Saving America's Cities

by Lizabeth Cohen

  Figuring out how to implement a public benefit corporation to work around taxpayers’ opposition to bonds for subsidized housing required another kind of creativity. State-created public authorities with the powers to spend, borrow, collect rent, enter contracts, and sue or be sued had a history going back to the early twentieth century. Some considered them a fourth branch of government beyond the tripartite executive, legislature, and judiciary. These independent quasi-public, quasi-private authorities grew in national importance during the 1930s, when bodies like the Reconstruction Finance Corporation, the Public Works Administration, and the Tennessee Valley Authority, with their autonomous powers, offered a new, welcome tool to navigate the ravages of the Great Depression. After World War II, the use of authorities mushroomed. Defenders praised their administrative flexibility, especially their potential to insulate important public services from political roadblocks, while giving the municipalities and states that created them freedom from annual budget cycles, debt ceilings, and archaic regulations. With their ability to borrow against anticipated future revenues, they made possible more effective long-term planning than public agencies typically enjoyed. Detractors complained that self-financing authorities were less accountable than a normal government agency was, subjecting public needs to the vagaries of the private sector and to governance by independently appointed boards of directors rather than democratically elected officials.17 The UDC was in fact unusual among New York’s public benefit corporations for having its president appointed by and reporting to the governor, not the board, which tied its agenda more closely to Rockefeller’s, while also reducing Logue’s dependence on his directors.18

  Rockefeller enthusiastically embraced the public authority structure as a way of delivering on his grand ambitions for New York State—and not incidentally the national attention he sought for himself—without the need for voter approval or deep state coffers. He began by expanding authorities already in existence. When brother David and his Downtown–Lower Manhattan Association pushed hard for the World Trade Center to bolster lower Manhattan’s attractiveness to finance, Nelson convinced the Port Authority of New York and New Jersey, the nation’s first modern independent authority, created in 1921, to take on this new ambitious building project in return for a covenant that the Port Authority would never be asked to invest in deficit-heavy mass transit.19 He went on to create a staggering number of new authorities. By the time he stepped down as governor, there were forty-one semiautonomous statewide authorities in operation—twenty-three created under his watch—each empowered to raise its own funds through bond sales.20 Typical was the State University Construction Fund to expedite building of the state’s public university system.

  Even before creating the UDC, Rockefeller had used the authority structure to encourage more housing construction when he established the state’s Housing Finance Agency (HFA) in 1960, essentially a bank charged with attracting private developers to build below-market-rate, limited-profit projects. Making use of the powers granted by the state’s almost-moribund Mitchell-Lama program, created in 1955 to incentivize the construction of low- and middle-income housing, the HFA acquired sites by eminent domain, provided low-cost financing, and granted tax abatements. The resulting lower-cost rentals or cooperatives were protected for up to thirty years and available only to tenants and purchasers who qualified under an income cap. Large-scale, high-density middle-income projects like Co-op City and Lincoln Towers aimed at keeping middle-class New Yorkers in the city.21 The HFA—deeply invested in upholding the legal requirement that all its projects be self-supporting to pay off revenue bonds and proud of its reputation for financial prudence—strictly focused on housing for the middle class and avoided the greater uncertainties involved in building for low-income and elderly tenants. When the UDC’s treasurer compared his own bolder organization with the HFA, where “social purposes never override financial considerations,” he concluded dismissively, “Taking risks is our mode. Avoiding them is theirs.”22 Once Rockefeller’s team committed to building a wider range of subsidized housing than was possible under the restrained HFA and to revitalizing the state’s industry and infrastructure, the question became how to do it.

  The solution they came up with was to give the UDC the independence of an authority but to structure it financially to maximize nimbleness and minimize caution. That commitment led to two key decisions. Like the HFA, the UDC would be funded with “moral obligation bonds” that the state assured private investors had its backing, even if not the state’s official “full faith and credit,” which required voter approval as part of the state’s legal debt. In the case of any revenue shortfall, the state pledged to meet its moral obligation by replenishing the UDC’s reserve fund. This bonding strategy was sanctioned by the prominent Wall Street municipal bond lawyer John Mitchell (later Richard Nixon’s ill-fated attorney general during Watergate), who assured Rockefeller in 1960 that investors would be satisfied with the state’s declaration of good intentions. Rockefeller hoped this unsecured moral obligation would suffice to lure large amounts of private money into the subsidized housing market. As Rockefeller told the readers of his 1968 self-promotional book, Unity, Freedom and Peace, “government can[not] do it alone.” We must have “faith in and commitment to the private enterprise system.”23

  The second crucial decision was proposed by George Woods, former chair of First Boston Corporation and the World Bank, who was Rockefeller’s choice to head the nine-member UDC board. To make the UDC as agile as possible, Woods argued for the unusual step of issuing its bonds as “general purpose,” not tied to specific projects as those of the HFA and most other authorities were. The logic was that bonds backing the UDC as a whole rather than individual projects would make funds available for ordinary operating expenses, could be issued when market conditions were advantageous, and, most importantly, would allow for more variation and less scrutiny of particular ventures, “pooling the risk,” so to speak. With an aggressive UDC, Woods predicted, “you’re going to have good ones and bad ones.”24 Logue agreed: “The UDC spread-of-risk factor is one of its great financial strengths.”25 He thus barely focused on the danger that too many bad projects in a bond’s bundle could bring down the good ones, now under pressure to produce extra profits, or that careless budgeting on an individual project could cause the full general-purpose bond to come up short. “We were funding as we went, in effect,” Lefkowitz later admitted. “And so when we ran out of money,… we had forty projects that were not finished,” awaiting the next general-purpose bond issue.26

  Although Logue was not a Republican, inclined toward the virtues of federalism and private sector investment for public purposes, and in fact had long put his greatest trust in federal programs, he had his own reasons for embracing Rockefeller’s new UDC. Logue had watched in frustration as federal budgets for housing and urban redevelopment were slashed, mostly as a result of the high costs of the Vietnam War. He like other critics never tired of pointing out that the entire 1970 budget request of $2 billion from the Department of Housing and Urban Development (HUD) was less than one month’s expenditure for the war.27 As Logue searched for alternatives, he welcomed Rockefeller’s promise of untapped sources of funding that could become forever self-sustaining through revolving bond funds, sales of projects to private developers or nonprofit sponsors, and retention of some properties for a dependable rental-income stream.

  The opportunity to work at the state level greatly intrigued Logue. As he told a Boston University audience in spring 1968, “Although by now it should be clear that I do not expect miracles, I continue to seek for them. My newest hope is that our state governments will respond to the challenge presented by the urban crisis.” This crisis had stubbornly persisted. No less than three major government reports detailing it would appear that year.28 In March, the Kerner Commission warned of dangerous racial divides in America rooted in persistent segregation and economic inequality. In early December, the Kaiser Committee on U
rban Housing called for twenty-six million new units by 1978, a quarter federally subsidized for low-income residents. And in late December, Paul Douglas’s National Commission on Urban Problems—to which Logue had testified in Boston in May 1967—concurred, arguing for a minimum of two million new units of housing annually, with at least a quarter targeted at low- and moderate-income tenants. Logue acknowledged that states had been “in relative eclipse as an urban problem solver,” content to be the “junior partners of the federal government,” but he urged them now to play a new role. Cities “which I have put fifteen years of my life into rebuilding … cannot solve this problem by themselves.”29

  Although Logue had encountered a Boston hamstrung for lack of home rule by its controlling Massachusetts legislature, he now argued that excessive home rule could deprive a city of a valuable helping hand from state government. While the Republican Rockefeller ideologically applauded the devolution of authority and funding from the federal government to the state level, the Democrat Logue found more alluring the opportunity provided by a state-level program to operate beyond the boundaries of any one locality to achieve the kind of ambitious metropolitan solutions to urban problems that had eluded him in New Haven and Boston. From the earliest days of the UDC, Logue expressed hope that small-scale residential projects in suburbia would “create opportunities for low-income families to share in the good schools, the safe streets, the fresh air and open space other Americans like so well without unsettling or unbalancing the suburban communities.”30

  Logue’s willingness to support Rockefeller’s plan to tap private-sector funding was likewise a pragmatic choice as federal domestic budgets declined and bureaucracy grew. Although he remained a staunch defender of government at all levels, Logue was never a lover of cumbersome red tape. Perhaps private-market bond sales and rent revenues would come with fewer strings attached and lesser bureaucratic demands. Logue viewed the UDC’s public-private partnership more as a marriage of convenience than as a revolution in how to do the public’s business. He recognized that the private sector had always played a role in conventional urban renewal, as federal grants that wrote down the cost of urban land had aimed at attracting private developers. But then and still now, Logue considered private investors more a font of finance than an agent of authority. He fully intended to run the show, whether the money came from Washington, D.C., Albany, or Wall Street.31

  Once Rockefeller decided that Logue was the right man to lead his UDC, he pulled out all the stops to make it happen. He promised Logue a substantial salary of $50,000 a year ($65,000 by 1972), and in a private deal that became public only in autumn 1974, when Rockefeller was up for confirmation as Gerald Ford’s vice president, he offered Logue what, it turned out, he had extended to many other high-level associates and friends, including Henry Kissinger: monetary gifts and loans. To help Logue repay his mayoral campaign debt, which would have been much harder to do if Logue left Boston, Rockefeller made him a gift of $31,389. So that the Logues could buy a co-op apartment in the high-priced real estate market of Manhattan, Logue received a loan of $145,000, of which $100,000 remained unpaid in 1974. (That apartment, at 1 East End Avenue, turned out to be conveniently located for Ed and Margaret to pin their binoculars on one of the UDC’s most important projects, the development of Roosevelt Island in the East River.) Logue never publicly expressed regret at having availed himself of Rockefeller’s financial favors, insisting to the Senate Rules Committee holding hearings on Rockefeller’s nomination that no New York State statutes had been violated and that without the governor’s assistance, “I would not have been able to leave Boston to accept the appointment he offered.”32 But Margaret acknowledged that privately he was embarrassed and worried that some might perceive Rockefeller’s assistance as unethical.33

  Luring Logue to head the UDC proved a lot easier for Rockefeller than getting it past leery New York State legislators who understood only too well the substantial, independent powers being granted to this well-funded state superagency. They complained that it threatened home rule and would impose unwanted physical changes on their legislative districts. Despite the governor’s agreement to add further safeguards for localities, such as requiring that the UDC work closely with community advisory committees and leaders, the fate of the UDC did not look promising until Rockefeller shrewdly transformed tragedy into opportunity.34 On April 4, 1968, civil rights leader Martin Luther King, Jr., was assassinated in Memphis, Tennessee, while supporting the city’s striking sanitation workers. Soon, riots erupted in black neighborhoods all over America. Rockefeller, long a promoter of civil rights and a trusted ally of King’s, quickly offered his personal support to the King family. His staff helped organize—and he paid for—much of the funeral, and he chartered a plane to fly eighteen leading black legislators with him from New York to Atlanta to attend. While still in Atlanta, Rockefeller called on state legislators to pass the UDC as a tribute to King that would improve the lives of poor black New Yorkers, insisting that “the true memorial to Martin Luther King cannot be made of stone. It must be made of action.”35

  Even with this pressure, the first vote on the UDC passed the state senate but failed in the assembly, as conservative upstate Republicans allied with liberal New York City Democrats, both fearing growing state power.36 Rockefeller was furious and took to the phones. With a dazzling display of arm-twisting and threats to withhold favors, the governor turned an 86-to-54 defeat into a decisive 86-to-45 victory close to midnight on April 9.37 One Rockland County legislator was told by a close Rockefeller aide, “I know you don’t like the bill, but you’re on the list of guys who are going to vote for it.” The alternative, he promised, “was to wake up one morning to find the runway of Stewart Air Force base extended right through your goddamn district.”38 The UDC was thus born in an emotional time of racial anxiety and political urgency, but many of its backers in Albany remained deeply skeptical. This approval under duress would shadow the UDC throughout its existence. Years later Logue would candidly acknowledge, “I didn’t get a mandate, but I did get the legislation.”39

  Another kind of suspicion more of Logue’s making than Rockefeller’s would accompany his entry into New York. Logue had had two major involvements in New York City while he was running the Boston Redevelopment Authority. In 1966, soon after Logue’s college and law school classmate John Lindsay was elected mayor of New York, Lindsay asked him to head a task force—funded, like so many other urban initiatives of the era, by the Ford Foundation—to study the enormous housing challenges facing New York City and make recommendations for addressing them. Logue threw himself into the assignment, assembling a blue-ribbon panel of national urban leaders and a staff drawn mostly from the BRA, headed by Logue’s right-hand man Bob Hazen. Seven months later, Logue’s commission delivered a report titled Let There Be Commitment, which was highly critical of the status quo in New York City. It called for a $1.5 billion attack on the city’s slums, and urged, among many proposals, the construction on scattered sites of fifteen thousand new public housing units a year, in addition to many more thousands of subsidized ones. Lindsay’s next move was to try to hire Logue to implement the ambitious program, a proposal that met opposition from Logue skeptics in New York, such as the planning critic Jane Jacobs and the Columbia sociologist Herbert Gans, author of the 1962 book The Urban Villagers about Boston’s West End.40

  But the real obstacle to Logue accepting Lindsay’s job proved to be the mayor’s inability or unwillingness to grant Logue the same extensive, consolidated powers over planning and redevelopment that he considered so fundamental to his Boston success.41 Without this commitment, Logue refused Lindsay’s offer. The mayor was unhappy to be turned down by Logue, but the disappointment turned to outright fury when in 1968 Lindsay learned that his archrival Nelson Rockefeller had succeeded where he had failed. Logue would never forget Lindsay’s raving-mad late-night call upon learning of Logue’s hiring—“You’ll never do anything in New York if I don’t tell
you exactly where, when, and why”—or the disastrous press conference in May 1969 to announce the signing of a general memorandum of understanding between New York State and New York City over the UDC. Held at the mayor’s Gracie Mansion residence, it took an embarrassing turn when Rockefeller insulted Lindsay by saying he would support for mayor whichever candidate won the Republican Party’s primary, abandoning Lindsay if he received only the Liberal Party’s endorsement. Logue vowed never again to bring these bickering foes together in the same room.42 Logue was thus greeted in New York City by distrustful urban activists and a mayor already on the defensive against the UDC, which he considered a trespasser sent into his backyard by his meddling adversary in Albany. Lindsay officially made Rockefeller his opponent when he changed his party affiliation to Democrat in 1971.43

  Another New York experience prior to the UDC burdened Logue with unhelpful notoriety. This was the work he did in 1967 with the Bedford Stuyvesant Restoration Corporation (BSRC), the pet project of New York senator Robert F. Kennedy that is generally considered the nation’s first federally funded community development corporation.44 The Bedford-Stuyvesant experience introduced Logue to a new structure of urban development also beginning to emerge in Boston’s Roxbury and South End neighborhoods. Bedford-Stuyvesant was a huge six-hundred-block area with over four hundred thousand residents, 90 percent of whom were black or Puerto Rican. Activists had been organizing in the community already for a number of years and political consciousness ran high. Logue was selected as a part-time consultant—the Ford Foundation once again paying—by Kennedy, who boldly set out to promote his own alternative to President Johnson’s War on Poverty and Model Cities Program that would combine employment, job training, community economic development, and neighborhood rehabilitation. Public and private parties ranging from neighborhood residents to philanthropic foundations to corporate executives were all expected to play a role. Federal dollars would be tapped as well. Logue’s assignment was to establish a comprehensive plan for the physical rebuilding of this impoverished community.