The Streets Were Paved with Gold - Ken Auletta [59]
They were Democrats and Republicans, Liberals and Conservatives. They had different personal viewpoints and political backgrounds, supported opposing candidates, feigned outrage in public debate and whispered disdain for each other in private. But they shared a community of interest, the same life preserver. When in a jam, public officials had a friend at Chase Manhattan and other banks. Everyone benefited. The public avoided unpleasant service cuts. Taxes were frozen—in election years. City officials could continue to expand services to their constituents. State officials could hold down state aid payments to the city. The financial community continued to reap handsome profits on tax-free municipals. Bond counselors collected huge fees. Unions received new pay and fringe benefits. The public got the promise of more services. There was little danger of exposure since there was little opposition. Most politicians went along. The press—usually more interested in politics than in government—would briefly note the tricks for a day, then forget them. Besides, these shenanigans were so complicated, the public wouldn’t understand—if they cared.
Because of this community of interest, New York, among its other distinctions, boasts the biggest securities swindle in U.S. history. Bigger than Ponzi. Bigger than Billie Sol Estes. Bigger perhaps, if you count the prominent citizens involved, than even Teapot Dome or Watergate.
And though the city’s “crimes” do not rival those of a President who tried to subvert the constitution, they were not victimless. New York City lost its self-government. The public lost services and gained new taxes. Workers lost their jobs. Businesses closed their doors. Interest rates soared. Annual city debt service payments climbed from $402 million in 1961 to $2.3 billion in 1976, depriving the budget of money that could have paid for more services. Retired and current city workers saw their pension funds jeopardized to save the city from bankruptcy. The investments of 160,000 note and bondholders—including many retirees who invested their life savings—were endangered. Taxpayers in other jurisdictions were forced in 1975 to pay higher interest rates. In all, according to then Deputy Comptroller Steve Clifford, fraudulent budgets robbed city taxpayers of over $4 billion. Clifford arrived at this astounding sum by noting that the city’s cumulative deficit was agreed to be $3.5 billion in 1975. Assuming this deficit was financed through the sale of fifteen-year bonds at an average 9 percent interest rate (a modest assumption), he calculated that the annual debt service costs would be $525 million, or a princely sum of $7.875 billion over fifteen years. Subtract the $3.5 billion already spent—assuming taxpayers received its full value in services—and the excess cost to taxpayers is $4.375 billion. According to the Fiscal Observer, in fiscal 1979 44 percent of the city’s debt service costs—$875 million—was earmarked to cover old deficits.
Actually, this cost is considerably understated. The cumulative deficit figure agreed to by Mayor Beame and MAC in 1975 did not include almost $3 billion of expense items hidden, over the years, in the capital budget. Since the city borrowed these funds, they entailed a substantial additional cost to the taxpayers. These interest charges were, in effect, hidden, as was the city’s true cumulative deficit. The originally advertised figure—$3.5 million—was wrong. It excluded not just the almost $3 billion of expense monies, but, according to Clifford, the two-year lag in pension contributions of $2 billion for which no borrowing was necessary but which was money the city owed. In sum, the city’s true cumulative deficit was about $6.5 billion, almost twice the figure certified by the city’s fiscal watchdogs in 1975.
While it is true that city officials were not lining their pockets with this