by Ira Shapiro
Now the committee turned to its principal witness. Ed Koch had been mayor of New York City for only six months, moving into Gracie Mansion, the mayor’s residence, after nine years of representing New York’s silk stocking district in the House of Representatives. Koch’s predecessor as mayor, Abraham Beame, a former city comptroller, had been hammered down by the enormous burden of the city’s financial problems. Koch, a politician with a large ego and enthusiasm, had brought new energy to Gracie Mansion, attacking the problems, showing up at all hours of the day or night around the city, constantly asking New Yorkers “how’m I doing?” He came before the Banking Committee sleep-deprived, having just completed negotiations of a new labor contract with the city’s municipal unions. Proxmire greeted Koch, noting “what a good strong job you’re doing as Mayor of New York.” The senators respected Koch for taking on one of the toughest jobs imaginable.
Koch submitted a sixty-page written statement and probably would have delivered it all if he had been allowed. After presenting the actions he had already taken to rescue the city’s finances—including getting tough on unions and enacting austerity measures—Koch outlined the comprehensive plan that he formulated for the city’s financial future, involving a partnership by the federal, state, and city governments and with the private sector. It included a reduction of 20,000 employees over four years, a 12 percent reduction in real purchases of materials and supplies, and a continued reduction of the welfare rolls, which were already at their lowest point since 1970. Koch embraced the Emergency Financial Control Board—“I have the same sense of fiscal integrity”—although his predecessor Beame had said he could not live with its edicts. He also expressed pride in landmark legislation that he had been able to get through the state legislature, changing the arbitration system so that an arbitrator’s award could be challenged at every stage by the Emergency Financial Control Board on the basis that the city did not have the ability to pay.
Koch implored the Committee to provide the federal loan guarantees that the Treasury Department was supporting. “We are on the edge of a renaissance,” Koch predicted. “If we are able to pull this together, the city of New York will once again be the premier city in the world.” He described the grim alternative: “The cost to the federal government of not helping the city will be greater than the cost of helping. If the City does not rehabilitate itself, it will decay and slowly die, becoming a ward of the state and the Federal governments. In these circumstances, denying the City’s request for financing assistance today will prove costly tomorrow. It is being penny-wise and pound-foolish on an incredible scale.”
During questioning, Proxmire asked again and again why New York City should receive special treatment. “We have problems in Milwaukee, there are problems in Boston, Detroit, and Pittsburgh, and so forth,” he noted. “So where do we draw the line? Why shouldn’t we do it for everyone?” At one point, he quoted a “splendid analysis” by economist Herbert Bienstock, who had predicted New York City’s decline in the 1960’s but was now much more optimistic about the city’s future. Moynihan said he had great admiration for Herb Bienstock, “who reported to me when I was Assistant Secretary of Labor under President Kennedy,” but that if Bienstock were testifying: “He would tell you the one thing New York City needs is a dependable fiscal future for its government.”
On the second day of hearings, Proxmire and Brooke showed a new willingness to support seasonal loans. It would not be enough for New York, but it represented movement from their adamant starting positions. Felix Rohatyn, the brilliant investment banker from Lazard Freres who had been instrumental in the 1975 rescue of New York and a moving force in the proposal for loan guarantees, responded: “The city can live with it, but the city cannot get well with it. Seasonal loans will postpone the return of the city indefinitely.” Governor Carey, greatly admired for his steadfast leadership in meeting the city’s financial crisis, sounded the same theme in his forceful testimony.
Javits hoped that the hearings had accomplished their purpose. A month before, he and Proxmire had exchanged views on the Senate floor. “There are some things that lean on each other,” Javits noted. If the federal government committed to helping New York, the unions, the pension funds, the banks and the State would all come forward and contribute. “That is the cement that is going to put them together.” Proxmire could be the “principal architect. . . . If you take it in hand, it will happen. If you don’t take it in hand, I have grave doubts about it.”
Proxmire would later say that “Jack Javits and Pat Moynihan did more to change the Banking Committee from ‘no’ in January 1978 to ‘yes’ in June 1978 than any two senators I have ever seen operate on any issue in all my career.” And with the hearings over, White House lobbying efforts began in earnest. But Senate action to help New York City would also require a strong advocate from the Banking Committee to overcome Proxmire’s continuing opposition.
Richard Lugar had missed most of the hearings, because of his intense involvement in the filibuster against the labor law reform legislation. A moderate conservative, Lugar had expressed his opposition in principle to further federal assistance for New York City. But Lugar came to the problem from his experience as an innovative and successful mayor of Indianapolis. His leadership of the city, coupled with his remarkable leadership to forge a metropolitan solution to problems of finance and school desegregation, made his a strong and credible voice on helping New York City if he chose to be involved. He had become very familiar with New York’s problems in 1975–1976, while serving as the president of the National Conference of Mayors.
Briefed on the hearings, Lugar concluded that the federal government had no choice but to help New York City. However, the help would have to come with such stringent conditions that other cities would be deterred from seeking assistance. Working with the Banking Committee staff, Lugar drafted and circulated a compromise proposal. It included $1.5 billion in federal loan guarantees, limited to $500 million a year, and a requirement that the State of New York had to maintain its level of effort, coupled with strict controls and requirements, such as the continuation of the Emergency Finance Control Board, that would make it virtually impossible for other cities to seek similar relief.
Lugar’s proposal became the legislation that the Banking Committee would consider. This well-crafted, “tough love” compromise, and the fact that Lugar had been opposed to helping New York but switched positions, had transformed the situation. Javits and Moynihan continued to lobby fiercely. President Carter called three undecided Banking Committee members, and Vice President Mondale called two others. Proxmire ruefully gave credit to an extraordinary lobbying effort on behalf of New York City. Calling it “wholly unnecessary legislation,” Proxmire, still opposed, nonetheless predicted the committee would approve it by a vote of 12–3, and he was right on the mark.
On June 29, less than four weeks after the committee hearings, the New York City Loan Guarantee Act of 1978 came before the Senate. In most cases, legislation opposed by a chairman never makes it to the full Senate. In those relatively rare cases when the committee overcomes a chairman’s opposition, the chairman would usually ask another committee member to manage the bill. In this case, however, Proxmire chose to manage the bill, saying that he had an obligation to work for its passage in the form approved by the committee.
On the Senate floor, Proxmire gave an extraordinary, perhaps unprecedented, performance, alternately as the bill’s strongest supporter and its toughest critic. He told the Senate that the committee bill represented a distinct improvement over the administration bill and the substantially more generous House bill. “If there are to be long-term guarantees,” Proxmire stated, “the committee has come up with a tough, responsible bill—a bill that can do the job intended, and with minimal risk to the Federal government.”
To make it absolutely certain that other cities could not seek the same deal, the guarantees would be available only for loans made by pension funds, and no other cit
y had pension funds large enough to provide funding of the scale contemplated. Proxmire also noted the continuing requirement that the Emergency Financial Control Board be in operation, and the stringent cost controls and expenditure limits it had imposed; “this is not just a little patsy that was put in just to reassure people. This is a board that has force and has demonstrated that it will use it to keep expenditures down.”
At the same time, he “continued to disagree with its fundamental premise. I do not believe that New York City needs or should get more financial aid from the Federal government.” He repeated his view that the New York City banks and pension funds had ample resources to save the city, saying “one of the most frustrating experiences that I have had in my years in the Senate is that nobody answers that argument. We give them the arithmetic over and over.” He expressed fear that:We are setting a number of undesirable precedents. We are relieving a major state of its responsibility for the financial soundness of one of its cities. We are relieving some of the biggest banks in the country for seeing that the city they live in and do business in remains solvent and returns to fiscal responsibility. . . . Above all, and most disturbing of all, we are setting the precedent of providing long-term Federal guarantees to a municipality to meet its basic financing needs. Despite the efforts made in the committee’s bill to limit the scope of the guarantees and confine them to the rather singular conditions prevailing in New York City, there is no way to get around the fact that the Federal Government is now going into the business of guaranteeing municipal bonds. Once we get in, I see no way of getting out, no way in fact to get anywhere but deeper in. . . . “The richest city in the country has a guarantee. Why not us?” Where will be the grounds to deny to Los Angeles, Cleveland or Oshkosh what we just gave to New York?
Taking the floor, Javits expressed the hope that “New York day in the Senate” would be “a day of realism.” He argued that “no precedent is set by this loan guarantee legislation. Indeed, the precedent, if any, was established in 1975” and contrary to the predictions of critics, no other cities had come forward to seek relief. He commended Proxmire, Brooke, Lugar, and Don Riegle for a “brilliant and exacting cross examination,” thoroughly examining the case; they had produced a bill that was both constructive and strict, which would put New York on the “road to viability” so it could go into the public markets as any city must. In his view, the country had come to understand that New York City’s bankruptcy could be prevented and “that is a national blessing, not a national disaster.”
Moynihan injected an extraordinary personal note. He told the Senate that in May 1976, he had intended to leave the United Nations to return to the university; “I had been in the Cabinet or Sub-Cabinet of four presidents. I wanted to go back to a quiet corner.” But on that day, Moynihan read that the Emergency Financial Control Board had decided to close the City College of New York. Moynihan had attended CCNY; it was the first free urban college in the world, created in 1847, and it had educated hundreds of thousands of immigrants and produced extraordinary graduates who helped build New York City and the country. The decision to close CCNY shocked New York, and it convinced Moynihan to run for the Senate.
Howard Baker had come on to the floor to speak. With a mischievous smile, Baker observed wryly that having known Moynihan for some years, “I feel compelled to say that whatever place he occupies is not likely to be quiet.” Then Baker offered his support, praising the committee and particularly Lugar for the legislation that had resulted.
The hour for decision had come. John Tower, a leading opponent, closed with resignation, nominating Proxmire for the Golden Fleece award, for having “apparently taken leave of his earlier good judgment, and succumbed to the plaintive cries, please and entreaties of those who would feed at the public trough.” Shortly thereafter, the Senate approved the legislation to provide federal loan guarantees to New York City by a vote of 53–27, with 35 Democrats and 18 Republicans voting in favor.
The emphatic vote came just weeks after it had appeared that aid to New York City was a lost cause. The absence of twenty senators from the final count provided a reminder that coming in the immediate aftermath of Proposition 13, it was still a politically difficult vote. But New York and its advocates had made a compelling case. And the city’s progress under Koch’s leadership, perhaps coupled with the successful Democratic convention in 1976 and the memory of America’s Bicentennial when the tall ships sailed into New York harbor, had softened people’s attitudes toward the Empire City, and not a moment too soon.
Proxmire pledged to fight for the tougher provisions in the Senate bill in conference with the House. As always, the conference committee’s legislation took some features from each bill, but generally favored the tougher Senate approach. On July 28, 1978, the Senate approved the legislation that the conference committee had produced. Flinty as he was, Proxmire nonetheless seemed to be in good spirits. He rhapsodized about the greatness of New York, from the magnificent skyline to its legendary characters like Damon Runyan and Walter Winchell. “But,” Proxmire concluded, “if New York has one quality above all, it is that fantastic brass, the ability to con you into a $1.65 billion loan guarantee when . . . this is the credit capital of the world. . . . It’s a wonderful city, and it’s a great privilege to be conned by the city.”
LOOKING BACK ON MAJOR historical moments, it often seems as though their outcome was inevitable. Yet in fact, at crucial moments, the outcomes are usually very uncertain. Unlike the Panama Canal treaties, the vote in favor of loan guarantees for New York prevailed by a wide margin, but the battle was much closer fought than the margin reflects. Jimmy Carter, Treasury Secretary Blumenthal, and others in the administration deserved enormous credit for their political bravery; they saw the national interest, and they acted on it.
The Senate proved to be a harder sell, particularly after the unanimous report of the Banking Committee opposing further federal help for New York. But at this crucial juncture, the Senate fortunately included Javits and Moynihan, two passionately committed natives of the streets of New York, and Lugar, a conservative, midwestern Republican freshman, who had been the nation’s finest mayor. They stepped up to the challenge, just as Byrd, Baker, and Church had stepped up in the Panama Canal debates. At times like these, the Senate lived up to its reputation as being “the world’s greatest deliberative body.” But it also resembled a championship sports team. In the big games, people came forward and made the big plays.
In the 1980’s and 1990’s, New York City ultimately did indeed experience the renaissance that Mayor Koch predicted. Prosperity returned to the city, and crime diminished. The city was again the magnet for ambitious, talented people from all over the country and the world. Many people, such as Mayor Rudy Giuliani, played an important part in New York City’s resurgence, and the strong national economy certainly helped. But there is little doubt that the foundation for New York’s revival was laid when the Senate, despite the tax revolt that was sweeping the country, stepped forward with a rescue package in 1978. The Senate’s action was reminiscent of a famous statement by Mark Twain: “Do the right thing. It will gratify some people and astonish the rest.”
chapter 12
CLOSING DAYS
THROUGHOUT 1978, THE SENATE HAD BEEN FIRING ON ALL CYLINDERS. Historic accomplishments—the Panama Canal treaties and the rescue of New York City—were joined by major legislative actions such as approval of the F-15 sale to Saudi Arabia and landmark legislation to deregulate airlines. Civil service and ethics reform were moving forward toward enactment. Yet, even so, month after month, the natural gas nightmare continued.
The failure to enact legislation in 1977 had damaged Jimmy Carter greatly. In an effort to show confidence and encourage Democrats, Robert Byrd had expressed optimism that the legislation could be finished in early 1978. This prediction, like a second marriage, proved to be a triumph of hope over experience. It also served to highlight, yet again, Carter’s failure to achieve his highest dom
estic priority. The hard truth was that no matter whatever other legislative accomplishments occurred, Carter’s second year would likely be judged by the same criterion as his first.
By the fall of 1978, Congress appeared much closer to adjourning than to passing natural gas legislation of any kind. Senators and staff took long meetings with industry and consumer advocates, and staff dutifully noted down any number of new ideas for breaking the deadlock. But for months, despite intense effort and perpetual activity, everyday was Ground Hog’s Day—nothing ever changed. Advocates of the oil and gas industry favored deregulation of natural gas. Consumer advocates preferred the continuation of price controls on gas. James Schlesinger, Carter’s secretary of energy and architect of the administration’s energy plan, described the negotiations with the Senate as a “descent into hell.” Both sides seemed beyond compromise. Experienced Washington hands could remember nothing like it.
And yet the pricing of natural gas had originally been only a minor part of Carter’s energy program that Schlesinger had prepared. In April 1977, when Carter declared the energy crisis to be “the moral equivalent of war,” he had unveiled a plan to reduce U.S. oil consumption, and thus oil imports, by increasing energy prices by a new tax on domestically produced crude oil and a series of measures to encourage industry to switch from oil and gas to coal. The administration estimated that these measures could save 4.5 million barrels of oil daily by 1985. However, the Senate buried the crude oil tax, which had been passed by the House. The Senate also weakened the coal conversion measures. With its hands tied, the administration was now forced to trumpet the energy savings that could result from a change in natural gas pricing. The resulting compromise legislation, starkly different from the original proposal on gas, had somehow become the less-than-inspiring centerpiece of Carter’s energy policy.
