after fifteen years’ service. But since the state constitution has a special provision preventing a rollback in pension benefits already won, pensions became an untouchable item when it came time for New York to cut its budget. City services would have to go instead.
“Moral Obligation” Bonds
Most politicians like to build things. It’s a simple way to quantify a record in office. After all, how do you quantify judgment or sayingno? A dam is a tangible achievement. So is a road, a bridge, the Albany Mall, the World Trade Center. Or Westway. Whatever social or economic good these projects were designed to serve, they also provided monuments to their benefactor.
Nelson Rockefeller, particularly, liked to build things. But he had a problem. The state constitution required that all bonds carry “the full faith and credit” of the state and be approved by the voters. This was a time-consuming process and risked voter disapproval of many worthwhile projects, particularly new housing. There was another problem. All new Authority projects were expected to be self-sustaining, as they had been since the creation of the bi-state Port Authority in 1921.
But the Governor was nothing if not inventive. Drawing on the counsel of a then little-known bond lawyer, John Mitchell, and a housing task force consisting of such luminaries as the City Club’s I. D. Robbins, now Congressman James Schuer, and labor leader Harry Van Arsdale, Rockefeller persuaded the legislature to break tradition. A new agency would be created. It would build nothing. It would have broad authority to raise money by creating a new “moral obligation” bond, which would not require voter approval. Nor would the buildings have to prove they were self-sustaining.
On April 18, 1960, the Governor signed a bill creating the State Housing Finance Agency. The intent was noble: to build more housing; to help solve social problems by freeing the state from the cumbersome strait jacket of voter approval. The “moral obligation” device was hailed as an innovation. But without the check of rigorous management and voter approval, the new power would come to be abused. Rockefeller wanted to build now. He would figure out later how to pay for it. To explain his innovation, the Governor was not above dissembling.
“How can they [the State Housing Finance Agency] get the money if the builder can’t get it at lower interest rates?” Rockefeller asked state Housing Commissioner James Gaynor in a March 2, 1960, televised colloquy.
“Well, it’s a state agency,” said Gaynor. “It’s a public agency.”
“That’s a major factor in being able to sell the bonds at a low rate,” the Governor prompted.
“Oh, yes,” responded the Commissioner. “There is a reserve fund which would ensure the payment of principle and interest.”
“Which the state would stand in back of,” said Rockefeller, “sothat if anything happened the state would be able to help out,
but it would not be taxpayers’ money.
”
“This would eliminate the need of the voters approving a bond and having to bond the State of New York for fifty years,” explained Gaynor.
“That’s exactly it!” thumped Rockefeller.
The Governor was having it both ways. On the one hand, the public was being told it would cost taxpayers nothing. On the other, investors were being told that if revenues were insufficient the taxpayers would pay for them. “The decision on moral obligation bonds,” later observed Donna Shalala, the Treasurer of the Municipal Assistance Corporation, “reinforced and led to the era of avoiding constitutional requirements. It was difficult for the state to say to the city, ‘Look, you’re avoiding statutory or constitutional requirements in preparing your budget’ when the state ignored the constitution by not going to the voters on bond issues. In a sense, the state was violating the law. The state said to local
“Moral Obligation” Bonds
Most politicians like to build things. It’s a simple way to quantify a record in office. After all, how do you quantify judgment or sayingno? A dam is a tangible achievement. So is a road, a bridge, the Albany Mall, the World Trade Center. Or Westway. Whatever social or economic good these projects were designed to serve, they also provided monuments to their benefactor.
Nelson Rockefeller, particularly, liked to build things. But he had a problem. The state constitution required that all bonds carry “the full faith and credit” of the state and be approved by the voters. This was a time-consuming process and risked voter disapproval of many worthwhile projects, particularly new housing. There was another problem. All new Authority projects were expected to be self-sustaining, as they had been since the creation of the bi-state Port Authority in 1921.
But the Governor was nothing if not inventive. Drawing on the counsel of a then little-known bond lawyer, John Mitchell, and a housing task force consisting of such luminaries as the City Club’s I. D. Robbins, now Congressman James Schuer, and labor leader Harry Van Arsdale, Rockefeller persuaded the legislature to break tradition. A new agency would be created. It would build nothing. It would have broad authority to raise money by creating a new “moral obligation” bond, which would not require voter approval. Nor would the buildings have to prove they were self-sustaining.
On April 18, 1960, the Governor signed a bill creating the State Housing Finance Agency. The intent was noble: to build more housing; to help solve social problems by freeing the state from the cumbersome strait jacket of voter approval. The “moral obligation” device was hailed as an innovation. But without the check of rigorous management and voter approval, the new power would come to be abused. Rockefeller wanted to build now. He would figure out later how to pay for it. To explain his innovation, the Governor was not above dissembling.
“How can they [the State Housing Finance Agency] get the money if the builder can’t get it at lower interest rates?” Rockefeller asked state Housing Commissioner James Gaynor in a March 2, 1960, televised colloquy.
“Well, it’s a state agency,” said Gaynor. “It’s a public agency.”
“That’s a major factor in being able to sell the bonds at a low rate,” the Governor prompted.
“Oh, yes,” responded the Commissioner. “There is a reserve fund which would ensure the payment of principle and interest.”
“Which the state would stand in back of,” said Rockefeller, “sothat if anything happened the state would be able to help out,
but it would not be taxpayers’ money.
”
“This would eliminate the need of the voters approving a bond and having to bond the State of New York for fifty years,” explained Gaynor.
“That’s exactly it!” thumped Rockefeller.
The Governor was having it both ways. On the one hand, the public was being told it would cost taxpayers nothing. On the other, investors were being told that if revenues were insufficient the taxpayers would pay for them. “The decision on moral obligation bonds,” later observed Donna Shalala, the Treasurer of the Municipal Assistance Corporation, “reinforced and led to the era of avoiding constitutional requirements. It was difficult for the state to say to the city, ‘Look, you’re avoiding statutory or constitutional requirements in preparing your budget’ when the state ignored the constitution by not going to the voters on bond issues. In a sense, the state was violating the law. The state said to local
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