The Last Great Senate

by Ira Shapiro

  By May 1978, even New York City’s toughest critics acknowledged that the city, responding to Congress and the strong leadership of New York governor Hugh Carey, had taken major steps to improve its financial management and get on a more sustainable course. As a condition of receiving the seasonal loans, New York City had gone into virtual receivership, with a state-established Emergency Financial Control Board making its fiscal decisions. To close the budget deficit, the city had slashed it spending, reduced the number of city workers, and its new Mayor, Edward Koch, had taken on the public employee unions, negotiating the least generous contract in many decades. Meanwhile, the economic recovery under way in the country buoyed New York City’s economy. New York’s advocates believed that if a second round of loans were extended, the city had a strong chance to not only survive, but prosper. Without a second round of loans, however, New York City’s future remained in peril.

  Banking Committee Chairman William Proxmire and Ed Brooke of Massachusetts, the committee’s ranking Republican, saw the situation differently. In February 1978, the Banking Committee had issued a unanimous report on the city’s financial condition concluding that if the interested local parties—city and state employee pension funds and the New York financial institutions—would agree to provide reasonable amounts of aid to the city there would be no need for continued federal assistance.

  The committee report came as a shock to the advocates of New York City, led by its senators. Javits believed that New York City’s recovery was fragile, and its fiscal problems still cried out for a more permanent fix. He said that “the report of the Committee, if literally taken, is a prescription for disaster.” Daniel Patrick Moynihan observed bitterly that those who had regarded the Banking Committee as “a sympathetic friend of the city” had been disabused of that notion; “the tone of this document is—put plainly—hostile and adamant.”

  The lack of sympathy for New York’s fiscal woes reflected a burgeoning ideology sweeping the nation—one that reviled government assistance, programs, and bailouts, instead preferring tax cuts as the solution to virtually every problem. In the words of Bill Brock, the former senator chairing the Republican National Committee, “The American people are just plain fed up. They are sick to death of government and taxes, and the Democrats have imposed them both. They are looking for alternatives.”

  Bill Roth, the Republican senator from Delaware, thought he had such an alternative. Elected in 1970, after several terms in the House, Roth was a low-key, intelligent lawyer, absolutely lacking in charisma. But Roth combined legal ability with a keen sensitivity to the impact of taxes on individuals and businesses. Roth understood that American middle-class families were not feeling prosperous. As a result of the inflation that had dogged the economy since 1973, they simultaneously paid higher prices and found themselves forced into higher tax brackets. To distinguish itself from neighboring states, Delaware had made itself the headquarters of most corporations in the nation and sustained a vibrant business climate by having no state income tax whatsoever. Roth recognized that the federal government had responsibilities that made it impossible to eliminate taxes, but Delaware’s experience convinced him that substantially reducing taxes would spur the economy, by providing individuals and companies with additional capital to spend and invest.

  As the U.S. economy began to falter under the pressures of rising energy prices and tough foreign competition after the 1973 oil embargo, Roth began to “noodle” with his staff and a group of outside advisers about the potential impact of reduced taxes. In early 1976 Roth found a House Republican counterpart. Buffalo Congressman Jack Kemp, the former professional quarterback, and far more charismatic, was equally enamored of tax cuts.

  Together, the two men introduced legislation to cut individual rates 30 percent across the board. Kemp and Roth became a political odd couple, explaining to reporters the “Laffer curve,” the work of economist Arthur Laffer, which purported to prove that increasing tax rates beyond a certain point became counterproductive, because it diminished the incentive to work. Consequently, cutting taxes would produce more economic activity and more revenues. In some respects, that was a common-sense notion, and Republicans would often point to President Kennedy’s 1963 tax cut as evidence for their supply-side arguments. The real question was how the Laffer curve, or the nation’s needs, could justify the deep slashes in tax rates proposed by Roth and Kemp. According to Neil Messick, Roth’s longtime chief of staff, “no one in Washington took them seriously.” But at precisely the same time, the anti-tax, anti-government message was taking hold in dramatic, long-lasting ways on the west coast.

  On June 7, 1978, California voters, enraged by soaring property taxes, approved Proposition 13, with 65 percent of the vote. Slashing revenues from existing property taxes by 57 percent, and then forbidding property taxes from being raised unless approved by two-thirds of the electorate, it would be the most famous proposition in American history. Its impact is still being felt today in California’s ongoing fiscal crisis.

  Prop 13 wasn’t the only barometer of the public mood. On the same day, Ohio voters turned down 86 out of 139 proposed school bonds, including those needed for emergency relief for Cleveland and Columbus school systems. In New Jersey, Jeffrey Bell, an unknown professor who had moved to the state two years earlier, shocked the political world by defeating Clifford Case in the Republican primary basically running on a single issue—tax cuts. The people had spoken. In three major, bellwether states in different parts of the country, the message was loud and clear. Although the deep recession of 1973–1975 was over and relatively vigorous economic growth had resumed, inflation was taking a severe toll on the economic well-being and the confidence of Americans. They were stretched thin, and angry at all levels of government. They were not interested in waiting for the next election to choose new leaders. They wanted to do the one thing that would improve their situations immediately: pay less taxes.

  Overnight, Proposition 13 became the talk of Capitol Hill. Members of Congress, of course, could not reduce property taxes, but they could demonstrate their political awareness to an angry public by cutting federal spending and moving toward a balanced budget. Within a week, the House of Representatives voted to ban cost of living increases for members of Congress, federal judges, and high-ranking officials of the executive branch. The House also demonstrated its newfound frugality by voting to stop the use of public funds for free distribution of calendars, almanacs, and similar items by members of Congress, although distribution of American flags would still be permitted.

  William Proxmire, a noted pinch-penny, suggested a $3.5 billion cut in the budget of the Department of Housing and Urban Development (HUD), as “an acid test of whether this Congress is willing to take Proposition 13 seriously and cut its budget.” Brooke, who was the only African American in the Senate, advised Proxmire that “we ought not come in here and panic under Proposition 13. It’s not some magic word.” Five months later, the Senate would have no African American members. Brooke would have personal problems arising from an ugly divorce, but his distinguished career ended in part because he had underestimated the power of Proposition 13 and the anger of the tax revolt.

  In such an environment, it was little wonder that extended financial assistance for New York City appeared such an unappealing, and in fact politically dangerous, prospect.

  Nevertheless, some were still willing to go to bat for New York City. In March, in an act of considerable political courage, Treasury Secretary Michael Blumenthal had put the Carter administration on record in favor of federal guarantees for New York bonds. But the Senate Banking Committee appeared unmoved. Now, less than four months after its unanimous report, and less than thirty days from the end of the seasonal loan program, the Banking Committee was considering legislation introduced by Javits and Moynihan, reflecting the urgent request from Mayor Koch and Governor Carey to provide new federal loan guarantees for New York City–related securities. Despite the assurances given i
n 1975, New York City was asking the Senate to save it again. The Senate would have to decide the future of the nation’s premier city.

  As of the first week of June 1978, the fate of New York City could no longer be avoided. Proxmire brought the Banking Committee together for hearings to consider New York City’s request for federal loan guarantees. As opponents of the city went, he would be formidable indeed.

  Bill Proxmire had come to the Senate in 1957, winning a special election to fill the Wisconsin Senate seat left vacant when Joseph McCarthy died. Proxmire had won the seat after years of relentless campaigning, having lost two previous bids for the Senate. Educated at Yale and Harvard, he had never before held elected office. Proxmire was the original maverick, long before the term became fashionable. He campaigned for reelection to the Senate without raising any money. His gaunt appearance and passion for exercise—he ran five miles to work in the morning, and home in the evening—caught the attention of many people. As a New York Times profile put it, Proxmire’s “highly-ordered life included 5,669 consecutive roll call votes, three millions hands shaken, the first Senate hair transplant and face lift, and vacations hauling garbage, and living in fire houses.”

  Proxmire’s fame dramatically expanded when he conceived of the idea of the “Golden Fleece” award, which he handed out, with great fanfare, to the federal government program he considered the biggest waste of taxpayer money. Proxmire took special delight in going after wasteful Pentagon expenditures, although he never hesitated to subject domestic programs to ridicule as well, including a famous NIH expenditure of $84 million to study the physiological effects of love.

  In 1971, Proxmire pulled off a genuine political miracle when he led a successful coalition to the first great legislative victory by the environmental movement, defeating a program for Supersonic Transport (SST), which was heavily supported by the Nixon administration, Washington’s powerful senators Magnuson and Jackson, and the AFL-CIO. No one questioned Bill Proxmire’s brains, independence, tenacity, or guts—for Javits and Moynihan, the problem was that he now strongly opposed helping New York City.

  Ed Brooke, the first black American ever to be elected to the Senate by popular vote, was a liberal Republican who took pride in being a member of the party created by Abraham Lincoln. He championed civil rights legislation and demonstrated his independence from his own party by being the first senator to call for Richard Nixon’s resignation in 1973. During the hearings, Brooke was campaigning for his third term in the Senate, facing a formidable challenge from Congressman Paul Tsongas. Nevertheless he seemed likely to win reelection. Senator Brooke cared deeply about America’s cities, and he was not a skinflint like Proxmire. But he shared many of the chairman’s concerns about the wisdom of extending further federal support to New York City.

  On June 6, Proxmire gaveled the hearing to order, glared down at the contingent from New York City, and made his position clear: “It troubles me greatly that the committee will be confronting . . . the same pleas for financial aid that we heard 3 years ago in 1975—and from many of the same people as well. But 1978 is not the same as 1975.”

  Proxmire stated that the loans had only been granted out of concern about a ripple effect that would be heightened by the Arab oil embargo. Because of the extraordinary circumstances, Proxmire said that Congress had granted seasonal loans to New York City, but with a clear understanding that it was a “one-time thing.” The mayor and governor had given their assurances to that effect. Proxmire was not pleased to see the New Yorkers returning for more.

  Proxmire promised that the committee would give full consideration to the case presented by New York City and New York State, but he left no doubt about the depth of his “grave misgivings” about giving further federal financial help to New York City. He suggested that New York’s banks and pension funds had ample resources to do more for the city. He rejected the notion that they would be permitted to sit on the sideline and watch New York City go under. A modest increase in investment by the New York banks would go a long way to meeting New York City’s needs. A similar small increase by the massive New York City pension funds could do the rest. “It amazes me to hear that these local parties are offering so little—the banks a measly $500 million, the pension funds nothing without a federal guarantee,” Proxmire concluded. “Does this show a lack of confidence in the city, or more nearly a lack of desire to do themselves what they think they can lay on the back of the Federal Government?”

  The chairman had set the terms for the debate. The burden on New York City’s advocates was now heavy. Senators, and virtually everyone else, knew Proxmire to be fanatically opposed to wasteful government spending. He would be tough to persuade. New York City advocates could only hope that there would be some relent from Brooke, a champion of cities. But Brooke’s opening statement came as a cold splash of reality. Noting the Banking Committee’s unanimous conclusion in February that no further federal support was needed, Brooke stated, “I do not believe that providing Federal guarantees will solve New York City’s problems and in fact providing such guarantees on obligations to be purchased by New York banks and pension funds seems to me to represent a step backwards from 1975 when those parties agreed to buy such obligations without guarantees.”

  Brooke noted the civic pride of New Yorkers, captured by the “I Love New York” buttons that had appeared throughout the city, and assured those listening to the hearing that “members of this committee are not without affection for New York and are concerned about the city’s future.” Given his stated position, Brooke’s attempt to conclude on a warm note provided cold comfort to New Yorkers, who had a general suspicion of those from Boston under any circumstances.

  Speaking in defense of New York City was Daniel Patrick Moynihan—a recent arrival to the Senate, though not every senator started equal. Past accomplishments counted, and very few people in American history, if any, had come to the Senate with more accomplishments than Moynihan. After earning his Ph.D. at Tufts, he had joined the Harvard faculty, where he wrote a stream of notable books and articles. He had been a wunderkind in the Kennedy administration, stayed to help Lyndon Johnson, became ambassador to India, returned to Washington to be White House domestic adviser to Richard Nixon, and then became a national figure as a combative ambassador to the United Nations, fighting off the attacks of the developing nations critical of the United States and Israel.

  Moynihan had broken the hearts of many New York Democrats by narrowly defeating liberal Congresswoman Bella Abzug, one of the nation’s best-known women in politics, to seize the Democratic nomination for the Senate. Now, color and controversy followed Moynihan everywhere, but no one questioned his credentials as an expert on urban problems, or his love of New York, where he had grown up in East Harlem and gone to college at City College of New York (CCNY).

  Moynihan loved to speak, and he almost always brought a different slant to whatever issue he was addressing. Now he spoke somberly: “For two generations representatives of New York have been coming to the Congress, from the time of Franklin D. Roosevelt proposing ways to help other parts of this Nation and the world and now we have to ask help for ourselves, and it’s not easy. It’s never easy. It’s not been made easier.”

  He quoted an editorial from the morning’s New York Times on the brutal steps that New York City had taken to pull its act together. He urged the committee to remember that there’s not one thing the matter with the city of New York that could not have been avoided if we had chosen to treat the poor of the rest of this nation who came to us the way the rest of this Nation in the main has treated its poor, all but driving them to us, where we have looked after them for two generations, and in the process we have indeed near bankrupted ourselves. It is not something to be ashamed of, sir.

  Javits was up next, and duly picked up on Moynihan’s theme and delivered it straight from the shoulder:We are where we are because New York is the central city of this country and probably the world and because the demography
of this country has chased three million taxpaying middle-class citizens out of New York and substituted for them another 3 million desirable persons who one day, and I hope soon, will be just as good taxpayers, but right now are tax receivers. Now that’s a national problem because it was caused by the great civil rights revolution of the 1960’s, but there’s no national way to account for it except for this.

  Javits did not excuse the liberal contracts that past mayors had negotiated with New York City’s powerful public employee unions. He had long believed that the city’s mayors had been too weak in their dealings with the unions, but he attributed only 10 to 15 percent to “corruption and inefficiencies.” The welfare problem represented the principal cause of New York City’s perilous financial condition: “most of our troubles were attributable to the fact that we are where we are and what we are.”

  Javits recounted the help that the government had extended to others in the past, “Our government has guaranteed District of Columbia bonds for a stadium. Our government guarantees hundreds of billions of dollars for new communities . . . billions by which we guarantee everything and everybody—farmers, people who transport by water, builders, truckers and everybody else,” Javits observed. “Why suddenly is it a big shattering blow or precedent if the Secretary of Treasury tells us if you want to redeem New York in the national interest, this is the way to do it.” He set forth the standard by which the Senate should judge its action: “The national interest of the United States—nothing else—and the national interest of the United States demands as a paramount matter that New York be saved.”

  Thanking Proxmire for holding the hearing, Javits remarked, “You helped save us once before . . . and I think you will again. I have not lost hope at all.” His heartfelt comments went beyond the usual courtesy that senators extended to each other. A committee chairman could kill legislation that he opposed, simply by inaction. Proxmire was giving New York City’s advocates a chance to make their case. They might not convince them, but even if they could not change his mind, they might affect the intensity of his opposition. Javits loved what he called the “woof and warp of the legislative process.” Many things could happen between now and June 30.