Unfair Hike

Nobody who’s been following the recent MTA mess should be surprised by anything he or she reads. The MTA has always been a foul animal, a child of incest, the offspring of unnatural acts.

The year is 1967, and Governor Nelson Rockefeller is in trouble. He’s going to have a problem fulfilling his legal obligation to balance the state budget, an ugly prospect to face when one needs conservative support for a possible presidential run. The solution: a new, two-billion-dollar highway and transit bond issue, ostensibly to cover the costs of a merger of the transportation authorities, including the Triborough Bridge and Tunnel Authority (TBTA) and the commuter railroads.

There’s only one problem. The merger would be an outrage to bondholders of the existing authorities, in particular those of the TBTA, who risk seeing bridge and tunnel toll revenue reinvested in new projects before their bonds are paid off. Furthermore, the bridge and tunnel bondholders are asked to support the railways, competitors of a sort that seek to divert traffic away from their revenue-generating motor tolls. With $367,200,000 in TBTA bonds outstanding, the bondholders, led by trustee Chase Manhattan bank, are sure to sue in the event of a merger, and will almost certainly win.

Except for one thing. Chase Manhattan is run by the governor’s brother, David Rockefeller. The two brothers meet behind closed doors on Feb. 8, 1968, and emerge with an agreement that Chase will not oppose the merger. So much for those bondholders. The deal is sealed away from the prying eyes of the public in the chambers of State Supreme Court Justice William Hecht.

A few weeks later, an unholy animal—borne of political opportunism, national ambition, secrecy, a total disregard for either the voting or investing public and a lack of any consideration for either municipal efficiency or fiscal sense—comes into the world under the name it bears today. The Metropolitan Transit Authority—the MTA—which could not have existed without the extraordinarily rare convergence of two brothers sitting simultaneously at the apexes of political and financial power in the same state, is even created on an unnatural day: February 29, 1968. 

The MTA has made a lot of ugly news in the last few years—a threatened strike, contentious fare hikes, a $13.5 billion debt reorganization and persistent allegations of corruption. But the most portentous blow to the authority came just a few weeks ago, in a scandal that was widely reported but the scope and meaning of which have yet to be seriously explored publicly.

The story began when the MTA’s security director, an ex-cop with a sterling reputation named Louis Anemone, went public with complaints that his efforts to investigate corruption within the MTA were being hindered by the MTA leadership. Anemone claimed that he and deputy Nicholas Casale had uncovered a pattern of bid-rigging and cost overruns that cost the Authority $100 million.

When the two sought a meeting with George Pataki to demand an independent investigation, the governor’s answer was an unceremonious Fuck You: Not only did he refuse Anemone’s request, but he deadpanned that he had "absolute confidence" in the MTA leadership.

Pataki had plenty of reasons to have confidence in the MTA leaders. According to New York State Election commission data, eight of the MTA board members, including Chairman Peter Kalikow and Vice Chairman David Mack, donated a total of $135,670 just to George Pataki’s campaign in the last election cycle.

Some on the board exhibited rare political enthusiasm during the 2002 race. Member Andrew Saul, for instance, chairman of the board of a women’s apparel company called Cache, Inc., not only gave the maximum allowable individual contribution of $30,700, but added $9800 under a loophole that allows contributions to minor-party primary elections (Pataki ran on the Conservative and Independence tickets).

Families pitched in as well. By themselves, the spouses of three MTA board members nearly doubled the board’s overall contribution. Denise Saul, Mary Kalikow and Bruce A. Blakeman (the husband of member Nancy Blakeman, Mr. Blakeman is also a Port Authority commissioner) donated a total of $97,200 in the last cycle.

The Board, of course, gave generously to other Republican causes (Kalikow and Saul both gave over $50,000 to Republican PACs, for instance), and there’s always the possibility that there were other donations made through companies associated with the board members. But the open donations to the governor by board members appointed by the governor, as well as Anemone’s desperate and ultimately failed attempt to leapfrog channels to bring his investigation into the governor’s office, get right to the heart of the issue.

The MTA is a Pataki operation. And the MTA scandal should be a Pataki scandal.

"The MTA…is a shadow government," says Democratic Assemblyman Richard Brodsky, who’s been organizing hearings on reform of the MTA. "Its finances are off budget. It’s just not subject to the normal oversight of democratic institutions."

Brodsky is the latest in a line of politicians who have tried over the years to break the spell of Robert Moses, the great builder who was the architect of the legal anomalies known as the New York City authorities. Until Moses, authorities had been—since the time of Queen Elizabeth I, in England—legal structures that were created for the specific purpose of completing a single task. They would come into being, build a bridge or a road, charge the public for its use and then go out of existence as soon as the project had been paid off, turning over the property to the state.

Moses, the builder of most of New York’s great bridges and highways, took these utilitarian bodies and turned them into semi-sovereign states with the same privacy rights as corporations, the power to issue bonds and raise their own police forces and the power to evict people from their homes through eminent domain—all without any significant public oversight.

Originally, Moses was hampered by laws that terminated the existence of authorities as soon as their bonds were paid off. But after including a clever passage in the Triborough Bridge and Tunnel Authority Act that allowed the Authority to issue new bonds during a project "for any other corporate purpose," the authorities now had the ability to delay full payment of their obligations permanently, simply by creating new obligations as they went along. The "shadow governments" that could plow through neighborhoods or raise fares at will could now remain vigorously in business for as long as the ostensibly democratic city governments they coexisted with.

It wasn’t until Rockefeller’s merger that the state succeeded in subduing the public authorities at all. But with the creation of the MTA system, the governor now had absolute control over a secret, impenetrable paradise of tribute in the authorities. Each and every year, there would be billions of dollars in contracts whose details were open to almost no one—not even to the bondholders and taxpayers who paid for them.

This system has been refined to perfection under Pataki.

A little more than two years ago, Pataki came to support a $3.8 billion transportation bond act that was narrowly defeated in a statewide referendum.

"That was a close one," says Conservative Party chairman Michael Long, who led the campaign against the act. "According to our calculations, we would have been $7.8 billion more in the hole after 9/11 than we are now if they’d won."

But that spasm of fiscal sanity on the part of the voting public was the exception that proved the rule. While the state can be stopped from incurring debt, the authorities have the power to do so almost unilaterally, in the case of the MTA, the only limits being general caps on bond issues set by the state legislature every few years. And since the legislature is dominated by Republican politicians, who receive the overwhelming support of the contractors, investment bankers and lawyers who feed off the money raised by bonds, the cap is always comfortably high—resulting in a situation in which the MTA by itself is, according to some estimates, the fifth-largest bond floater in the United States.

"There’s California, New York, Texas, New York City… Yes, that’s quite possibly right," says Kathleen Holt, an analyst for Moody’s who evaluates MTA bonds. "It’s up there, anyway."

The influx of bond money seems always to come at a convenient time for Governor Pataki, who can assume the guise of a pre-electoral Santa Claus in places all around the state where MTA money is distributed—places like Plattsburgh (where Bombardier makes subway cars), Yonkers (Kawasaki, subway cars), Schenectady (Super Steel Schenectady, electrical converters) and, of course, New York, where much of the construction actually takes place.

It is difficult, if not impossible, to find an MTA contractor that did not contribute at the state level exclusively to the Republicans and/or Pataki. Sometimes the donations are small and symbolic, but they’re almost always there nonetheless. The rule holds as true for massive transnational corporations headquartered in other states (Clear Channel, which contracted advertising space from the MTA, and Lockheed-Martin, which builds subway propulsion systems, gave generously) as it does for New York-based companies (Telephonics in Long Island, ADCO in Staten Island).

As if sending a cheap thank-you note, Super Steel in Schenectady even sent Republican Assemblyman and Pataki cheerleader Jim Tedisco a paltry $250 on May 6, 2002, the day it heard that it would be getting work as part of an MTA contract for Bombardier cars. It sent $1,000 to Pataki the following week.

Even Decision Strategies, the so-called "Integrity Consultant" firm brought in by Pataki to "investigate" the system of MTA contract awards after one-time MTA Inspector General Roland Malan complained that his inquiries were being impeded—even Decision Strategies was itself a Pataki donor.

The firm’s president, Bart Schwartz, offered this assessment after his review of MTA procedure: "We have no facts or conduct which cause us to conclude that the integrity of the procurement process has been compromised."

"Whether it’s true or not, there is a perception out there that you have to pay to play," says Gene Russianoff, attorney for the Straphangers campaign. "It’s a very troubling pattern."

The only significant donor to a Pataki opponent among those with MTA-related business dealings that New York Press could find was Russian-born Tamir Sapir, the owner of the MTA’s new 2 Broadway headquarters property. The onetime cab driver turned billionaire alleged in a suit that the MTA had screwed him out of rent money and saddled his property with mobbed-up contractors who siphoned off funds to buy, among other things, a winery in Italy. Sapir gave the maximum $30,700 to Carl McCall.

Binding all of this together is a system of interlocking personal relationships that, when taken as a whole, are almost as compelling as the original Rockefeller incest deal. One can get dizzy trying to follow the Pataki-MTA bedroom drama.

The governor appoints the board members—that’s obvious. Not so obvious: the chairman, Peter Kalikow, is the landlord for Park Strategies, the firm of Alfonse D’Amato, Pataki’s political mentor and also a lobbyist for subway carmaker and major MTA contractor Alstom. Kalikow’s top aide, Richard Nasti, was once counsel to D’Amato.

Somewhat better known is the fact that William Plunkett, Pataki’s former law partner, was a lobbyist for Bombardier, and William Powers, the former GOP chairman, was the lobbyist for the remaining major subway car player, Kawasaki. Louis Tomson, the former deputy secretary to Governor Pataki in charge of setting public-authority-related policy (and the man credited with instituting the MetroCard) is another veteran of Plunkett Jaffe, Pataki’s old firm.

Even Katherine Lapp, the current executive director of the MTA, is an old Pataki aide.

This neverending flow of borrowed money, coupled with the network of obvious financial and personal relationships, accomplishes two things: It makes incumbency nearly irresistible, and dissent and oversight—as recently demonstrated—almost impossible.

Louis Anemone and Nicholas Casale weren’t the first MTA whistleblowers, but they’ve certainly been the loudest. Three years ago, then-inspector general of the MTA, Roland Malan, sent a letter to then-MTA chairman Virgil Conway complaining that he had been hampered in his investigation into a $97 million contract to renovate the Midtown tunnel. That contract had been won by Silverite Construction, which had donated hundreds of thousands of dollars through various channels to Pataki and Republican candidates. Shortly before his term ended, he closed his investigation, and no indictments were ever handed down in the case.

"I closed the investigation because I didn’t want my successor to be in the same position I was in," says Malan, who is now retired and lives in Washington state.

Few people interviewed for this article could remember another example of an insider publicly taking on the MTA. The Straphangers’ attorney Gene Russianoff, whose New York Public Interest Research Group led the original campaign to create the MTA inspector general position, said he had been somewhat disappointed with its results.

"If there is a whistleblower tradition in the MTA, these guys have been keeping a pretty low profile," he said.

Or else nobody ever paid any attention to them. Art Harmon was an auditor for MTA projects in the 80s who claims that he uncovered millions of dollars in waste before he was fired and his audits were terminated. He found a few friendly ears to take up his case after his dismissal—former Queens councilwoman Julia Harrison once sent a letter to Pataki on his behalf, demanding an inquiry—but ten years later, he is still trying to find an audience for what he thinks are urgent grievances.

"The only thing that gives this story a chance of coming out is that Enron happened," he says. "The MTA is Enron all over again. It’s that kind of accounting situation."

Not that there’s any way of knowing. Assemblyman Brodsky, who is pushing a bill that would create an independent auditor of the MTA, puts it bluntly: "The books are closed," he says.

The MTA’s unique quasi-governmental legal structure makes its finances even more impenetrable than your average publicly traded corporation. The authorities have evolved over the years. Once upon a time, a bridge was built, it paid for itself in tolls, and that was it. Then there were innovations in the structure of authorities that allowed high-earning projects to pay for the losers. Nowadays the MTA as a whole doesn’t even completely pay for itself: It can borrow money for its own projects, and through "service contract" bonds, part of its debt can be paid off by general tax revenue. Despite this, its books are more or less closed, both to voters and to investors.

"We get adequate figures to make a rating," says Moody’s Holt euphemistically. "We get statistics on the number of commuters, figures on the amount of dedicated tax revenue. Subsidy levels, and so on."

What about the other stuff—information about contractors, cost efficiency, where and how money has been spent?

"Well, that’s not really relevant to what we do," Holt says.

Too bad. There are some who wish it was. Lost in last year’s furor over the MTA strike threat—and over the subsequent fare increase—was the whole issue of how the MTA spends its money, how much waste and inefficiency there is and whether commuters and even its own employees should be asked to foot the bill for what is essentially a perpetual campaign fundraising operation.

George McAnanama of the Transit Workers Union makes what sound like the usual union claims about the benefits of keeping work in-house as opposed to contracting it out. He says their figures show that up to $7 million per station could be saved by keeping work in-house. He also says that from personal experience working on MTA projects, one becomes accustomed to seeing things that don’t make sense.

"Only the MTA would come up with a $2,000 oil change."

That’s the beauty of the MTA: it can waste as much as it wants, spend the money however it wants, and somebody else always has to pay. In a very literal sense, the fare hike is taxation without representation. It’s hundreds of dollars a year from millions of families. Done by fiat.

Stand clear of the closing doors.