Edward Koch
Edward Koch; drawing by David Levine

Considering the books under review, I thought it fortunate that Edward Koch doesn’t read much. Friends say New York’s new mayor works “in an oral tradition.” He enjoys movies and conversation. His favorite book, he once told me, was Merle Miller’s Plain Speaking. Neither Douglas Yates’s nor Richard Morris’s book speaks plainly. Each embarks in a different direction, finds different villains, suggests different routes of escape, yet both wind up making the same point: cities can do little for themselves. Hardly a message for a new mayor to learn.

As his title implies, and Yates claims, “the American city is fundamentally ungovernable in its present form.” The reasons are varied: fragmented and overlapping levels of government, rigid and remote bureaucracy, sheer size, constant crisis, the breakup of political machines, scarce resources, a television mentality in which symbols often replace substance, the impossibility of placating disparate special and neighborhood interests, to name a few. Yates mostly blames the confused structures of cities and the processes of running them—not policies—for making cities ungovernable.

Richard Morris, in Bum Rap on America’s Cities, blames policies. Whereas Yates describes cities as victims of tangled social and cultural forces, Morris sees them as victims of identifiable villains. The “real villains of the urban crisis,” he writes, are not “liberals” but (mostly) the banks and the federal government. Greedy banks precipitated New York’s fiscal crisis by turning off the money supply. The federal government is a robber baron, stealing $14.7 billion more in taxes from New York State than it returns. The snowbelt suffers, the sunbelt benefits. “Such a gap between the regions,” he writes, “is the true cause of the urban fiscal and economic crisis.” Sure, he concedes, New York was sometimes guilty of mismanagement, but “liberals are, indeed, taking a bum rap” because New York’s crisis is “not the result of any error in direction or approach.” Those believing otherwise belong to his villainous club of right-wing conservatives, spiritually led by the twin devils, Agnew and Nixon.

The problem of assuming a city is ungovernable is much like the problem of assuming kids can’t learn to read: the prophecy becomes self-fulfilling; the explanation becomes an excuse. Yates’s description of the many obstacles to urban reform—and his modest proposals—become, unwittingly, a prescription for merely tinkering with the system. Sorry, but nothing works. Morris sees little reason to do more than tinker with New York’s government since it did not cause the fiscal crisis. The villains outside did.

Both conclusions merge, for both tend to offer moral support to public officials who make careers of avoiding blame. Because the city was ungovernable, John Lindsay, whom Yates once worked for, sought and narrowly won re-election behind the slogan, “The Second Toughest Job in America.” Robert Wagner, his predecessor, won in 1961 by blaming the failures of his first two terms on “the bosses.” Abe Beame, Lindsay’s successor, first blamed the fiscal crisis on the banks. When, in 1977, the SEC issued a voluminous report accusing him of fraud, Beame’s remarkable response was that everyone was guilty of fraud. Therefore no one was guilty. In the Sixties, urban failures were blamed on Vietnam and misplaced national priorities. When the war ended, we blamed Richard Nixon, the banks, the unions, Robert Moses, the sunbelt.

Which brings us back to Mayor Koch. If all he does is tinker with the machinery, New York is probably destined to declare bankruptcy. The analyses Yates offers of the pressures and obstacles facing a mayor are perceptive. But none of the mayors he cites as models faced the kind of life-and-death crisis which the current fiscal crisis represents. If the city were to declare bankruptcy, local government would be abrogated; the pensions and contracts of city workers would be endangered; a federal judge could decide which creditors—e.g., city contractors or welfare recipients—would be paid first, risking a local civil war. Under bankruptcy, it is unlikely New York would be able to get back in the credit market any time soon, making the city a permanent ward of the federal government. The state might not be able to borrow $4 billion this spring. I have heard reasonable arguments for accepting bankruptcy, but never one that dealt with the risk that a declaration of bankruptcy is akin to a symbolic sentence of death. A city is held together by confidence, and bankruptcy could scare away many more businesses, middle-income taxpayers, and tourists.

Maybe such an emergency, plus iron determination and political skill, would allow a mayor to leap the obstacles. Mayor Beame’s tenure offers little instruction. He was, by nature, a tinkerer, which helps to explain why New York is once again staring at bankruptcy.

Consider: the city is rerunning, like an old movie, warnings to Washington that without federal loans bankruptcy is unavoidable, though the federal seasonal loan program of 1975 was supposed to do the trick of avoiding bankruptcy and still more federal borrowing. In case you missed the city’s deficit figure three years ago, Koch has again pegged the real deficit at $1 billion, and said it will take four more years to close the gap. Like most members of Congress, one doesn’t have to be very sophisticated to be very skeptical.


Besides, how much has really changed? True, there have been some real sacrifices and some minor improvements. Workers have been laid off, free tuition at the City University ended, the transit fare increased, services cut, the city’s management and accounting procedures made more efficient. But the city’s director of operations, Lee Oberst, said last fall that if granted a free hand he could save $50 million by firing excess city executives, starting with public relations aides. The Police Department sacrificed patrolmen but, like the Mexican Army, the brass remained mostly untouched. The city and state comptrollers regularly issue audits documenting municipal waste—during the campaign Koch said it totaled $500 million. The city’s lavish package of fringe benefits for city workers, which its own Temporary Commission on City Finances suggested could be pared by $97 million, remains largely intact. As do most work rules which impede the delivery of services—three rather than two men on a sanitation truck, no part-time workers in the Transit Authority. A rigid civil service system, which suffocates initiative, has only been tinkered with.

Despite reducing the work force through layoffs and attrition by 23 percent (61,000 workers), three years later the city’s labor costs remain roughly the same. How come? Because there has been a “wage freeze” in name only. Workers have continued to receive cost-of-living adjustments. A worker whose average gross wage was $15,200 in June 1975, according to a confidential Treasury Department memo, will be making $17,240 by June 1978. And these numbers do not include overtime, promotions, pay increments, or pay differentials. When these are factored in, an important official of the state Emergency Financial Control Board, which oversees city finances, claims “most employees would be ahead of the cost of living rise.”

Much—and little—has changed regarding layoffs. During the last three years, 25,000 (not the 50,000 claimed by Morris) city workers have been let go. Another 35,000 have been lost through retirement or resignation. Of those laid off, most were quietly rehired with federal funds during Beame’s re-election bid. Of the 14,000 federal jobs financed by the Comprehensive Employment and Training Act (CETA) in mayoral agencies, according to City Hall, 13,001 are rehired city workers. Another 7,000 CETA positions are with independent agencies like the Board of Education. City Hall doesn’t keep track of these, but most are rehired city workers. CETA jobs were supposed to be earmarked for the poor. And since federal funds will only pay up to $10,000 per worker, and since many laid-off workers earned more, the city subsidizes the difference ($35.5 million). Additional laid-off workers have been rehired on other federal programs.

New York’s banks protest that their fiscal health is endangered by the crisis, but they haven’t done badly. Having made loans to the city at high interest rates, they have also, during the last three years, eliminated city notes from their portfolios and reduced their holdings in city bonds to roughly $1 billion. At the same time, employee pension funds have backed the city with three times that amount. New York’s financial institutions have $247 billion of domestic assets, Senators Proxmire and Brooke wrote President Carter in December: yet the largest city investor, Chemical Bank, had only 1.9 percent of its assets in city securities. The senators concluded: “there is no reason to assume that such investments would be any more risky than some of these banks’ foreign loans, which consume a far larger proportion of assets.”

Like the banks, the state has also helped—and not helped. Without Governor Carey’s prodding—and state aid advances—under Beame the city would have gone bankrupt. But, until Carey’s recent promise of more aid, the state has not been forthcoming with new dollars. “State aid to New York City,” Proxmire and Brooke uncomfortably remind Carey, “has remained virtually unchanged”—up 4 percent while federal aid jumped 28 percent.

“The biggest myth,” MAC member and state Economic Development Board Chairman Richard Ravitch said recently, “is that things have fundamentally changed in the way the city does business. We haven’t yet seriously examined the pension system, or the Health and Hospitals Corporation, or how federal dollars are used, or the range of services the city still performs.”

Doesn’t all this prove Yates’s point about ungovernability? Not necessarily. He did his research largely before the fiscal crisis and does not allow for the extraordinary events that have taken place. Like most conventional social scientists he concludes, “Strong evidence to support the conception that a city is controlled by a command-giving power elite simply has not emerged.” Normally, that may be true. But, in many ways, it’s not true in New York. Today one question—bankruptcy—supersedes all others. Grappling with that question is a “partnership” of the city, state, banks, and public unions. Each shares a common commitment to stave off bankruptcy. Each knows it needs the others, so a good deal of backscratching has gone on.


Running for re-election, Beame tried to soothe the unions and business community. The state Control Board eased up on the city government because Governor Carey wants to run for re-election and needs freedom from too close an association with the city. The banks and the unions stayed close to each other—Jack Bigel, the powerful union consultant, is on a first-name basis with Walter Wriston of Citibank. Victor Gotbaum of the municipal employees union invited the head of Morgan Guarantee bank to a dinner party at his house. Each has an investment to protect. As does MAC Chairman Felix Rohatyn, whose reputation as a “fiscal wizard” is at stake. Newspaper editorials cheer on their local gladiators. Common struggle leads to friendships. Loyalties develop, but only so long as there is trust. Which requires that the various parties encounter no surprises and continue to cooperate.

New York cannot avoid bankruptcy without such informal partnerships. And yet it may not make it because of them. The vexing problem confronting Koch is how to keep everyone marching in step and yet marching faster than they are currently willing to. That requires a more imaginative brand of City Hall leadership than Yates’s four narrow categories of mayor—i.e., the “crusader” (Lindsay), the “entrepreneur” (Mayor Lee of New Haven), the “boss” (Mayor Daley), and the “broker” (Wagner and Beame)—allow.

What is potentially different about Koch is that he is the first New York mayor in memory to promise to do more for less. He made no large promises to spend money or start extravagant programs. Unlike Beame, who in 1973 promised to hire 3,000 more police, Koch promised more police on the street by changing work rules. He may not do it, but he did promise to challenge all the special interests, including the unions, and warned the public they faced even greater challenges ahead. In this sense, Koch most closely resembles Lindsay the “crusader.” But unlike Lindsay, he enjoys politics, is not a Brahmin, so far has better relations with the governor and president than Lindsay did with Rockefeller and Nixon, and is a member of the city’s dominant Democratic party, as Lindsay was not when he captured a minority of the vote in 1965. Koch could be a “broker” as well as a “crusader.”

Yates’s stress on how governmental structures and the democratic process predetermine failure makes too little allowance for the value of leadership. Perhaps history will one day record that Lindsay’s great failures were not his budgets or his expensive settlements with unions or his tendency to exacerbate antagonism between groups, but rather his failure, beginning in 1969, to recognize that New York had not escaped the national recession. As the nation’s economy began to grow again, the city remained in a tailspin, losing almost 700,000 jobs in the next eight years. The Bureau of Labor Statistics regularly issued warnings, and yet the mayor continued to act as if the local economy were booming. His budget expanded, as did the size of settlements with labor unions. When Nixon put his foot on the brake, slowing government spending, Lindsay put his on the accelerator. He ignored reality, never giving the public and the political system a chance to prove whether they might respond to a gathering economic crisis.

The same was true of Beame. He entered office in 1974 with a richly undeserved reputation as a fiscal magician. He had broad support to steer the city away from past practices. He didn’t. Instead he borrowed and taxed more. When investors began to worry in late 1974 that their securities might not be backed by real revenues, interest rates soared. Beame didn’t understand, so he blamed this rise in the cost of money on the $1.5 billion budget deficit he claimed he inherited from Lindsay. (In fact, as comptroller he approved Lindsay’s last four budgets.) Then he blamed Comptroller Goldin for warning that the deficit was $200 million higher than Beame estimated (both were wrong). Then he announced layoffs and cuts that never took place. He blamed, in order: the banks, Senate Republican leader Anderson, President Ford, and finally the press. At one point, he even called for a congressional investigation into “who started the whispering campaign” against the city. One need write no brief for the banks to understand why investors would quarantine a city led by such a man. Yates’s approach would, I fear, tend to portray Beame as the victim of impossibly difficult and contradictory pressures. In this view, Beame was murdered; I tend to think he committed suicide.

I am probably being somewhat unfair to Mr. Yates. Aside from showing disturbing tendencies to drop academic names and to repeat himself, he has at least written a realistic book. He does not suggest that the problems of cities spring solely from an insufficiency of money; nor does he glamorize “the public.” But he rather shows we are often as much vandalized by our own avarice as by our leaders. He shows how “good” decisions—e.g., greater “community participation” in poverty programs—can have “bad” consequences, creating new bureaucracies or further fragmenting government.

Unlike many academics, he understands the importance of style and symbolism and timing in government. We may now criticize Jimmy Carter’s stroll down Pennsylvania Avenue or his cardigan sweater, but if he had used these trust-builders to win public support for effective energy legislation or tax reform, the public would be cheering. Koch came to City Hall with symbols very much in mind. He said he would ride the subways, police the use of city limousines, continue to live in his tiny Greenwich Village apartment, and “take my own shirts to the laundry.” It was for “symbolic” reasons, he said, that he opposed a 50 percent pay increase for members of the City Council. He said it wouldn’t look right at a time when the city was asking greater sacrifices from its workers.

It would be easier for Koch to persuade people to make sacrifices and to get support in Washington if he had lived up to his own admonitions. The mayor who condemns “rip-offs” blithely announced he would retain his rent-controlled apartment (paying $250 monthly, almost half the fair market rent). While promising to stand up to extravagant union wage demands, he did not stand up to his own staff’s. In the first week he granted raises of between 20 and 140 percent to more than two dozen aides, most having worked in his campaign or congressional office. His second week featured pay hikes for more than 2,000 city managers. It matters little that managerial pay is scandalously low, that many workers earn more than their supervisors, and that City Hall is in terror that managers will seek union representation. Nor does it matter that managers, in turn, are giving up some benefits and the total cost will not exceed $5 million. From a psychological or symbolic point of view, Koch violated his own proclaimed standards; and, what is worse, he did so just before major negotiations with the unions and with Washington were to begin.

Unfortunately, Koch is often impulsive and doesn’t like to sit still—one reason he doesn’t read books. Will Koch find a way to lead the fractious city? Can he steer clear of bankruptcy, do justice to workers and taxpayers alike, keep the peace, relieve the poor, restore the confidence not just of investors but the public as well? I don’t know, and Mr. Yates’s book doesn’t help us to address the question. In fact, his book gives scant attention to “solutions.” The first 165 pages outline the problems of proliferating demands for services—and of overlapping and wasteful agencies unable to meet them. The remaining twenty-seven pages present some modest solutions—basically, City Hall should decentralize some functions and centralize others. The “solutions” don’t seem to add up to the sum of the problems, which is why I sensed they were included more for reasons of form than of conviction. And since the new City Charter and mayor are already committed to both further decentralization and centralization, Mr. Koch can skip the final twenty-seven pages.

He might skip most of Morris’s book for other reasons. If he accepted Morris’s thesis that New York is the victim of federal economic injustice and marched off to Washington demanding restitution, he might be dismissed as a loon. Available facts don’t seem to support the thesis of federal persecution of the city, certainly not in the stark terms used by Morris. Senator Daniel Patrick Moynihan, in considerably greater detail, has made a similar case. He discovered a balance of payments gap of $7.4 billion between what New York State sends to Washington and what it gets in return. (At one point Morris says the gap is about $10 billion, then he prints a chart pinpointing the gap at $14.7 billion. It is this figure he uses to arrive at the Northeast’s $43.7 billion “deficit.”)

Closer inspection, however, reveals some arithmetic sleight of hand. Moynihan makes two contradictory assumptions. First, he assumes none of the $14.3 billion of interest on the national debt and foreign aid payments should be credited to New York. (Under pressure from Moynihan, the federal Community Services Administration recently concurred in this bookkeeping change.) Secondly, the senator assumed that all of the $6.8 billion New York pays in corporate taxes should be credited to the state. Both assumptions stand on weak legs. A recent analysis for the Lehrman Institute by Dr. Charles Brecher and Kurt Katzmar concludes that 15 percent of the interest on the national debt probably goes to individuals, meaning roughly $2 billion in benefits for New York.1 And a good part of the corporate taxes paid by New York are collected from national corporations who merely funnel their money through the state.

When I asked Moynihan about this recently he replied, “Maybe if we evened it out the number would be $4 or $4.5 billion, but it’s still a lot.” Yes, but the “deficit” shrinks further when you include commuters who pay taxes here but live in other states; count not just the primary federal contracts won by other states but the subcontracts won by New York; make allowance for the state’s disproportionate number of not-for-profit institutions which attract federal aid. One could also show how New York and the northern states were short-changed by federal policies, but the art of quantifying the “balance of payments” among states is considerably more baffling than it is among nations. To my knowledge, no one has yet conquered this task. Certainly Morris has not.

His book also charges that New York does not get its fair share of federal aid programs. “This is indeed an old established New York charge,” Moynihan has said. “The trouble is that in the main it is false.” Using 1976 data, rather than Morris’s 1974 data, the recent study by Brecher and Katzmar used two criteria to measure federal aid: tax collections and need, as measured by the incomes of those below the federal poverty level.2 They found that New York City has 3.6 percent of the nation’s population, contains 4.3 percent of its poor, and collects from taxpayers 4.4 percent of all federal revenues; yet the city receives 5.4 percent of all federal outlays. New York State, the Treasury Department reported in January, ranks first in federal dollar aid, sixth in per capita aid, and first in the growth of federal aid—$1 billion—during the past year.

Morris is on firmer ground showing how New York and the Northeast are at a disadvantage because federal aid formulas rarely adjust for the region’s higher living costs (caused, in part, by higher city and state taxes). He has good chapters documenting how federal policies automatically drive up the region’s energy and food costs. He shows how welfare and Medicaid benefits are often siphoned off not by the poor but by well-to-do sharks; how red-lining by financial institutions leads to the destruction of neighborhoods.

Morris is convincing when he makes these specific criticisms. But if Koch were to mount a general crusade against Washington’s economic injustice, it’s unlikely Washington would listen. Worse, there is a danger that New Yorkers would listen and, while passionately protesting a federal economic plot that may not exist, they would risk ignoring the hard decisions the city must make for itself.

That’s a point Morris and “liberals” often wish to avoid. By making a scape-goat of the federal government and the banks he fails to hold local officials to account. If vast federal assistance is not forthcoming, the logical consequence of his position is bankruptcy. As long as New Yorkers assume the answer to their $1 billion deficit lies only in Washington or bank vaults, they will lack the political will to balance their own budget, as other local governments must. They will lack as well, for example, the impetus to seek civil service reform; to improve the quality and quantity of services by providing financial incentives for workers to be more productive; to introduce competition by setting performance standards for managers and workers alike and by contracting out certain government functions to private firms; to encourage neighborhood preservation programs and voluntary community work; to make intelligent decisions about local economic development, based on analysis of which industries might grow and which jobs the educational system should prepare people for.

I know Richard Morris. He is a man of considerable intellect, but not when he’s posturing, as Democratic reformers from Manhattan’s West Side tend to do. His book preaches the reformer’s faith, reminding one and all whom we are to hate. Challengers of the city’s spending practices are lumped with Nixon and Agnew. The book’s tone is defensive, as well as accusatory. One need not reject liberalism’s traditions of concern for the poor to condemn policies which defrauded taxpayers of billions of dollars in excess interest costs to hide excess borrowing to hide budget deficits. Is Mayor Koch, once a client of Morris’s liberal Democrat urban consulting firm, part of what Morris calls “the Rizzo-Hicks-Archie Bunker factions” because Koch challenges rip-offs by unions, as well as by landlords? Because he and a growing segment of the population believe New York’s tax policies, in an effort to redistribute wealth, have served to redistribute business right out of New York?

Unlike Morris, many New York citizens and their new mayor no longer see the world through this liberal versus conservative prism. What happens to the money taxpayers spend for city services is as much a consumer issue as what happens to their deposits in New York banks.

This Issue

March 23, 1978