Soundings

William J. Stern
Abuse of Authority
New York needs to clean up its unaccountable public authorities.
Spring 2004

In a February report, State Comptroller Alan Hevesi noted that New York now has a dizzying 643 public authorities—212 on the state level, 425 local, and six either bistate or binational. The state has created these debt-issuing entities over the years to build and manage public projects and finance public improvements; these days, they do everything from managing (badly) three metropolitan airports to selling development rights to building convention centers.

The comptroller calls the public authorities a “semi-secret fourth branch of government”—and he has a point. These bodies spend “vast amounts” of money and account for 90 percent of New York’s $38 billion or so of outstanding state-supported debt, yet they’re seemingly accountable to no one, especially voters. Only three of the authorities even have to file financial statements with the comptroller. Most New York taxpayers know nothing about them, despite paying billions in hidden taxes, fees, and tolls every year to support them.

Not surprisingly, given the flood of money and zero oversight, “mismanagement, unethical behavior, and criminality” are rampant, says Hevesi. He points out that 55 major scandals have hit the authorities since 1990, about four per year. The sleaze includes highly suspect no-bid business deals, blatant nepotism and cronyism, kickbacks, and taxpayer-funded junkets to Hawaii and Paris.

State Attorney General Eliot Spitzer recently echoed Hevesi’s criticisms. Spitzer recalled a particularly galling, though legal, abuse: New York State’s sale, back in the early 1990s, of Attica Prison to the Urban Development Corporation for $200 million—a mendacious sleight of hand that enabled the state to meet its constitutional requirement for a balanced budget without cutting spending (see “Government by Subterfuge,” Winter 1995). Taxpayers will have shelled out $600 million by the time they’ve repaid the bonds that the UDC used to make the sale. “If you wonder where Enron and Mr. Skilling got their budget advice,” Spitzer observed drily, “it could have been New York State.”

After Hevesi and Spitzer made their comments, the press reported that the two men—the state’s highest-ranking elected Democrats—had declared “war” on the authorities. The duo propose to set up a commission to examine the authorities thoroughly, and they call for reforms in procurement and in government ethics.

A commission! Ethics reform!

Please. A “war” on the authorities won’t be won this way—and Hevesi and Spitzer know it. These two are political insiders: they know what is really going on inside the authorities’ walls. New York’s giant welfare state has created an enormous class whose livelihood depends on it. This class includes not only those who receive welfare payments or who work for government or who contract with government to provide services, but also a vast armada of lobbyists, politically connected lawyers, PR people, consultants, and others who earn handsome incomes by brokering regulations and influencing who gets what from New York’s huge public treasury. This insider commercial party is the real power in New York. And the public authorities are its happy hunting ground—a source of billions of dollars in taxpayer money to play with. No government commission is likely to be powerful enough to challenge the cozy relationship between the insider party and the public authorities.

If the authorities are akin to Enron, as Spitzer plausibly claims, then it’s time to crack down hard on them, the same way that the federal Justice Department is taking on Enron—and that Spitzer himself is courageously cleaning up the financial-services industry. Hevesi and Spitzer are powerful officials, with hundreds of accountants and lawyers at their disposal. Why not pick out a couple of the larger authorities—say, the Metropolitan Transportation Authority and the Long Island Power Authority—and make examples out of them? Hevesi could flood the targeted authorities with auditors, exposing whatever mismanagement and criminality might teem there. Spitzer could use his considerable resources to investigate and bring what he found to a grand jury, which could then indict people.

These two should also campaign to shut down as many authorities as possible. Meanwhile, they could at least demand that the state’s economic development authorities publish IPO-type prospectuses, describing the serious potential risks to taxpayers, before they invested public funds in projects such as convention centers, stadiums, and real-estate development—investments that in the past have produced no economic growth but only high living for the well-connected.

Until they take such a strong stance, Hevesi and Spitzer will leave the public authorities as corrupt as ever.

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