MAKING DIVIDED GOVERNMENT WORK: THE ROLE OF THE NEW YORK STATE LEGISLATURE

DURING THE GREAT FISCAL CRISIS OF 1975 BY HON. MANFRED OHRENSTEIN

Hon. Manfred Ohrenstein

Research and publication was assisted with a grant provided by the

Al and Frances Hochman Memorial Lecture

The Hon. Jerome and Helene Berg Public Policy Papers on Government Reform

Summer 2013

Published by the

Hugh L. Carey Institute for Government Reform at Wagner College

Staten Island, New York Dean Seymour P. Lachman, Director

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Making Divided Government Work:

The Role of the New York State Legislature

During the Great Fiscal Crisis of 1975

By Hon. Manfred Ohrenstein

Edited by Marc A. Rivlin

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The legislative branch of government is a very controversial institution in the United

States today. It is also essential to governing in a democratic society. For the most part, it has

served this country well for over two hundred years. Our model of executive-legislative

relationships has been, by and large, very successful. The best proof of that is that the model is

followed in one form or another in many democratic societies around the world. That does not

mean the institution always works. Like any human institution legislatures make mistakes. Yet

they can also rise to great heights. This topic was inspired by Seymour Lachman and Robert

Polner’s book The Man Who Saved New York: Hugh Carey and the Great Fiscal Crisis of 1975.1

The model of how the New York State government solved the New York City fiscal crisis in

1975 can also serve as a model for how to settle the difficult governmental and federal crises we

are experiencing in this country today. Today we are living through a very complicated crisis.

Our crisis is both fiscal and moral and is international in scope. We suffer from the lingering

effects of the worst recession since the Great Depression. Unemployment remains high. There

are widespread concerns about the effects of long-term budget deficits, concerns that extend to

Europe in light of the economic crises in Greece, Spain, Italy and other European nations.

We face a level of partisanship and lack of cooperation across the political aisle that has

not been seen for generations. During this very difficult period, the relationship between the

president and Republican members of Congress has not gone well. It is, in fact, dysfunctional in

many ways.

In 1975, the State of New York and particularly the City of New York faced major fiscal

crises. These crises could have pulled us apart. Yet, as opposed to the dysfunction that threatens

to prevail today, we learned to overcome our differences and address all the crises in spectacular

1 Seymour P. Lachman and Robert Polner, The Man Who Saved New York: Hugh Carey and the Great Fiscal

Crisis of 1975, Albany: SUNY Press (2010).

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fashion. That period can be looked at as a model as to how the New York State governor and the

legislature faced conditions that could have brought the City and State of New York to their

knees. Instead, they confronted it together despite the fact that they were split by party lines.

In some ways, very important constructive and sometimes noble goals can be achieved

during periods of split government. At those times, political parties must examine their own

consciences and decide what it is they believe in and what they believe they are elected to do. Is

it to promote their parties and partisan goals? Or is it to promote the common good of all citizens

and of the country or the state or the locality they serve? In that respect, the 1975 period is of

enormous consequence, because it proved that a government confronted with major crises,

including the possible financial collapse of the City of New York, could act in a forceful manner.

Despite the fact that this government was politically divided, it was, nonetheless, able not only to

solve that crisis but also to solve it in a way that led the city to greater heights once the fiscal

crisis was averted.

First, I want to give some background on the people who faced this drama. Hugh L.

Carey was the newly elected Democratic governor.. At that time, politics in New York State was

controlled by political bosses who were the county leaders of the party in power. The parties ran

themselves under very authoritarian rules. The country leader was the boss and what he desired

was the law. This was very much a closed system with the public largely excluded. Hugh Carey

came from that environment, having served as a Brooklyn congressman since 1961.

In 1974, the state Democratic convention, which was controlled by the party bosses,

nominated Howard J. Samuels for governor. Samuels was a successful businessman, a former

under secretary of the United States Department of Commerce and director of the United States

Small Business Administration, and a respectable liberal leader, but he had limited experience in

elective politics, having never held elective office, and did not understand the political landscape

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well enough.

Hugh Carey had served in the United States Army in Europe during World War II before

becoming a lawyer and getting into politics after the war. He was a crusty Irish-American

politician, very smart and very adroit. He decided to take on the bosses in 1974 and oppose their

choice for the gubernatorial nomination. Of course, he had come out of that atmosphere; the

bosses had helped him get elected to Congress. But, he believed that he would be a better

governor than Howard Samuels. There was a primary fight and Carey surprised many people by

defeating Samuels. He thus beat the bosses and was beholden to no one.

There was another primary fight that year, one for the Democratic nomination for

lieutenant governor, which has largely been forgotten . In New York, each party’s nominees for

governor and lieutenant governor run on a single ticket in the general election. However, in the

nomination process, parties choose their candidates for governor and lieutenant governor

independently, with separate votes at both the party conventions and in primary elections if the

nominations are contested. In 1974, Howard Samuels’s pick for lieutenant governor was Mario

Cuomo, who would later become governor and a national spokesman for progressive Democratic

principles. Opposing Cuomo for the nomination was Mary Anne Krupsak, a state Senator from

Schenectady in upstate New York. She was smart and savvy, and she beat Mario Cuomo because

the voters wanted Carey as governor and supported his choice for lieutenant governor.

Krupsak was a good addition to the group of leaders that ended up having to deal with the

fiscal crisis. The other members of this group that faced this crisis along with the new governor

and lieutenant governor were the leaders of the New York State Legislature: the speaker and the

minority leader of the Assembly and the majority and minority leaders of the Senate.

The incoming Speaker for the new Democratic majority in the Assembly was Stanley

Steingut, from Crown Heights, Brooklyn. As the chairman the Kings County Democratic

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Committee, he was also the party’s county leader. He had supported Howard Samuels for

governor and not fellow Brooklynite Hugh Carey. Representing the Assembly Republican

minority was Perry B. Duryea, a businessman from Suffolk County whose family owned a

wholesale seafood and lobster business in Montauk. He had been the Assembly speaker for the

previous six years when the Republicans were in the majority.

I represented the Democrats of the state Senate as the body’s minority leader. I was a

reform Democrat and fought the political bosses of the day. I went into politics on the west side

of Manhattan and together with another person who unfortunately has been largely forgotten,

Bill Ryan. In 1960, Ryan ran for a seat in the House of Representatives while I ran for the state

Senate, and we beat the bosses’ candidates. The fourth legislative leader was the Senate majority

leader, Warren M. Anderson, a Republican from Binghamton. He was urbane, smart, and loved

the City of New York. He was also a Republican and he knew how to fight.

This was the group that came to power on January 1, 1975. Normally, the first day of the

session, which takes place in the middle of the second week in January, is a largely ceremonial

day. The governor delivers the State of the State Address, and then everybody goes home and

returns to Albany the following week to start governing.

This day was a little different. I remember arriving at the capitol at about nine o’clock in

the morning. The speech was scheduled to be at around one. I received a call at around ten

o’clock: “Come to the governor’s office. There’s a meeting.” I said, “A meeting? Why are we

having a meeting on this ceremonial day?” We soon found out there was a serious financial crisis

facing the State. At the meeting in the governor’s office we were joined by Robert C. Weaver, the

former Johnson Administration Housing and Urban Development Secretary, who was advising

the incoming governor on transition matters. Weaver gave us the startling news that the New

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York State Urban Development Corporation2 was facing bankruptcy. So, this group of disparate

political people, who had just taken office, without one day of experience working together, were

told that the U.D.C. was about to go bankrupt. What a startling way to begin.

Fortunately for us, Governor Carey had assembled an absolutely outstanding staff. He

truly collected “the best and the brightest,” including Peter Goldmark, David Burke, Richard

Ravitch, Felix Rohatyn, Stephen Berger, and Judah Gribetz, among others. When I was a young

legislator and Nelson Rockefeller was governor, he had a strong executive staff that was very

sophisticated about the affairs of the City of New York and New York State in general. He set a

very high bar. Hugh Carey put together a group of people similar to that.

Carey’s staff had advised him that, in general, the finances of the state were not good. So,

not only did we get a rather cold bath at ten o’clock in the morning that day by finding out that

the U.D.C. was about to go bankrupt, but, two hours later, Carey made his first state of the State

speech announcing that the “days of wine and roses” were over. That became the famous slogan

from his speech and was his way of announcing the state's finances were in poor shape, This

typically ceremonial and social day that was supposed to begin the 1975 session started in a

rather dramatic fashion.

Within the next four weeks, we were able to solve the problem of the U.D.C. by creating

a vehicle to borrow money and address the agency’s shortfall. The credit of the State of New

York was pledged to that vehicle, allowing the U.D.C. to go to the financial market to raise the

money needed to cover its deficit. That became the trademark for our being able to work

together. Clearly, Warren Anderson could have played politics with this. But, to his credit, the

fiscal crises never become a partisan matter. The Assembly speaker and the Senate majority

2 The New York State Urban Development Corporation, or U.D.C., is a public benefit corporation that was created

in 1968 and charged with designing and building affordable housing throughout the state. It survives to this day with an expanded mission, operating as the Empire State Development Corporation.

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leader are each in the position to make a lot of trouble for an administration of the opposing

party. Anderson never did that. We all pitched right in. From that moment on, we knew that we

had to solve this bankruptcy threat at the U.D.C. Otherwise, the credit of the State of New York

would be damaged and the reputation of the State of New York would be tarnished. Within the

first months of the session, we began to work together in order to prevent that, and we were

ultimately successful.

Little did we know at that time, but, down the road, a much, much larger problem lurked

in the form of the financial problems of the City of New York. The mayor at that time was

Abraham D. Beame, who was one of the nicest people you could every meet. He was a kind and

deferential person who had been comptroller of the City of New York for many years before

being elected mayor in 1973. Just as county and city politics were controlled by political bosses,

grassroots politics was centered on local political clubs. Beame came out of the Madison

Democratic Club in Crown Heights, Brooklyn whose leader was Speaker Stanley Steingut. The

club was the source of Steingut’s power, and Steingut had helped elect Beame mayor. .

In March 1975, not long after we addressed the U.D.C. crisis, Mayor Beame came to

Albany to inform us that the banks had closed the market for short-term paper for the city out of

concern that it would default. The city routinely used short-term debt to cover the costs of

operating expenses during the fiscal year in anticipation of tax collections, most of which take

place between April and July. Without access to short-term borrowing, the city could not meet its

ongoing obligations. Our meeting with Mayor Beame was very dramatic. During this meeting,

Senator Anderson’s constructive but firm dialogue with Mayor Beame began to establish the

basis for a bipartisan fiscal solution to the City’s problem. It exemplifies why the question of

bipartisan government was so important during the 1975 fiscal crisis. It was the beginning of a

long and tedious effort to help the city recast its fiscal practices.

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Most American elections are conducted in a partisan manner. This works well because the

United States has a strong two party system, and, hopefully, such elections will produce good

people who will follow the will of the electorate and govern well, whether it is on the city

council, the state legislature or in an executive position like mayor or governor. The people

decide. That kind of partisanship, when it works, is a good thing. However, if, after taking office,

the elected officials focus only on partisanship and forget that they have to run a government, it

does not work.

Mayor Beame came to Albany with the first deputy mayor, James A. Cavanagh, who was

supposed to be a fiscal watchdog. We had a meeting that I will never forget. It took place in the

Red Room on the second floor of the state capitol. I describe this because, in newspaper articles

and television news, events tend to be dehumanized. I want to humanize things, because these

are real people who do real things and make real decisions. They have feelings, they get angry,

they get happy, and they make mistakes, and sometimes they do some very good things.

Attending this meeting with Mayor Beame and Deputy Mayor Cavanagh were Governor

Carey and the four leaders of the legislature: Stanley Steingut, Warren Anderson, Perry Duryea,

and I. Cavanagh distributed three or four pieces of paper, and on each of the sheets there was one

line. He said, “This is the information: we want you to approve $400 million in new taxes for the

City of New York, and we’re asking for the state to advance another $200 million — a package

of $600 million, so we can cover our expenses. Since we couldn’t sell our short-term paper, that

will cover our short-term, and then we’ll go on to the next quarter and so on and so forth.”

We all sat there rather stunned. I said, “So you’re asking for a $600 million package of

new taxes for the people of the City of New York, money that the state had difficulty raising

itself? And you’re giving us three pieces of paper with two lines on it?” I recall the reaction of

the people involved in this meeting. You had the governor of the State of New York, who was

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from Brooklyn and had worked with the Brooklyn Democratic organization. You had Stanley

Steingut, who was the political boss of the Brooklyn Democratic Party, as well as the speaker of

the Assembly, and you had Abe Beame, the mayor, who was part of the Steingut political

organization. We were sitting there listening to this presentation, and we were all somewhat

stunned. As fellow Democrats from the city, we were speechless.

The only person who asked substantive questions was Warren Anderson. He did not ask

political questions, nor did he try to embarrass anybody. He said that if they wanted that kind of

assistance for the city, they would have to provide the financial data to back up what they were

doing. Cavanagh responded that this was how they did things in the City of New York. That was

his message.

At that point, we knew that the city had very serious problems and that we had to do

something about it. Of course, Stanley Steingut was in a real bind, because he was not only the

speaker of the Assembly but he was from Brooklyn and the Mayor was a charter member of

Steingut’s club. How should he handle this?

Fortunately for me, I was less constrained. I was a reform Democrat and a political rebel.

I did not owe anything to anybody in that room or anywhere else except for the people who

helped me get elected: the members of the Senate Democratic Conference and my constituents. .

Who was going to say to Mayor Beame, whom we all liked, “Abe, you’ve got to make a

presentation here that makes sense.”? The only person who said that was Warren Anderson. He

said it respectfully but in a way that made very clear that he was not going to do anything until

he had full information. Warren’s statesmanship motivated me because I was also beginning to

learn how to work with him. He was the majority leader, and, as such, controlled the budget of

the Senate including my own Democratic Conference budget. It was one of those moments when

I learned to respect this man for his substance. I began to see that I was going to have to take a

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stand here as well.

I was a very liberal legislator; I am still very liberal. But, I was born in Germany and

came to this country when I was a young boy. I like to tell people that despite the fact that I am

Jewish, I think there is a little bit of a Prussian in me because I was born in Germany. Unlike

many Democrats at that time, I was concerned that the State budgets be in balance. When a

reporter asked me after I was elected as leader of the Senate Democratic Conference, what my

main priority was, he thought that I was going to talk about housing or welfare or something like

that. Instead I responded that now, as the minority leader of the Senate, I wanted to prove that the

Democratic Party knows how to balance a budget. I took my political responsibilities very

seriously. We had lived for years and years with Republican governors, and, with the exception

of W. Averell Harriman, we had not elected a Democrat as governor in 36 years. We finally did

with Hugh Carey, and I said that we had to prove to the people that we can capably run this

government and that balancing the budget was one of the things that we had to do. I was,

therefore, determined to work with Warren Anderson and the governor.

Even though we all liked Abe Beame and did not want to embarrass him, we still had to

take a strong stand. That was when Warren Anderson and I really cemented our relationship. And

thus, humanizing the participants is a good way to understand that this is not all cut-and-dry. In

the next few months, we had to do some very difficult things. We created the Municipal

Assistance Corporation, which was one of the financial tools that allowed the city to access the

bond market. As much as we had problems with the banks, the marketplace for the short-term

and long-term borrowing, which efficient government requires, was controlled by investors

including pension funds and individuals. They refused to buy paper that was coming from the

City of New York, because they believed the city was in such deep trouble that it could default.

We had to convince the marketplace that the money they invested in the city was not going to be

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lost. In the end, we had to replace the fiscal authority of the city’s government by creating the

Emergency Financial Control Board in September 1975. The E.F.C.B. was ultimately controlled

by the governor. Mayor Beame became part of it, but the majority of its members were appointed

by Governor Carey. We had to satisfy the marketplace that the reforms that were necessary to be

made in order to allow the city to function would in fact come about. It was that piece of

legislation where the rubber hit the road so to speak.

We went through several dramatic weeks in the summer and fall of 1975. Stanley

Steingut and his Assembly majority had a particularly difficult job to do. As Democrats, many of

whom were from New York City, they wanted to protect the city and its mayor and did not want

to see them embarrassed. They did not want to see the city’s government taken away from the

people of the City of New York. Some fought this to the end, until it became clear to almost

everyone that superseding the city’s fiscal management was the only way the city was going to

be able to go to the bond market. The legislation passed finally with Stanley Steingut’s support.

Here he was, the leader of the Brooklyn Democratic Party, voting against the Democratic mayor,

who was one of his closest friends, and a member of his political club.

The financial control board bill passed the Senate by a vote of 33 to 26. And, out of those

33 votes, 23 were Democrats and ten were Republicans. So while the Republicans controlled the

Senate, it took both parties to save the city. During the next two or three years, the city began to

manage its finances much better, and the financial control board had a lot to do with this. We

continued to pass legislation that benefitted New York City’s finances as a result of

bipartisanship in the Senate, with Warren Anderson and me working together.

The model that we created in those very critical years is of great significance. The stories

of how we saved the City of New York from default are meaningful because they demonstrate

that government is done by people. It is not done by automatons. What we accomplished came

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from real people who put politics aside and worked together because they understood the

importance of their roles in saving New York City. Today, we have to convince the people in

Washington and in 50 state capitals, that it is possible to work together as Republicans and

Democrats did in 1975 in New York State and that only by this kind of bipartisanship might we

yet be able to solve the serious financial problems facing the United States.