How Urban Progressives Became Their Own Worst Enemy

Marc J. Dunkelman’s new book, “Why Nothing Works,” is a wide-ranging exploration of public-sector dysfunction in the United States. 

Dunkelman’s primary goal is to explain why government can’t seem to get things done anymore. A big part of the problem, according to Dunkelman, is progressivism, which he believes is undermining itself: “Progressives have, from the very beginning, been torn perennially between their desires to build public authority up and to tear centralized power down.”  

Dunkelman traces these two conflicting impulses back to the Founding Fathers, identifying the urge to centralize with Alexander Hamilton and the instinct to guard against abusive authority with Thomas Jefferson. His book argues that in recent years, the American left has become unbalanced, tilting too far toward Jefferson. In the process, progressives have crippled government’s ability to build affordable housing, combat climate change and achieve a host of other goals.

In this excerpt from “Why Nothing Works,” Dunkelman offers a case study in how good government reforms can have unintended consequences, showing how the response to New York’s fiscal crisis in the 1970s planted the seeds for the derailment of major economic development initiatives half a century later. – Eds. 

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In 1974, New York State maintained a phalanx of 230 separate public authorities, each operating on its own charter. Many of these bureaucracies had been created to build and maintain massive public works: a housing project, a dam, a highway, a train network. Many issued debt and then serviced that debt with various revenue streams: rents, tolls, fares. They had, for decades, been praised for the virtue of being “apolitical” — for pursuing the public interest without fear or favor. But now lenders began to worry more generally that the state would not, in the end, keep private-sector lenders whole. Perhaps New York State was itself a financial house of cards. And that tipped off what became a cascading fiscal crisis. 

Hugh Carey had only recently been elected governor of New York. His 34-year-old budget director, Peter Goldmark, was not initially aware of how pervasive the problem really was. Sitting in his new office on the second floor of the state capitol, he began receiving, on a frighteningly regular basis, desperate calls from various cities, counties, agencies and commissions living beyond their means, each having presumed that the state would bail them out if push came to shove. And quickly Goldmark realized that the state itself might soon become insolvent. So he took to calling off whichever major investments the state could cancel. He mothballed tunneling for what would become, decades later, the Second Avenue Subway. He shut down plans to build a dental school on Long Island. Not knowing where the next hit might come from, he cut back on what often appeared to be worthwhile public investments.

Eventually, Goldmark concluded that Carey would need to do more than trim the fat. Between 1962 and 1974, when the GOP had controlled state government, public authority debt had grown from $129 million to $12 billion. Albany’s fiscal obligations so far outstripped revenue projections that the state would either have to raise more revenue (read: raise taxes) or the state’s lenders would have to “take a haircut” — that is, banks would have to agree to accept less back on the loans they’d made to bureaucracies like the Urban Development Corporation (UDC). That presented a big problem: the state of New York was suddenly at odds with many of the big banks that were headquartered in Manhattan. And much as they had long profited from the municipal bonds they had financed, New York’s banking elite worried about the “moral hazard” of letting even one bureaucracy off the hook. That now put them at odds with the new governor.

In February 1975, Richard Ravitch, a young real estate scion whom Carey had installed as the head of the Urban Development Corporation, paid a visit to National City Bank (later Citigroup) CEO Walter Wriston at the financial behemoth’s offices overlooking Park Avenue. Ravitch carefully laid out the state’s perspective on the crisis: put simply, the UDC didn’t have the cash to honor the payments due the banks in the coming weeks. Albany would be willing to pay the banks what they were owed, but only if the banks agreed beforehand to lend additional money to the UDC immediately thereafter. Wriston listened quietly, asked for a moment to confer with one of his banking peers, and then turned back to the young state bureaucrat. 

“Mr. Ravitch,” Wriston said, “pay your debts, and then we’ll talk.” 

Put in starker terms, the imperious older man wasn’t going to cut the state or its taxpayers a break. If the state had gotten out over its skis, then taxpayers would have to take it on the chin.

Following his meeting with Wriston, Ravitch flew back to Albany and explained to Carey in dramatic fashion what had transpired: “The banks of New York have closed their doors to the people of New York.” 

That put the governor off. Wriston and his colleagues on Wall Street, Carey figured, had been complicit in letting the UDC get into trouble — they had happily taken on the risk of lending to fiscally irresponsible public authorities. That being the case, it was now Ravitch and the governor’s view that the banks had an obligation to be flexible. And that set the terms of a standoff. The banks figured that Carey and Ravitch would fold, fearing the reputational hit the governor would take presiding over the first major public bankruptcy since the Great Depression. But Carey knew that the banks had a lot to lose as well — bankruptcy would leave them to fight over the state’s assets as the broader economy spiraled into recession and the state struggled to pay teachers, cops and nurses.

The tension reached a climax almost like in a movie. On Carey’s orders, Ravitch ordered the UDC’s lawyers to prepare a bankruptcy petition. He then invited the bankers to a Sunday afternoon emergency meeting in the governor’s Midtown Manhattan office. When the bankers arrived, they found copies of the petition sitting in front of them, ready for filing when the federal courthouse opened the next morning. If it was filed, they understood, they were sure not to be paid, and they would be left to divvy up the UDC’s remaining assets as meager compensation.

It was in that moment that they blinked, agreeing to extend the UDC a new $300 million credit line in exchange for new collateral. And with the immediate crisis averted, attention turned to the reality that the UDC’s mess wasn’t an anomaly — it was the rule. New York State government was a financial house of cards. In the wake of Watergate, the public was growing suspicious that the problems were born of corruption. And so Carey endeavored to appoint an investigative commission charged with figuring out how things had gone so awry.

To lead the new inquiry, Carey appointed Orville Schell Jr., a well-respected Wall Street attorney, who quickly began receiving applications from young attorneys eager to get on the ground floor of what appeared to be the next Watergate-like investigation. Perhaps they too would have an opportunity to expose the crooks who, like President Nixon’s allies, had taken advantage of an unsuspecting public. But after months of digging, Schell and his young peers determined that the debacle in New York had not been born out of greed or graft. The state had simply moved too far, too fast. And the appropriate salve, in Schell’s view, wasn’t to throw anyone in jail; rather, it was to impose a Jeffersonian balance on the state’s Hamiltonian bureaucracies. To that end, he recommended that New York establish a new temporary Public Authorities Control Commission, appointed by the governor, and charged with ensuring that agencies like the UDC managed the public’s finances responsibly.

The Schell Commission’s recommendation was received in Albany with a nod. Given the state’s dire financial situation, few could reasonably object to a new layer of oversight. But when the Commission’s report was delivered to the legislature, Assembly and Senate leaders insisted on what seemed like a minor change: The new body, which they would rename the Public Authorities Control Board (PACB), would not be controlled exclusively by the governor. The Assembly speaker and the Senate majority leader would be given the power to veto individually any major new outlay of taxpayer dollars. And that added an odd little wrinkle to the new bureaucracy. Until the PACB expired, the governor and his appointees would no longer be able to pursue projects entirely of their own volition — they would first have to win approval from the state’s legislative leadership.

In the early days, the new veto power proved to be a nonissue: Carey had no grand designs on big projects, if only because New York was so hopelessly cash-strapped. Nor did many connect this seemingly innocuous new emblem of Jeffersonian caution, eventually made a permanent fixture, with others being erected throughout the rest of American life. But they were everywhere — and particularly in the realm of housing. In 1976, revisions to New York City’s municipal charter awarded community boards new influence over land use decisions that had once more exclusively been the province of City Hall. In 1978, the Supreme Court affirmed the power of the Landmarks Commission to protect private property from an owner’s wrecking ball. The government needed more guardrails. Creating them became the order of the day.

Over the decades that followed, and as New York emerged from the detritus of the fiscal crisis, the PACB remained little more than an afterthought — a bit of red tape to clear near the end of consummating any state-financed project. Indeed, few thought much about it until, in 2004, New York City Mayor Michael Bloomberg proposed to construct a new football stadium in Manhattan as part of a bid to host the 2012 Olympics. Fearing the new stadium would steal convention business, members of the Dolan family, who controlled nearby Madison Square Garden, objected, turning to a friend in Albany, Assembly Speaker Sheldon Silver, for help. The speaker, who would later die while serving a long prison sentence for public corruption, didn’t care that the stadium was the lynchpin of New York’s Olympic bid. He was perfectly willing to use his PACB veto at the Dolans’ behest. And much to many an observer’s surprise — many hadn’t heard of the PACB beforehand, let alone been aware of its power — that’s just what he did.

The PACB, erected as a Jeffersonian check on Hamiltonian power, had been turned into a plaything wielded by a corrupt public official. At the end of 2006, for reasons that still remain somewhat mysterious, Silver used the same bureaucratic mechanism to shut down a proposal to renovate Penn Station. Beyond that, the PACB emerged as a tool so powerful that, in some cases, worthwhile projects died before even being vetted. One developer, for example, floated in Albany a proposal to move a state-run community college in lower Manhattan into another state-owned building so as to open up the old campus to residential development. But when it became clear that Silver opposed the project, the developer simply gave up — no need to have it vetoed officially at the PACB.

We may never know how many other projects were stifled for the same reason, or how many times developers abandoned projects for fear that they could never clear the PACB gauntlet. But more than a decade after Silver’s veto of the stadium — after he’d been unceremoniously removed from office and tried for corruption — the Jeffersonian excesses of the PACB struck again. After a widely publicized search, Amazon announced in November 2018 its intention to build one of the two parts of the company’s second headquarters across the East River from Manhattan, promising to site 25,000 jobs with an average $150,000 salary at a new campus in Queens. The company proposed to invest more than $3.6 billion in the new facility and pay more than $27 billion in taxes over the course of the following quarter century. In exchange, Amazon executives would receive, either as-of-right or in discretionary incentives, $3 billion in public help and expedited approvals to complete the move. For New York, boosters claimed, the project promised a whopping 900% return on public investment.

But not everyone was thrilled. Nearby landlords might benefit if Amazon purchased their property at a premium, but what about the New Yorkers who rented apartments in those buildings? Other critics questioned whether Amazon would hire resident New Yorkers or simply import outsiders. A rash of social justice advocates, among others, were ideologically opposed to the public subsidies, whatever the return. But if a small minority of seemingly gadfly complaints presented the veneer of a public debate, almost all of the region’s powerbrokers remained enthusiastic. And conventional wisdom, given the overwhelming support for the project, was that whatever demands locals made, their kvetching would never upend the sort of massive investment Amazon promised to make in the city and region.

What cheerleaders did not take into account, however, were the concerns of a single state senator representing parts of northwestern Queens. And as it happened Senator Michael Gianaris was serving then as the state senate president’s designee on the PACB. And that meant that he wielded the veto. If Gianaris was hardly a rubber stamp, he hinted that he was inclined to support Amazon’s plans if the company made a few additional concessions. But when nearby Representative Alexandria Ocasio-Cortez, newly anointed as one of Congress’s most charismatic members, announced her opposition, Gianaris found himself in a tough spot. Exercising the veto might be bad for New York, but failure to put his full weight behind Ocasio-Cortez’s opposition would make him a pariah to her supporters.

Had he been less integral to the project’s success — one vote among a whole state Senate that would almost surely have supported the deal — he could have railed against Amazon, opposing the project without scuttling the whole thing. As elected officials representing nearby neighborhoods, Gianaris and Ocasio-Cortez were certainly justified in speaking up for their angry constituents. But as a member of the PACB, this single state senator did have the power to stop it, and if he failed, he risked Ocasio-Cortez’s ire and, with it, the prospect of being reelected. So in the end Gianaris didn’t feel as though he had any real choice. 

In public comments, this single figure representing a small corner of Queens indicated that he was likely to exercise the veto. Understanding what that meant, Amazon decided to abandon the project altogether, sending those billions of dollars to the second HQ2 site outside Washington, DC.

That completed a remarkable arc. The PACB had been created at a point when progressivism’s Hamiltonian impulse to concentrate power in the hands of well-intentioned power brokers had clearly gone wrong. Progressivism’s yin and yang had come unbalanced, and the movement’s Jeffersonian impulse to put checks on the bureaucracy found a new outlet. But several decades later, the movement’s burgeoning aversion to power had come to stand in the way of new projects. Whether or not Amazon’s proposal was worthwhile, no single state senator should have the authority to scuttle a deal of this magnitude on his own. And yet the PACB’s story was not an exception; it was a single manifestation of a broader pattern. In a nation desperate to build, progressivism’s imbalance had left the government unable to deliver. And those who suffered most from the resulting paralysis were often the people progressives cared most to serve.