The Streets Were Paved with Gold - Ken Auletta [61]
Using the Local Finance Law, the state permitted the city to squirrel expense items into the capital budget, as it permitted the city to issue budget notes to balance the budget. The Local Finance Law, for instance, once set a ceiling of 2 percent of the average assessed five-year value of taxable real estate against which the city could borrow for housing construction. But in 1968, the legislature passed, and Governor Rockefeller signed, an amendment allowing the city to raise the ceiling on housing debt from 2 to 10 percent. The Governor’s Office of Local Government protested, dispatching a confidential letter warning that the amendment “would be clearly unconstitutional.” No matter. The state proceeded to help the city print money.
Not that the city needed much coaxing. Two 1975 audits by state Comptroller Arthur Levitt disclosed that in fiscal 1973, city officials borrowed money by claiming as collateral $324 million in fictitious state and federal aid. The audits revealed that by June 30, 1975, the city had overstated—by a staggering $408.3 million—its real-estate taxes. The city accomplished this feat by including in its tax base properties that paid no taxes: “diplomatic properties … vacant land, city-occupied office buildings, an urban-renewal land site, Carnegie Hall, and even a public park and high school.” The audit showed that these “receivables” were then knowingly pledged to repay $380 million of tax anticipation notes issued on June 11, 1975.
To borrow, the city claimed revenues it did not have and had no hope of getting. An October 1, 1974, memo from Clifford to Comptroller Goldin stated: “to balance the expense budget, the City employs a series of unsound budgeting and accounting practices including carrying forward bogus receivables … [and] overestimation of revenues.… In New York City, we create a receivable not when we bill for services, not when we deliver reimburseable services, but when we estimate revenues.… In this method overestimations of state and federal aid need never be recognized, they can simply be rolled over.… The total amount of bad receivables which may have been rolled forward may exceed $500 million.”
Some years ago the government of Czechoslovakia issued a decree:
Because Christmas Eve falls on a Thursday, the day has been designated a Saturday for work purposes. Factories will close all day, with stores open a half-day only. Friday, December 25, has been designated a Sunday, with both factories and stores open all day. Monday, December 28, will be a Wednesday for work purposes. Wednesday, December 30, will be a business Friday. Saturday, January 2, will be a Sunday, January 3 will be a Monday.
The city of New York did something like that—sometimes arbitrarily lengthening its year, sometimes shortening it. The SEC report marveled at how the city “changed billing dates on water charges and sewer rates to recognize 18 months of revenue in a 12 month period” and “used a 364 day year in computing payroll liability”—postponing “recognition of one additional day of payroll (or two in leap years) each year.” This last gimmick, they said, led to an accrued city liability of $130 million as of June 30, 1975.
Abe Beame even took credit for inventing the 364-day year. During his successful 1973 campaign for mayor, Beame ran full-page newspaper ads proclaiming Abe Beame. He Doesn’t Need Lessons in How to Be Mayor. Beame reminded voters: “Then there was the time the schools almost closed. We needed 25 million dollars to keep them open. I found it. 6,500 teachers kept their jobs. And your children stayed in school.” Beame didn’t mention that he “found it” by charging the salaries of this year’s teachers to next year’s budget. At the time, he was hailed for doing it.
I vividly recall another gimmick. In 1971, I served as executive director of the independent New York City Off-Track Betting Corporation. That spring, my boss, OTB President Howard Samuels, presented to Mayor Lindsay for city budget planning purposes a detailed projection for the next