The Man Who Saved New York 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd i 55/25/10/25/10 99:16:05:16:05 AMAM 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd iiii 55/25/10/25/10 99:16:06:16:06 AMAM The Man Who Saved New York Hugh Carey and the Great Fiscal Crisis of 1975 Seymour P. Lachman and Robert Polner excelsioree editions State University of New York Press Albany, New York 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd iiiiii 55/25/10/25/10 99:16:06:16:06 AMAM Published by State University of New York Press, Albany © 2010 State University of New York All rights reserved Printed in the United States of America No part of this book may be used or reproduced in any manner whatsoever without written permission. No part of this book may be stored in a retrieval system or transmitted in any form or by any means including electronic, electrostatic, magnetic tape, mechanical, photocopying, recording, or otherwise without the prior permission in writing of the publisher. For information, contact State University of New York Press, Albany, NY www.sunypress.edu Excelsior Editions is an imprint of State University of New York Press Production by Ryan Morris Marketing by Michael Campochiaro Library of Congress Cataloging-in-Publication Data Lachman, Seymour. The man who saved New York : Hugh Carey and the great fi scal crisis of 1975 / Seymour P. Lachmann and Robert Polner. p. cm. Includes bibliographical references and index. ISBN 978-1-4384-3453-7 (hardcover : alk. paper) 1. Finance, Public—New York (State)—New York. 2. Municipal Assistance Corporation for the City of New York. 3. Emergency Financial Control Board. 4. Carey, Hugh L. I. Polner, Rob. II. Title. HJ9289.N4L33 2010 974.7'043092—dc22 [B] 2010018903 10 9 8 7 6 5 4 3 2 1 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd iviv 55/25/10/25/10 99:16:07:16:07 AMAM Contents Acknowledgments vii Introduction 1 1. The Life Stinks Club 7 2. “Oh, Now What Have You Done?” 29 3. Party Crasher 55 4. On Borrowed Time 75 5. Visible Means of Support 99 6. “We Confront, therefore, a Formidable Dilemma” 123 7. The Battle of Washington 147 8. Thus Passes the Glory of the World 167 Notes 195 Selected Bibliography 211 Index 215 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd v 55/25/10/25/10 99:16:07:16:07 AMAM 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd vivi 55/25/10/25/10 99:16:07:16:07 AMAM Acknowledgments This book would not have been possible without the editing and research assistance generously provided by Murray Polner. The authors are also grate- ful to Richard Guarasci, the president of Wagner College of Staten Island, New York, the college’s Hugh L. Carey Institute for Government Reform, and the Institute’s executive assistant, Susan Rosenberg. Our thanks go out to former Governor Hugh L. Carey for the many extensive interviews he provided, and to the following people, who offered their own recollections, insights and assistance: Warren Anderson; George Arzt; Ken Auletta; Joseph Bellacosa; Ste- phen Berger; Jim Brigham; David Burke; Christopher Carey; Dennis Carey; Edward C. Carey; Michael Carey; Francis X. Clines; John Connorton Jr.; Jerry Cummins; William Cunningham; John Dyson; William Ellinghaus; Herman D. Farrell Jr.; Dall Forsythe; Sid Frigand; David Garth; Paul Gioia; Peter Goldmark Jr.; Jeff Greenfi eld; Linda Greenhouse; Judah Gribetz; John Keenan; Edward I. Koch; Jerome Kretchmer; Melvin Laird; Franz Leichter; Albert Lewis; Michael Long; S. Michael Nadel; Manfred Ohrenstein; Carol Opton; Richard Ravitch; Tom Regan; Merrill Ring; Felix Rohatyn; Howard Rubenstein; Menachem Shayovich; William F. Snyder; Clarence Sundram; Al Viani; James Vlasto; Paul Volcker; and Steve Weisman. Finally, the authors wish to extend our appreciation to the many librarians who helped us along the way, as well as their archives—as fol- lows: the Special Collections Division, Georgetown University, home of the A. S. Coan Papers, and librarian Ted Jackson; the Gerald R. Ford Library, University of Michigan, and librarian Stacy Davis; Bailey Library, Hendrix College, and librarian Judy Robinson; Special Collections Division, Hugh L. Carey Congressional Papers, St. John’s University, and librarian Dr. Blythe E. Roveland-Brenton; Baruch College Archives, home of the Jack Bigel Collection and the Municipal Assistance Corporation Archives, and librarian Sandra Roff; the Carl Albert Center Archives, University of Oklahoma, and librarian Jackie Slater; the C. W. Post library; the Rare Book and Manuscript library, Columbia University, and librarian Carrie Hintz; the Great Neck, vii 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd viivii 55/25/10/25/10 99:16:07:16:07 AMAM viii Acknowledgments New York, Library and its always helpful reference librarians; the New York State Library and Katherine Storms, senior librarian; and the New York State Archives and Christine Ward, assistant commissioner. In the end, though, any defi ciencies or errors in this book are the authors’ alone. 333621_SP_LAC_FM_00i-viii.indd3621_SP_LAC_FM_00i-viii.indd viiiviii 55/25/10/25/10 99:16:08:16:08 AMAM Introduction ate one afternoon in May, 1980, Governor Hugh L. Carey and an assis- Ltant counsel were returning to his offi ce after a public event marking the fi fth anniversary of the court consent decree to close the Willowbrook Development Center in Staten Island, New York, a nightmarish institution for the developmentally disabled. Carey’s aide, Clarence Sundram, knew that throughout his political career in Washington and Albany, the governor had dedicated himself to the needs of the disabled. As their car carried them back toward Manhattan, Carey turned to face Sundram, saying that while people would probably credit him fi rst and foremost with rescuing the city and the state from the brink of bankruptcy during the great New York City fi scal crisis of 1975, he personally was proudest of signing the legal agree- ment that began the process of fi nally placing Willowbrook’s poorly served residents in small neighborhood group homes and day care sites around the state. It was a long-overdue step that set a humane standard for the treat- ment of the retarded. For any politician, merely rescuing New York from the cliff ’s edge of economic collapse would have been accomplishment enough. But Carey, fre- quently mistaken during his extensive career for a traditional Irish-American machine politician, harbored a principled and progressive sense of public responsibility and purpose. Unlike many contemporary politicians who infl ate a kernel of achievement into an exaggerated resume while relying on armies of consultants, speechwriters, and pollsters, Carey led a substantial life. He grew up during the Great Depression, fought in World War II and helped liberate a Nazi death camp, and ran for Congress. His fi rst campaign came the same year in which another liberal Irish Catholic, John Kennedy, captured the White House, and with the active help of his huge family—he and his wife, Helen, raised fourteen children—Carey defeated the popular Republican incumbent in his conservative Brooklyn, New York, district. He survived fi ve more tough campaigns as he worked his way up the hierarchy of the House of Representatives to a seat on the powerful, tax-writing Ways and Means Committee. Confi dent in himself, and ambitious for more prominence, he ran for governor of New York in 1974; tripped up the Democratic nominee, 1 SSP_LAC_Intr_001-006.inddP_LAC_Intr_001-006.indd 1 55/25/10/25/10 99:15:48:15:48 AMAM 2 The Man Who Saved New York Howard Samuels; and went on to sweep virtually every county in the state in the general election, in which he defeated Republican governor Malcolm Wilson and ended sixteen consecutive years of GOP dominance in New York State. Carey’s contributions in his two terms as governor came to encompass the fi rst signifi cant attempt to reform the state court system in decades; the cleanup of Love Canal, a milestone in the unfolding national focus on the environment; and the rehabilitation of New York City’s deteriorated and graffi ti-strewn subway fl eet, among other notable accomplishments. He was, and remains, one of New York State’s most effective yet least appreciated governors. Our book seeks to set the record straight, placing the greatest emphasis on the 1975 fi scal crisis, which, at one hair-raising juncture, came within hours of causing America’s largest city, and fi nancial capital, to declare itself insolvent. Such an admission of gross political and governmental failure could have touched off social and economic distress and upheaval on a wide scale, not only within the city of nearly eight million people, but across a reces- sion-mired nation already demoralized by the recently concluded Watergate scandal and Vietnam war, a $30-billion-a-year misadventure. If what Carey came to label forcefully as “unthinkable”—a New York City bankruptcy—did occur, many world leaders feared nothing less than a disruption of the inter- national banking system and the global economy. It’s also our hope that this book will help readers, including current and future policy makers and politicians, to recognize the enormous dangers of unrestrained public spending in deference to favored constituencies, election considerations, special interests, or outmoded habits and traditions. While many mechanisms for improved fi scal stewardship of New York—city and state—function to this day, including some imposed during Carey’s tenure, they are in danger of losing their force and meaning and may be more eas- ily evaded as government veterans of 1975 retire or die and as institutional memory fades. So it was during the fi scal crisis of the mid-1970s, which unfolded four decades after the Great Depression, and so it could well be the case again, now thirty-fi ve years since the 1975 shocker.