Rockefeller’s resignation was a huge blow to Logue. Not only was his great defender departing Albany, but Lieutenant Governor Wilson had never been a great fan of the UDC. Rather, he was often a conservative voice in Rockefeller’s ear. He had adamantly opposed granting the UDC override powers at its founding (“over my dead body,” he initially said), and Logue was convinced that had Wilson—for many years a state legislator from Westchester—been present when he briefed Rockefeller on the Fair Share Housing program, Wilson would have significantly curbed the governor’s enthusiasm.63 John Stainton, who worked with Logue in Boston and New York, understood how crucial powerful political protectors were to Logue’s success and, by extension, the devastating impact of their retreat. “Lee, Collins, and Rockefeller all were pretty strong people, and he used their strength to accomplish what he wanted.”64
The timing could not have been worse for securing alternative funding. Economic conditions were deteriorating in the United States, New York State, and New York City in ways that directly affected the UDC. At the national level, the United States was undergoing a major reorientation from domestic manufacturing to more globalized production and a postindustrial economy built around finance, insurance, and real estate (FIRE) and other service and corporate employment. Eventually prosperity would come to those cities—like New York—that headquartered this new economy. But many American communities would never make the shift, and even those that did underwent a difficult transition during the 1970s. New York City, for example, lost more than five hundred thousand jobs, many in industry, from 1969 to 1976; by mid-1975, the unemployment rate had reached 12 percent. Other, more immediate problems added to the pain of this restructuring, such as a severe stock market crash during 1973 and 1974; the OPEC oil embargo from October 1973 to March 1974, which sent energy costs through the roof; and destabilizing political crises: Vice President Spiro Agnew’s resignation in fall 1973 following corruption charges and the Watergate scandal culminating in President Nixon’s resignation in August 1974.
Faced with these many pressures, the American economy experienced a period of what became known as “stagflation,” a paralyzing combination of low economic growth, high inflation, and stubborn unemployment that made remedies difficult. As investors’ confidence flagged and interest rates climbed perniciously, cities and states—and entities such as the UDC—struggled to sell the bonds that they needed to survive. New York State and especially New York City neared bankruptcy as public spending continued at levels that rising costs and declining tax revenues could no longer support.65
Not alone in encountering these financial difficulties, the UDC nonetheless suffered greatly. The Section 236 subsidies that it had managed to hold on to had no provision for inflation, depressing their value as expenses rose.66 Interest rates on UDC bonds shot up from an average of 6.5 percent in the summer of 1974 to 9.37 percent in September, increasing the burden of repaying investors, which, in turn, made investors more wary of buying. That soaring interest rate reflected not only the troubled economic times but also the fact that many bankers considered the UDC an especially risky investment. Some of that distrust went back to the UDC’s origins as a public benefit organization expected to self-finance through moral obligation bonds, without the state’s full legal backing. Its general-purpose rather than project-specific bonds, furthermore, made close tracking of revenues and expenditures difficult.67 Rockefeller’s ironclad support for the UDC had gone a long way toward reassuring investors—until 1974, when Rockefeller was no longer governor and money had grown even tighter. Then, all the concerns that had been long smoldering erupted, including complaints about laxness in the UDC’s accounting and Logue’s single-minded determination to keep building regardless of calls for caution. At base, bankers bristled at what they considered Logue’s arrogant refusal to acknowledge that he was running a for-profit operation with investors’ money, behaving instead as if the bond market should bankroll a state social welfare program.
By March 1974, the crisis had taken on new urgency.68 Morgan Guaranty Trust Company, the lead underwriter for the consortium of banks that had promoted UDC bonds enthusiastically for years, refused to sponsor any more sales unless the UDC curtailed future projects and agreed simply to finish what it had started. The withdrawal signaled a damaging lack of confidence in the UDC. Morgan and other banks had long enjoyed robust profits from municipal and state bond sales—as underwriters collecting generous fees and as investors benefiting from high-interest returns and tax exemptions—but they now balked at their exposure from public securities deemed too risky, like the UDC’s.
Then, later in the spring, New York, following the lead of neighboring New Jersey, repealed the 1962 bond covenant Rockefeller had made with the Port Authority of New York and New Jersey and its bondholders to never burden them with supporting deficit-heavy mass transit. That reversal not only threatened the Port Authority’s reserves earned from lucrative airports, tunnels, and bridges, but convinced bankers that they now had irrefutable proof of the worthlessness of New York State’s promises. Doubt deepened that the state would ever live up to its moral obligation to back the bonds of public benefit organizations like the UDC, a debt that was now more than $6 billion for the state’s sixteen public authorities. In Logue’s telling, “Wall Street was outraged” and was determined “to find some way of teaching the state a lesson and testing this moral obligation.” Alarmed by the “avalanche of hostility” from the investment community, Logue thought with trepidation, “I have a feeling which agency is going to be the guinea pig.”69
That summer, Chase Manhattan Bank CEO David Rockefeller, anxious to keep his brother Nelson’s prized UDC viable, rallied fellow bankers to commit to supporting the UDC, at least in the short term. But increasingly, bankers expressed an unwillingness to lend to the UDC and echoed Morgan Guaranty’s demand that Logue complete projects already under way and take on no more. Logue refused, insisting that the UDC’s finances were sound, that every day more UDC revenue-producing projects were being completed, and that the agency was unfairly being made into a whipping boy by bankers out to score a point with the state. Instead, faced with operating expenses of $1 million a day, Logue anxiously cast about for other remedies, such as transferring some incomplete UDC projects to the state’s more solvent Housing Finance Authority (the effort failed), raising the rents on completed developments to generate more revenue (he did so regretfully), and urging the passage of legislation mandating that huge pension funds invest in the state’s obligations to buy some independence from the money markets (it never happened, though months later, New York City would be bailed out by unions doing just that). Logue also pleaded for a bailout from the state legislature, but after the Westchester Nine Towns defeat, his friends in Albany were few.70
Governor Wilson, confronted with a distressing stalemate and bankers’ calls to fire Logue (which he had promised Rockefeller he would never do), finally won a UDC concession not to commit to any new projects without his approval and appointed a six-person task force to make recommendations about the UDC’s future, with the goal of strengthening the financial community’s support for the UDC. Wilson timed the task force report to come out after the November 1974 gubernatorial election, to highlight his vigilance without revealing any negative findings that might damage his candidacy.71 Wilson’s careful scheming hardly mattered. On November 5, Wilson was soundly defeated by the Democrat Hugh Carey, a longtime Brooklyn congressman who carried 58 percent of the vote in this first post-Watergate election.
After the election, Governor Carey became increasingly aware that he had inherited a state in deep financial trouble. At first, he reassured Logue that he backed the UDC. But within weeks he changed his mind, joining those who fingered the UDC as the agency most guilty of irresponsible financial practices and thus most deserving of public punishment. In his inaugural State of the State address on January 9, 1975, Carey set the stage by declaring, “This government and we as a people have been living
far beyond our means,” and went on to promise that “the times of plenty, the days of wine and roses, are over.”72 He then proceeded to castigate the UDC for running out of money and barreling toward a catastrophic default on maturing notes and loans in late February, going so far as to call for “an immediate change in the top management of UDC.” Less than a month later, right around Logue’s fifty-fourth birthday, Carey officially requested his resignation. For years Logue had proudly argued against civil service protection for himself or any of his staff, insisting that all should serve at the pleasure of an elected boss. For the first time ever, he and his closest colleagues would personally pay the price for his principles.
Logue felt angry and betrayed at his dismissal, convinced that he and the UDC had been scapegoated for problems that went far beyond their control.73 In a farewell letter to the UDC staff, Logue minced few words about where he placed the blame. After thanking them for their “competence, integrity and dedication,” he shared his judgment “about the real cause of UDC’s crisis.” Not misconduct. Nor fiscal irresponsibility. Rather, Nixon’s mismanagement of the economy, leading to stagflation, compounded the “the reluctance of the major New York banks to make a continuing commitment to social housing … for low and moderate income families in the communities where such families tend to live.”74 With no bailout on offer from the banks or the state legislature, on February 25—another “Black Tuesday” like the stock market crash of 1929—the UDC indeed defaulted on $105 million in short-term notes and two days later on $30 million worth of loans. In what Time magazine called “one of the biggest defaults by a public agency since the 1930s,” the UDC’s credit was destroyed, eighty-five projects remained unfinished, and what was already a dire financial situation in New York now looked even worse, as the UDC’s default signaled more trouble for a nearly insolvent New York City and a financially fragile New York State.75 During the months ahead, the five-hundred-strong UDC staff would steadily shrink—“well-informed heads rolling every which-way,” one dismayed observer lamented—with only those deemed essential for completing projects kept on. Ted Liebman and Robert Litke were among the last of the old guard to leave, charged as they were with finishing the first phase of Roosevelt Island.76
Parsing blame for the UDC debacle preoccupied its staff and supporters for months, if not years. Immediately, the agency’s leaders wrote a spirited defense of the UDC, titled a “Preliminary Memorandum on Behalf of Certain Officers, Former Officers and Directors of the Urban Development Corporation,” which denied any “fiscal irresponsibility and mismanagement.” Instead, it put the blame on external factors such as fallout from the nation’s inflationary financial environment, the city and state debt crisis, the erosion of confidence in moral obligation bonds, and the uncertainties surrounding the gubernatorial election year.77 In some ways, Logue would never get over losing the UDC presidency. The defeat became even tougher to take when Governor Carey put at the UDC’s helm as unpaid chair of the board Logue’s old foe Richard Ravitch, the forty-one-year-old construction executive whom Logue had fired for challenging his vision for Roosevelt Island.78
Over time and in close collaboration with Governor Carey, Ravitch would secure the hundreds of millions of dollars from the state and the banks needed to finish major UDC projects—to be channeled through a new agency, the New York Project Finance Agency—but not without continued difficulty. Ravitch inherited a challenging situation, to say the least, and worked hard to salvage it. At one point that winter, he would in fact echo Logue by complaining with exasperation to state legislators, “The banks of New York have closed their doors to the people of New York.”79 Nonetheless, Logue and his many loyalists would always believe that Ravitch had savored gaining, perhaps even sought out, Carey’s ear in vengeful payback for being dismissed by Logue. His goal, Logue was convinced, was “to embarrass me personally as deeply as possible.”
Ravitch’s version was that Carey reached out to him in January 1975 for help with the UDC’s looming bankruptcy, after being besieged by indignant bankers worried that the UDC was putting the city’s and state’s access to credit at risk.80 Ravitch’s memory of their tangling over Roosevelt Island also differed from Logue’s, but in a way that suggests he might have harbored even deeper anger that motivated him to help Carey. As Ravitch told it, rather than being recruited by Adam Yarmolinsky and fired by Logue, he had been enlisted from the start by Logue, who offered the Ravitch family’s HRH Construction a $3 million contract (equivalent to almost $20 million today) to become “the agent and overseer of Roosevelt Island’s development,” supervising construction of the island’s public infrastructure of roads and utilities and managing the residential projects.
Ravitch at first embraced Logue’s proposition enthusiastically, as it arrived at a particularly difficult time financially for the firm. But once Ravitch dug more deeply into the numbers, he later claimed, he became worried that the UDC’s projections of its operating costs were understated and its revenues overstated to the extent that they “likely would not cover the estimated interest and principal in the bonds financing the project.” That anxiety may very well have propelled Ravitch to recommend prioritizing the building of market-rate over subsidized housing, which had so angered Logue. To protect HRH, Ravitch requested a clause in the contract “stating explicitly that HRH was making no representations about the economic success of the project.” Logue, insulted at Ravitch’s lack of confidence in the UDC, refused and angrily withdrew his offer. According to Ravitch, few at the UDC or HRH knew about Logue’s making and rescinding this proposal.
Logue may have linked Ravitch’s firing instead to his lack of sympathy with the fundamental social goals of the Roosevelt Island project, but the Logue team’s suspicions that Ravitch sought to malign the UDC in fact proved not far off the mark. Ravitch admitted that soon after his dismissal by Logue several years earlier, he had shared with the Chase Manhattan Bank CEO David Rockefeller his dire prediction that the “UDC was headed for financial catastrophe,” because it “would have trouble meeting the debt service obligation of its bonds.”
Whether driven by personal animus or political and financial calculus, Ravitch insisted that Carey convene a Moreland Act Commission to thoroughly investigate—and make recommendations about the future of—the UDC before he would agree to take its reins, to spare him the uncomfortable necessity, he argued, of suing Logue and others for malfeasance.81 New York State’s Moreland Act of 1907 was a product of Progressive Era reform. It authorized the creation of powerful blue-ribbon commissions to review any state agency suspected of wrongdoing and to propose legislative reforms where needed. A month before announcing a Moreland Act Commission for the UDC, for example, Governor Carey had called for another one to inquire into New York State’s notoriously shady nursing home industry, long plagued by allegations of fraud and political corruption. The UDC’s Moreland Act Commission was chaired by the prominent New York attorney Orville H. Schell, Jr., well known to be liberally minded and a recent president of the New York City Bar Association, whose headquarters on West 44th Street hosted the public hearings.82 The commission did its work between February 1975 and March 1976. Armed with a staff of thirty lawyers, accountants, and housing specialists, it interviewed at least a hundred witnesses and examined more than five hundred thousand documents, issuing a lengthy final report on March 31, 1976, titled Restoring Credit and Confidence: A Reform Program for New York State and Its Public Authorities. This report, combined with the UDC staff’s defense of the agency’s record and extensive coverage by a battalion of journalists who recognized the significance of the UDC’s collapse, illuminates what went right and wrong in the short but ambitious career of the New York State Urban Development Corporation.83
MORELAND ACT HEARINGS
The Moreland Act Commission investigation proved an extremely trying time for Logue. He and his loyal assistant Janet Murphy holed up with Logue’s extensive files in the historic Blackwell House on Roosevelt Island to p
repare his case. Poignantly, Logue’s pet UDC project was now providing a safe haven from which to mount his defense against an aggressive team of commission lawyers headed by Chief Counsel Sheldon H. Elsen, who had made it clear that he intended the proceedings to last a year and to require testimony from prominent witnesses, including former governors Rockefeller and Wilson and former attorney general John Mitchell, promulgator of the moral obligation bond concept. Logue knew to expect an inquisition of sorts—he was convinced Elsen’s goal was “to put me in jail.” (Whether or not Ravitch meant to go this far, he did acknowledge “spending a lot of time with Shelly Elsen,… educating him.”) It was thus welcome news to get a call from Edward Costikyan, a politically well-connected senior litigating partner in the prominent firm of Paul, Weiss, Rifkind, Wharton & Garrison, offering pro bono legal services. According to Margaret Logue, he was a “big gun,” who was a “sweet guy, but not in court.”84
During its thirteen months of deliberations, the Moreland Act Commission on the UDC regularly made the headlines, with the question of Ed Logue’s personal culpability always front and center. The onetime staffer Pangaro concluded that “because he had made it [the UDC] such a crusade, the attacks were directed at Ed personally, rather than the agency.” Logue’s sister, Ellen, recalled that normally tough Ed was under a strain so great that he secretly threw up every day he testified. The press more often described his public demeanor as alternately “feisty” and “angry,” such as when—in vintage Logue combative style—he charged that “Morgan Guaranty wants the freedom to fatten off America but not share in the solution to its problems.”85
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