Unfair Hike

Written by Matt Taibbi on . Posted in Breaking News, Posts.

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

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. 

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).

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.

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."

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.

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

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.

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."

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.

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.

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

"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

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."

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.