Logue and the UDC’s greatest vulnerability going into the Moreland hearings was whether there had been outright financial fraud or simply poor fiscal management and reporting. In the end, the commission concluded that charges of corruption were groundless. The most that the UDC administration could be faulted for was accounting sloppiness and indulging its ambition to build over its responsibility to its investors.86 For Logue, neither a numbers man nor deeply knowledgeable about the bond business, addressing the great need for housing had justified any number of finance sins, or at least poor practices. These included making commitments that exceeded the UDC’s debt ceiling and then borrowing to meet these obligations at such a slow pace that the interest the UDC had to pay to finance them surpassed that of the mortgages issued.87 When the first UDC treasurer, Robert Moss, originally recommended by Rockefeller, expressed concerns over exceeding the debt ceiling, Logue dismissed them in a memo introduced into evidence at the Moreland hearings: “We are going to build as much as we can. The need is there now. When, having prudently managed our affairs, we have gone as far as we can go, and we can’t borrow any more, that is another day … We will of course be making our best judgments … in other words, that’s my problem.”88 John Stainton recalled Logue’s frequent use of the expression “It’s a fail-smash system,” in place of “fail-safe,” meaning, “I’m going to go for broke and as hard as I can because time is short and you want to accomplish as much as you can.” Even when Frank Kristof, the UDC housing economist who was affectionately nicknamed “Dr. No,” warned Logue about potential problems, Stainton remembered, “Ed found some of it [his advice] useful, but he didn’t necessarily follow it.”89 Eventually as criticism of the UDC’s bookkeeping mounted, Logue fired the treasurer Moss, in whom he had lost all confidence, replacing him with Robert Adelman, who most everyone, including Logue, agreed did a much better job balancing the UDC’s mission with good accounting practices. Years later, the UDC staffer Litke was still defending the trade-off the agency had made: “Had he been more concerned about the financial structure, we would not have built half of what we built. Which is better?… Thirty-three thousand housing units in six years—how can you best that?”90
The Moreland Commission focused much of its attention on the structural problems behind the UDC’s crash and then recommended remedies applicable to many other state authorities also caught between “the social needs of the state and the state’s ability to pay for them,” in Chairman Schell’s words. Most fundamentally, the commission judged the moral obligation bonds, of which the UDC had sold $1.1 billion through early 1975, an imperfect concept that should be abandoned, even as it appreciated that Governor Rockefeller had sought to sidestep the difficult-to-pass referenda required to build affordable housing with regular state bonds. The commission concluded that both sides were too quick to make assumptions: the state that it would never have to back moral obligation bonds, and bankers that they could depend on the state fulfilling its commitment.91 In place of moral obligation bonds, the Moreland report called for a two-thirds vote of the state legislature to set the debt ceiling for all public authorities, a recommendation Logue applauded as a more reasonable approach than a ballot referendum.92
Likewise, the commission acknowledged the benefits of the UDC’s spread-the-risk general-purpose bond strategy for such a broad and diverse project portfolio, but it criticized management’s lack of self-discipline in monitoring these bond packages. This weak internal vigilance was aggravated by lax oversight by the UDC’s board, the commission determined. Career banker George Woods, Rockefeller’s choice for UDC board chair, should have served as more of a watchdog, but as the UDC general counsel Stephen Lefkowitz explained, he was not a “day-to-day guy.”93 The most deserving of blame in the eyes of the commission was the Rockefeller-era state government—the executive, legislature, and controller—for inadequately supervising the UDC’s financial operation: too much partnership, not enough control, particularly from the governor himself. Instead, explained Schell to Governor Carey as he presented the report, “They were like boys playing on a beach, building sand castles with their backs to the tide.”94 The report, therefore, called for an effective public authorities control commission to oversee all such state entities, as other authorities were judged to be insufficiently monitored as well, and to report regularly to the legislature and the public.
The Moreland Commission insightfully recognized that some of the UDC’s efforts to improve on past flaws in urban renewal had actually worsened its financial situation. Fast-tracking to complete projects more quickly, to control inflation, and to minimize red tape had significantly shortened the building process from seven years down to eighteen months, but it had also left the UDC in a lurch after Nixon’s moratorium and had sometimes led to higher costs due to less-open contract bidding and late modifications.95 Similarly, Logue’s efforts to avoid the often complex and time-consuming coordination among multiple parties by consolidating the responsibilities of developer, lender, borrower, and builder in the UDC often deprived the agency of normal checks, such as lender scrutiny and the help of partners if trouble struck. In other words, by styling itself as a one-stop superagency that did it all, the UDC was stuck holding the bag alone.96
Another well-intended innovation that created problems for the UDC was the prioritizing of good design. Intended to improve on the mediocre architecture of much urban renewal, it often made projects more expensive than the funding available, even if architecture critics like Paul Goldberger of The New York Times praised how “The UDC’s Architecture Has Raised Public Standard,” according to a headline published at the height of the crisis.97 Many UDC opponents, including the more cautious Housing Finance Agency, argued that Logue had gone overboard in hiring ambitious architects and investing in expensive experiments like the low-rise, high-density Marcus Garvey project. Ravitch went so far as to suggest that the UDC might even have survived had it “scaled back” its architectural ambitions and relied less on “fancy schmancy architects.”98
The UDC’s embrace of technological innovation was similarly blamed for budgetary overreach. One frequently cited misjudgment involved the UDC’s eager acceptance of Con Edison’s proposal to install electrical heating with bulk metering on Roosevelt Island. Promoted as a clean, efficient, and comfortable source of heat that could be controlled building-wide, it promised savings in construction costs equivalent to a capital subsidy of between $1,000 and $2,000 a unit. But when the energy crisis of 1973–74 hit, not only did electric bills skyrocket, but bulk metering left the UDC footing the bill.99 Likewise, Logue’s preference for building on open land to avoid the dislocations that had so tarnished urban renewal’s reputation also came in for criticism, as the Moreland Commission urged more attention to the preservation and rehabilitation of existing housing.100
The commission concluded that significant though these vulnerabilities were, the UDC’s downfall could be attributed mostly to one underlying contradiction: between its social mandate to build for low- and moderate-income tenants and its fiscal mandate to do so at no cost to taxpayers. Project budgets simply could not be kept to a level that the UDC could sustain with the financial resources at its disposal or generated through rents, if they were to be kept affordable.101 The UDC’s sister agency in New York, the Housing Finance Agency, and most housing agencies in other states avoided this conundrum by focusing on middle-class housing. The Council of State Housing Agencies, for instance, reported that more than two-thirds of construction carried out by its member agencies provided for middle- and moderate-income families in suburban locations.102 The UDC’s focus on lower-income clients usually living in urban settings led to riskier projects with higher construction and operating costs, whether for enhanced security, as at the Bronx’s Twin Parks, or for amenities that created viable communities in low-resourced areas. Day care and senior centers, schools, community rooms, convenience stores, and other examples of what one New York housing official called “social stuff
” were not revenue-producing and thus necessitated subsidies. Responding to criticism of the UDC’s record of favoring these features in its projects, John Burnett, the UDC’s general manager under Logue, said, “Is it risky to take care of daycare and schools and shops—things which enhance the attractiveness and livability of residential projects?… We would have been adding to the margin of risk by not taking care to try to make our projects well-rounded, inviting and, of course, rentable by being worthy of the people we were created to serve.”103
The mismatch between the UDC’s social ambitions and its available funding was intensified by Logue’s strong conviction that the public good outweighed his responsibilities to private investors if and when they challenged his agency’s work. Many observers, including Ravitch, severely criticized Logue’s failure to adequately consider the concerns and cultivate the confidence of his investors. But although Logue had embraced the concept of a public-private partnership at the UDC’s founding, he resisted the notion that private interests seeking a return on investment should have the right to override the UDC’s social mission. “We cannot allow basic public policy of this importance to be made in corporate board rooms and issued to public men by fiat,” he insisted.104 Private investors, he was convinced, were improperly thwarting the foundational social goals underpinning the UDC. “It was too good to last, and that’s why I so cordially dislike bankers … They feel threatened … I was engaged in—bankers said this—social engineering. As if that’s a mortal sin. I was very proud of the fact that Roosevelt Island was a total piece of social engineering.”105
In his own time, Logue expressed an interpretation that some analysts of New York’s broader fiscal crisis of the 1970s have elaborated in the years since. They argue that municipal financiers had a more ambitious agenda than simply bringing New York back from the brink of what was undeniably a looming fiscal catastrophe that threatened to bankrupt the largest American city and wreak damage far beyond its borders. Rather, this analysis goes, they used the leverage of their lending and bonding powers to force New York City and New York State to radically reorient themselves from liberal, social democratic public policies to more neoliberal ones. In demanding an austerity budget that scaled back labor union commitments and social welfare services, including the UDC’s ambitious housing program, banking and business leaders sought to fundamentally restructure the behavior of elected officials and the expectations of the public about what government could and should deliver. As the CEO of the New York Telephone Company bluntly put it, “To balance the budget, to restore the confidence of the financial community whose resources we need in order to survive, to guarantee the survival of New York City there is an urgent need to alter the traditional view of what city government can and should do. What is required is a fundamental rethinking of the level and quality of services the city provides its citizens.”106 While critics like this one on the Right sought to roll back the public sector altogether, critics on the Left often urged a shifting of costs from the local to the federal government, arguing that Washington was more capable of raising revenue and carrying debt. But the call for government retrenchment at any level in the wake of fiscal crisis was patently rejected by Ed Logue.
A FLAWED CONCEPT?
In identifying a fundamental flaw in the UDC’s conception, the Moreland Commission asked in its final report whether a public responsibility could ever be discharged by an entity that was funded by private investors whose goal was to make a profit. As the UDC collapse and its postmortem unfolded over many months in 1975, other analysts would chime in with similar doubts, most forcefully articulated by the journalist Joseph Fried. Writing in The Nation magazine, Fried claimed that the “fundamental issue raised by the plight of the Urban Development Corporation … goes to the heart of the fact—which this country still does not acknowledge—that only a long-range, public effort will make possible the construction and rehabilitation needed if 10 million or more American families are to live in decent housing and decent neighborhoods.” Condemning the UDC’s funding model, he insisted that the “skittish and volatile” private investment market “can hardly be expected to have the staying power to underwrite a task as difficult” as this one. “Rather,” he asserted, “the job must be done by American society generally, and that means sufficient public funds for subsidized housing and redevelopment programs to begin with, as well as a willingness by government to take the ultimate risk when it does seek to draw private capital into the effort.” Fried concluded somberly that the fall of the UDC is “testimony to how far we have come from those days in the 1960s when the flames of urban riots crackled in squalid slums” and inspired public officials as well as business leaders to tackle the urban crisis. It should serve as a “harsh and vivid reminder that American society is still a long way from meeting a moral obligation of its own.”107
As Fried intimated, a lot of wishful thinking had lain behind the UDC, from Rockefeller’s initial search for an easily fundable way to build subsidized housing, revitalize cities, and create new jobs to bankers’ overconfidence that UDC projects could surely generate sufficient revenues to cover operating expenses and debt service on outstanding bonds. Logue, too, had optimistically signed on, eager to find new sources of housing finance as the federal budget tightened. But none of these expectations proved feasible. It became apparent that it would take years to create a positive cash flow, if one could even be achieved. The UDC itself projected that its operating and debt-service expenses would exceed income until 1981, and had it kept building new projects, that date would have extended further.108 Moreover, the financial picture was not helped by the IRS’s early ruling that the more lucrative commercial and industrial development called for in the original UDC legislation, which might have generated greater income for the agency, must be limited to only 10 percent of the tax-free bonds.
But should anyone have ever expected the UDC to be self-supporting? John Zuccotti, at various points in his career a New York City public official and a real estate developer but long a UDC champion, argued that any assumption of a natural alignment between the goals of private bankers—whose job it was to make money for depositors and stockholders—and affordable housing production was misguided from the start. The UDC, and the nation, needed some other way to create housing.109 The UDC chronicler Eleanor Brilliant identified other contradictions. The so-called private market for UDC bonds in fact depended on government, whether it was stated explicitly or not. Tax-exempt bonds were subsidized by the federal government, and the State of New York made the bonds marketable through offering its protection. She also identified a contradiction within the UDC itself, contending that “it was not possible for the UDC to enjoy the benefits of being both a public and a private authority at the same time.” If it were intended “to do public good, it would have to move in the direction of a recognized public nature,” including “assuming continual public funding … along with accountability of its staff.”110 Even Frank Smeal of Morgan Guaranty Trust Company, spokesperson for the disapproving banking consortium, concurred about this incompatibility when asked if banks should have demonstrated more concern for the UDC’s mission. He declared in no uncertain terms that “social goals are funded one way in this country and economic goals another way.” Smeal further acknowledged that “building where others failed to tread,… we now know requires a much firmer state commitment, which can only be given by the people.”111
Even as recognition of the need for public subsidy for low-income housing grew, the ideal level of government to provide it remained a matter of contention. Brilliant was convinced not only that localities were ill equipped financially but also that “clearly, local level decisions are not necessarily the best since they tend to affirm the status quo at the expense of those outside who want to come in.” As the Nine Towns failure showed, “it was not possible to develop a metropolitan view of urban problems at the local level.”112 Nor, despite Rockefeller’s best efforts to the contrary, had state-level f
unding of the UDC proved adequate to provide housing at a cost that low- and moderate-income residents could afford. In truth, federal assistance had always been necessary for the UDC to succeed. Subsidies from Washington were crucial to making the math work, which is why more than 90 percent of UDC projects were federally supported until jeopardized by Nixon’s moratorium. In fact, as one analyst put it, the UDC’s creators had made a losing gamble in 1968 when they mistook the setting sun for the dawn.113
In assessing the UDC for the Ford Foundation, Louis Loewenstein aimed for balance. The UDC suffered an unlucky convergence of many unfortunate events, he acknowledged. And it had made some serious misjudgments, such as expanding in a contracting money market and not distinguishing well enough between abstract housing “need” and real “demand,” if that included the ability of low-income tenants to pay. Nonetheless, it could claim significant achievements. It brought an estimated $2.7 billion in federal subsidies in write-downs and payments through Section 236 contracts to New York State, which amounted to well over half the national federal Section 236 awards. It furnished housing for some one hundred thousand people in fifty cities and towns and developed three New Towns. All told, the UDC was responsible for about a quarter of all government-aided housing constructed in New York State from 1969 to 1975, including 40 percent of what was built in upstate New York and New York City’s suburbs and 15 percent of New York City’s units.114 It had created many new jobs—through its own construction projects as well as by building new industrial and commercial facilities in the state.
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