Memoirs

by David Rockefeller

  D-LMA’s second report, issued in 1963, advocated a new round of public improvements for the area. The most gratifying aspect of our work downtown was the response of the private sector. Over the next several years more than forty new office buildings were constructed below Canal Street, and an additional 100 million square feet of office space was built and occupied. There is no question that Chase’s decision to build a new headquarters, the formation of the D-LMA with its roster of influential and involved CEOs, and the building of the World Trade Center were all pivotal in the revitalization of lower Manhattan. By almost any measure—employment, new construction, quality of life, property values, level of economic activity—our efforts to breathe life into a moribund downtown community had succeeded beyond our wildest expectations.

  NELSON’S LANDFILL

  The excavation for the trade center land resulted in yet another opportunity to quicken the transformation of lower Manhattan. Landfill from the project was dumped in the Hudson River, where it joined fill from dozens of other building projects to form a ninety-acre addition to the Island of Manhattan. This meant that for the first time in decades there was new land in Wall Street’s congested precinct on which to build. This possibility generated a great deal of excitement and also involved me in an interesting contretemps with Nelson.

  The D-LMA’s 1963 Report endorsed the City’s proposal to build affordable housing and a hotel/office building on this parcel, although no plans had been drawn up. That is, not until one morning in May 1966 when an obviously agitated Lindy rushed into my office at Chase waving a copy of The New York Times. Had I seen what Nelson had done? he asked. I hadn’t. The article reported that at a press conference Nelson had announced plans for Battery Park City, a megadevelopment that would combine four high-rise office buildings, a hotel, and seventy-five hundred units of middle- and low-income housing on the landfill site. The article provided detailed plans and a photograph of the model that was prepared by Wallace K. Harrison and Nelson himself.

  I must say I was annoyed. Clearly Nelson and Wally had been working on these plans for months without having the courtesy to mention them to me. I was, after all, chairman of the Downtown–Lower Manhattan Association and, not incidentally, Wally’s friend and Nelson’s brother! I guess this was a measure of how strained my relationship had become with Nelson as a result of his recent divorce and remarriage, and how rarely we saw each other.

  When I called Nelson in Albany, he feigned surprise. “Surely you’ve heard about it,” he said. “Only just this moment while reading the Times,” I replied sharply. He admitted that it was a “rather extraordinary oversight.” Perhaps Nelson envied the favorable publicity I had received as a result of the trade center and resented that his own role had been downplayed; he wanted to make sure there was no doubt that the landfill project was his.

  As it turned out, Nelson would have been bitterly disappointed had he lived to see the fruition of his project. When the initial phases of Battery Park City were completed in the early 1990s, they bore little resemblance to the plan he and Wally had secretly developed thirty years earlier. Nelson’s original scheme became a casualty of his political rivalry with Mayor John Lindsay and of the financial earthquake that jolted New York City in the early 1970s.

  THE FISCAL CRISIS

  The roots of New York’s fiscal crisis of 1975 can be traced to John Lindsay’s election as mayor in 1965. John was a complex individual. I first met him when he was a Republican congressman representing Manhattan’s “Silk Stocking District”; in fact, he was my congressman, and I had contributed to his campaigns. He was a “Rockefeller Republican,” and I thought his unique combination of charisma and moderation would make him a great mayor. But when John was inaugurated on January 1, 1966, he suddenly became a “populist.” He proclaimed that the power brokers would no longer be welcome at City Hall. Presumably, that included me, since he refused to return my phone calls.

  Unfortunately, John was not as assertive with New York’s powerful municipal labor unions. Within hours of taking office the Transport Workers Union, led by the uncompromising Michael J. Quill, went out on strike and closed down the City’s mass transit system for two weeks. Lindsay finally caved in and agreed to every one of Quill’s demands. (Quill said at the time that he did not expect the Mayor to capitulate so totally, but what could he do—give it back?) Lindsay’s surrender to the transit workers opened the floodgates to large across-the-board salary increases for all municipal workers. Over the next few years this would have a staggering impact on the City’s budget.

  By the end of the decade, as opposition mounted to the escalating tax burden and the local economy entered a period of recession, municipal officials began to rely increasingly on the sale of short-term debt to fund the City’s operating budget. When that debt came due, they simply rolled it over and resorted to a variety of accounting gimmicks to disguise the City’s true financial plight. The operating deficits grew larger and larger until they became so big that they couldn’t be hidden any longer. By early 1975 the City had a structural deficit of $3 billion in its operating budget of $12 billion and needed to raise an additional $7 billion to pay off the short-term debt that would be coming due that year alone.

  Some have suggested that the big commercial banks were culpable for allowing this deception to continue for as long as it did. In fact, it was the banks that finally forced the parlous state of the City’s finances out into the open, with the City fighting us every inch of the way. In October 1974 a record $475 million bond offering sold poorly, and two subsequent issues required an interest cost of 9.5 percent, the highest in the City’s history, before buyers could be found. Chase, as one of the City’s principal bankers, warned the City’s comptroller, Harrison Goldin, that the market was saturated with city securities and that steps had to be taken immediately to bring expenses in line with revenues.

  Our private warnings had little impact on him or on the new mayor, Abraham Beame. Mayor Beame called a “summit meeting” at Gracie Mansion in January 1975. It brought together the CEOs of the six principal underwriting banks and leaders of the municipal unions with the Mayor and his principal aides. To my amazement Mayor Beame began the meeting by accusing the banks of “disloyalty to the City.” He insisted that it was our duty to go out and “sell the City to the rest of the country.” If we did so, he assured us, the problem would go away. I was stunned by the Mayor’s refusal to accept the gravity of the City’s financial situation.

  I told the Mayor that the bond market was extremely skeptical of the City’s financial management and that he had to cut spending and balance the budget if he wanted to regain investor confidence in New York City debt. I suggested that rather than calling each other names, the Mayor should ask the banks to work with the City in fashioning a solution, and I recommended that Ellmore (Pat) Patterson, chairman of Morgan Guaranty, head such a working group. The Mayor acquiesced, and a few days later the Financial Community Liaison Group (FCLG), chaired by Patterson, began its last-ditch attempt to enable the City to regain control of its own finances.

  FCLG made some progress, but it soon became clear that the City would not change of its own accord. The banks informed the Mayor they would no longer underwrite or purchase any more debt until there was credible evidence that fundamental budgetary and fiscal reforms had been undertaken. Beame immediately accused the banks of blackmail, and City Council president Paul O’Dwyer attacked us for holding the “power of life and death over municipal institutions” and demanded an investigation of the banks.

  BIG MAC AND THE FINANCIAL CONTROL BOARD

  By early June 1975 the City was in a desperate position; it had nearly run out of funds to pay for its daily operations and had no way of refinancing almost $800 million in short-term debt. City officials and the leaders of municipal unions still insisted that it was someone else’s problem and matters would improve in time. The Mayor even asked the banks for a bridge loan to keep the government functioning until the econ
omy recovered—a request we promptly denied.

  It was time to seek outside intervention. I had several talks with Governor Hugh Carey about my concerns, and on June 10, the day before New York City would have defaulted, a new state agency was created, the Municipal Assistance Corporation (MAC), to assist the city in overcoming its financial problems. While MAC couldn’t force the City to balance its budget, it could audit the City’s expenses and issue its own long-term bonds—backed by sales tax revenues—to replace the City’s short-term debt. Once MAC was in place, Mayor Beame blithely declared, “The fiscal crisis is over.”

  It wasn’t. By mid-July 1975 investors refused to purchase any more of the $3 billion in notes that MAC was selling, and the City again approached default. It became apparent that the market would respond only if the City was persuaded to surrender “all control” of its financial affairs to a more credible body.

  That duty fell to me.

  On the morning of July 22, I held a press conference at Chase and released a letter that had been sent to the head of MAC. In effect the letter stated that the bankers would not purchase any more MAC securities unless measures mandating “spartan control on the expenses of the City” were adopted.

  Within a week Mayor Beame relented, agreeing to an immediate freeze on wages, the elimination of twenty-seven thousand city jobs, an increase in the subway fare, and the state takeover of certain city responsibilities. In return the banks agreed to a further purchase of almost a billion dollars of MAC securities. But even this was not enough to attract general investors back into the market for New York City debt. Thus, with another half-billion dollars in debt coming due beginning in October 1975, the situation once again reached a critical point.

  Despite everyone’s best efforts, it appeared that the City would finally be forced to default on its debt, a potentially catastrophic action.

  Working behind the scenes, Carey and his capable budget director, Peter Goldmark, proposed the creation of yet another state agency, the Emergency Financial Control Board (EFCB), that would assume full control of the City’s budgetary powers, in much the same way as a trustee in a corporate bankruptcy. The state legislature immediately passed legislation stripping City officials of their remaining financial power. Mayor Beame and the City’s other elected officials would now become mere spectators as the crisis moved through its final difficult phase.

  DROP DEAD!

  There remained one final obstacle.

  The markets still remained skeptical about the City’s capacity to generate enough revenue to amortize the debt that MAC had assumed. MAC bonds were selling at huge discounts, and the City’s financial institutions were awash in MAC securities that we couldn’t sell. All of us in New York—the commercial banks and the state government in particular—had done as much as we could. We needed an insurance policy, a guarantee, that would reassure investors beyond a shadow of a doubt that the crisis had passed.

  We turned for help to the federal government. But winning Middle America’s support for New York City was not an easy sell in Washington. I went to Washington a number of times with Walter Wriston and Pat Patterson to present the case for federal backing of the City’s obligations. President Gerald Ford, who had just announced his decision to seek reelection and was facing a difficult challenge from Ronald Reagan, did not look benignly on our request. Evidently, opening the federal purse to the profligates of New York and eastern bankers wouldn’t play well in Peoria. At least that was the impression we gained at a frustrating session in mid-October in the Oval Office with President Ford, Treasury Secretary William Simon, Federal Reserve chairman Arthur Burns, and my brother Nelson, then the vice president.

  Nelson, although sympathetic, kept his own counsel, perhaps because he still hoped that Ford would retain him as his running mate in 1976. The others were entirely unsympathetic, especially, and most surprisingly, Bill Simon. Even though Bill had been an investment banker in New York and had served as an advisor to Mayor Beame, he urged the President to let the City declare bankruptcy. Burns, though less adamant, leaned in that direction as well. We left the meeting quite discouraged.

  A few weeks later President Ford delivered his definitive response in a speech at the National Press Club. The President used the occasion to itemize the City’s litany of fiscally irresponsible acts and promised to veto any “bailout” bill. The Daily News summarized the speech in a famous page-one headline: “FORD TO CITY: DROP DEAD.”

  The backlash from that headline, especially the prospect that Ford would resoundingly lose New York State in the next election, had a mitigating impact on the administration’s hardline position. With yet another city-state financial plan in place, Congress authorized $3.6 billion in loans over a three-year period, which required the City to repay the amount borrowed with interest at the end of each fiscal year. This, then, was the “insurance policy” that the City needed to reassure investors. President Ford announced this compromise at a Thanksgiving Eve press conference, and with his statement the fiscal crisis came to an end.

  I look back on the City’s financial travails with a deep sense of sadness. Abe Beame was a good and honest man who found himself adrift in a sea of red ink brought on by decades of unsound fiscal policies. He and his municipal government colleagues were either unwilling or unable to face up to the City’s serious problems. Nor was the situation helped by the cavalier and irresponsible attitude of our national political leaders.

  The end of the fiscal crisis also marked the end of an era in the history of New York City. The terms of the financial rescue put the City in a budgetary straitjacket that made it impossible to sustain the high level of social activism and income redistribution that had characterized the Lindsay and Beame mayoral years. Even before the money ran out, however, it had become clear to many, including me, that the intellectual underpinnings of liberal reform of the day had become bankrupt as well. Decades of high taxes, intrusive regulations, and special interest politics had not resulted in a more prosperous and civil society but just the opposite: a decaying infrastructure, a declining population, an eroding employment base, an increasing crime rate, and a failing school system.

  Perhaps the only positive outgrowth of the fiscal crisis was that it forced bankers and union leaders, two species not normally known to associate, to begin to work together in search of common solutions. During the course of our difficult negotiations, business and labor developed mutual respect for one another. This would prove to be an important foundation as we cast about for ways to restore a once-great city’s prominence in the aftermath of a destructive financial crisis.

  UNITING BUSINESS AND LABOR

  With the fiscal crisis behind us, I spoke with Harry Van Arsdale, president of the New York City Central Labor Council of the AFL-CIO, about strengthening the relationship between business and organized labor. He agreed that it would be useful to continue our association. We persuaded other businessmen and labor leaders to join us in forming the Business Labor Working Group (BLWG), which included Peter Brennan of the New York City Building and Construction Trades Council, Sol Chaikin and Murray Finley of the Textile Workers Union, Edgar Bronfman of Seagrams, Richard Shinn of Met Life, Preston Robert Tisch of the Loews Corporation, W. H. James, publisher of the Daily News, and Howard Clark of American Express.

  Not wanting to duplicate the efforts of other organizations, we decided that BLWG should disband after it completed a comprehensive analysis of the City’s problems and potential. We recruited more than 150 people to work on the study and reported our findings in late 1976. Our report emphasized job creation by the private sector and suggested the elimination of many obstacles to economic growth: excessive regulation, an uncompetitive tax structure, and bureaucratic red tape.

  The fact that both businessmen and labor leaders collaborated on the report gave it a special significance. For that reason many of our specific recommendations were acted on immediately; others became part of the new policy debate that began in New York City du
ring the late 1970s about the City’s direction. Even more important, the BLWG offered the promise that business and elements of organized labor could work together to realize common civic goals.

  WESTWAY: OF BASS AND MEN

  The BLWG report strongly endorsed two major public projects to jumpstart the City’s anemic economy.

  The first was a modern convention center, which the City desperately needed. The plans for what would become the Jacob K. Javits Convention Center were approved in early 1978, and it opened in 1986. It has been a great success and annually accounts for about 2 percent of the City’s economy.

  The second was Westway, an innovative but controversial highway project along the Hudson River shoreline of Manhattan that was designed to be constructed from landfill. Building Westway, we said, would, among other things, create jobs, alleviate air pollution, expedite traffic flow, revitalize a badly deteriorated section of the West Side, support development of the downtown business community, and help many smaller industries such as printing, retail, and garment.

  Most New Yorkers overwhelmingly supported Westway. In the past, projects such as Westway, backed by top business and labor leaders, endorsed by the leading newspapers, and promoted by most politicians, would have been quickly approved and expeditiously completed. But none of us realized that a new political force—environmental activism—would be able, in the end, to frustrate the implementation of a plan that would benefit all New Yorkers.

  By the 1960s the elevated highway along Manhattan’s Hudson shoreline was in such poor condition that it was under constant repair. In late 1973 a dump truck carrying asphalt to repair the highway broke through the rotting roadbed and plunged to the ground below.