governments, ‘When your structure doesn’t work for you, don’t stop. Go around it and we’ll help you—like we’re doing.’ ”
The city took the cue. Beginning in the 1960’s, to cite one example, the city tried to save money by rolling over middle-income Mitchell-Lama housing mortgage notes rather than selling bonds which would have carried higher, but fixed, rates of interest. Later, when interest rates soared from 4 to 8 percent, the city was cornered and forced to borrow just to meet annual interest payments on this public housing. The consequences were seen in Brooklyn’s Cadman Towers. In 1973, according to then Deputy Housing Commissioner Ruth Lerner, this project was paying 3.8 percent interest and rents averaged $65.30 per room. Mortgage repayments consumed 57 percent of the rent money. But by early 1977, interest more then doubled to 8.01 percent and rents rose to $83.20 a room. Mortgage payments now made up 79.1 percent of the rent. Later that year, the city felt compelled to sell many of its Mitchell-Lama mortgages, at a considerable loss, in order to repay noteholders.
The state paid dearly for its “trick.” In early 1975, the “moral obligation” debt of state public authorities reached $7.4 billion. Public authorities proliferated across the state. In February 1975, the state Urban Development Corporation—an offspring of the Housing Finance Agency—defaulted on its “moral obligations.” Within a month, the city found itself unable to borrow money.
A New City Charter
Another “good government” decision was made on November 7, 1961. On that day, voters reelected Robert Wagner as mayor. One may debate whether this was a clear victory for good government. Voter approval of a new city charter was.
With the active support of such good government groups as the City Club and the League of Women Voters, the charter passed by a margin of two to one. For the first time in twenty-five years, the procedures and structure of city government were overhauled. Among the charter changes were several amendments granting the mayor unprecedented powers. One allowed the mayor alone to estimate revenues, a power formerly shared with the comptroller, Board of Estimate and City Council. A second change allowed the mayor to estimate the maximum debt the city could incur for capital projects, also a power formerly shared with the comptroller, Board of Estimate and City Council. The charter strengthened as well the mayor’s control of his own Budget Bureau, no longer requiring that the budget director clear any line item budget change with the Board of Estimate.
The new charter was consistent with the prevalent view in New York and Washington that strong chief executives were required. New York strengthened the mayor’s office, as John Kennedy sought to strengthen the Presidency from Congressional restraints. But by removing an institutional check of the mayor’s powers, later budget abuses were invited.
The charter took effect on January 1, 1963. Three months later, city officials proclaimed a “budget crisis” and Mayor Wagner proposed to balance the city’s $3 billion budget by waiving, for one year, payment of $15 million to the Stabilization Reserve Fund. The City Council dutifully rubber-stamped this gimmick, as did the state legislature. But Comptroller Abe Beame was unhappy. The man who years later would tell the SEC that he never got involved in revenue projections, called on Mayor Wagner to employ other tricks. The Mayor now had the power, he said, to unilaterally increase his revenue estimates. Beame’s proposal called for the creation of $13.75 million by inflating revenue estimates and changing the payment dates on state aid from one fiscal year to the next. Wagner, saying little, skillfully allowed the idea to germinate. “A way must be found to replace a $40 million loss from the out-of-citysales tax,” he solemnized on May 7, still offering no answer. Eight days later, he invented
The city took the cue. Beginning in the 1960’s, to cite one example, the city tried to save money by rolling over middle-income Mitchell-Lama housing mortgage notes rather than selling bonds which would have carried higher, but fixed, rates of interest. Later, when interest rates soared from 4 to 8 percent, the city was cornered and forced to borrow just to meet annual interest payments on this public housing. The consequences were seen in Brooklyn’s Cadman Towers. In 1973, according to then Deputy Housing Commissioner Ruth Lerner, this project was paying 3.8 percent interest and rents averaged $65.30 per room. Mortgage repayments consumed 57 percent of the rent money. But by early 1977, interest more then doubled to 8.01 percent and rents rose to $83.20 a room. Mortgage payments now made up 79.1 percent of the rent. Later that year, the city felt compelled to sell many of its Mitchell-Lama mortgages, at a considerable loss, in order to repay noteholders.
The state paid dearly for its “trick.” In early 1975, the “moral obligation” debt of state public authorities reached $7.4 billion. Public authorities proliferated across the state. In February 1975, the state Urban Development Corporation—an offspring of the Housing Finance Agency—defaulted on its “moral obligations.” Within a month, the city found itself unable to borrow money.
A New City Charter
Another “good government” decision was made on November 7, 1961. On that day, voters reelected Robert Wagner as mayor. One may debate whether this was a clear victory for good government. Voter approval of a new city charter was.
With the active support of such good government groups as the City Club and the League of Women Voters, the charter passed by a margin of two to one. For the first time in twenty-five years, the procedures and structure of city government were overhauled. Among the charter changes were several amendments granting the mayor unprecedented powers. One allowed the mayor alone to estimate revenues, a power formerly shared with the comptroller, Board of Estimate and City Council. A second change allowed the mayor to estimate the maximum debt the city could incur for capital projects, also a power formerly shared with the comptroller, Board of Estimate and City Council. The charter strengthened as well the mayor’s control of his own Budget Bureau, no longer requiring that the budget director clear any line item budget change with the Board of Estimate.
The new charter was consistent with the prevalent view in New York and Washington that strong chief executives were required. New York strengthened the mayor’s office, as John Kennedy sought to strengthen the Presidency from Congressional restraints. But by removing an institutional check of the mayor’s powers, later budget abuses were invited.
The charter took effect on January 1, 1963. Three months later, city officials proclaimed a “budget crisis” and Mayor Wagner proposed to balance the city’s $3 billion budget by waiving, for one year, payment of $15 million to the Stabilization Reserve Fund. The City Council dutifully rubber-stamped this gimmick, as did the state legislature. But Comptroller Abe Beame was unhappy. The man who years later would tell the SEC that he never got involved in revenue projections, called on Mayor Wagner to employ other tricks. The Mayor now had the power, he said, to unilaterally increase his revenue estimates. Beame’s proposal called for the creation of $13.75 million by inflating revenue estimates and changing the payment dates on state aid from one fiscal year to the next. Wagner, saying little, skillfully allowed the idea to germinate. “A way must be found to replace a $40 million loss from the out-of-citysales tax,” he solemnized on May 7, still offering no answer. Eight days later, he invented
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