How Hugh Carey Became a Proconsul for the City

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The New York Sun

The obituaries for Governor Carey stress a major achievement, bringing fiscal responsibility to New York City government after the financial crisis of 1974 and 1975. Here are some facts about the situation at that time and Governor Carey’s critical role.

Mayor Koch, who knew Carey since they served in Congress 30 years ago, has written about Carey’s achievements. Click here to read his commentary.

This article is a worm’s eye view of the fiscal crisis and political events that surrounded and followed it. Back then, I was a City Councilmember at large, elected from Manhattan. The City Council, at the time less powerful than it is today, had little to do with creating or resolving the city’s near-bankruptcy. We offer some background and political history of the 1970’s. Thirty-five years later, it is remarkable how many of these events have been forgotten, while the new generation of New Yorkers never knew them.

In Governor Carey’s inaugural on January 1, 1975, he said that ‘the days of wine and roses are over.” This was a sage prediction of the fiscal storms ahead. In response to the city’s inability to borrow money to meet its obligations, Carey secured state legislation creating the Municipal Assistance Corporation (also known as Big Mac) and the Financial Control Board for New York City. MAC had the authority to borrow money on behalf of the city, and city tax revenue streams were required to give priority to MAC bonds over any other municipal obligations. The interest rate on some MAC bonds was set as high as 11%, and that income was tax-free. The FCB had authority over the city budget, its approval was required before a budget could be adopted.

The city’s fiscal crisis was different and more immediate than the one the Federal government is now enduring. For years, starting at the end of the mayoral term of Robert F. Wagner in 1965, and increasingly during the eight years of the Lindsay administration and the first year under Mayor Beame, the city had consistently spent more than it received in revenues. The gap was filled by borrowing, and city officials devised a number of instrumentalities for short-term borrowing, which was in addition to regular long-term borrowing through the issuance of bonds. In addition, current expenses, which should have been paid for by current revenues, were allocated to the capital budget, which made them eligible for bonding.

To meet its cash needs, the city began to issue new instruments, called RANs, TANs and BANs. These were respectively Revenue Anticipation Notes, Tax Anticipation Notes, and Bond Anticipation Notes. When they came due, the city rolled them over, renewing them for a short period of time. The sum of money borrowed in this way steadily rose, and there came a time in 1975 when the banks, fearful of default as the city’s debt increased, stopped buying the freshly issued notes. This caused an immediate cash crisis, as the city did not have the money to pay its employees, having become dependent on the proceeds of the short-term notes which had been rolled over.

The Emergency Financial Control Board (as it was called at the time) had effective control of the city government, since it controlled the cash flow. Its seven-man board consisted of the governor, the mayor, the state and city comptrollers, and three private citizens chosen by the governor and confirmed by the state senate. Other elected officials were allowed to appoint non-voting representatives to the Board.

Governor Carey, who had become proconsul for the city, first secured the retirement of Deputy Mayor James Cavanagh, a longtime civil servant and the appointee of Mayor Beame. Cavanagh, an honorable man who came to symbolize the old way, was replaced by John E. Zuccotti, a 38-year-old who had been chairman of the City Planning Commission. The city reduced its expenditures sharply, mainly by laying off 50,000 employees on June 30, 1975, the end of the fiscal year.

Politically, Carey concluded that Beame was indecisive and not competent to manage the city. He and former Mayor Wagner set about finding a challenger for the 1977 Democratic primary. The usual partner of Wagner and Carey was Alex Rose, the Liberal Party leader who had brought about Mayor Lindsay’s re-election in 1969 after Lindsay, at the time a Republican, lost the primary in his own party. Lindsay was re-elected on the Liberal Party line.

Sadly, Alex Rose had passed away on December 28, 1976 and Wagner and Carey were left on their own. They settled on Mario Cuomo, at the time New York’s secretary of state under Governor Carey. Cuomo came in second in the seven-person primary race (Bella Abzug, who had just left Congress after narrowly losing a Senate primary to Daniel Patrick Moynihan, came in fourth). The top two, Congressman Ed Koch and Cuomo, made the runoff. Beame had been eliminated because he came in third, Manhattan President Percy Sutton ran fifth and Bronx Congressman Herman Badillo was sixth. Joel Harnett, a civic reformer, was a distant seventh. The results were so close that the top six candidates each received more than 10% of the vote, but none of them won 20%. Mr. Koch was barely 1% above Cuomo in the initial voting.

The law provided for a runoff between the top two candidates if no one received 40% of the ballots. Mr. Koch defeated Mr. Cuomo in the primary runoff by ten points, and in the general election when Mr. Cuomo ran a strong race on the Liberal line. On winning, Mr. Koch declared peace with Carey, and the two men became political allies and friends. In 1982, when Mayor Koch ran against Carey’s lieutenant governor, Mario Cuomo, for the Democratic gubernatorial nomination, Carey endorsed Mr. Koch, who ended up losing to Mr. Cuomo.

The breakthrough in Hugh Carey’s political career came in 1974, when he defeated the better-known Howard J. Samuels by a 3-2 margin to become the Democratic and Liberal Party candidate for governor. Carey had been a Congressman from Brooklyn for seven terms. Samuels, known affectionately as “Howie the Horse”, had been the first chairman of the Off-Track Betting Corporation. He had the support of Democratic Party leaders and was personally wealthy due to the success of Kordite, a plastic product used in baggies, wax paper, plastic wrap, disposable kitchenware, and sturdy trash bags, which he invented and developed. Samuels came from upstate Canandaigua, and was widely referred to as “the upstate industrialist.” Carey was the downstate politician.

As governor, Carey made first-rate appointments to his staff, including David Burke and Robert Morgado as successive secretaries to the Governor, Judah Gribetz as counsel and Michael Del Giudice as policy director. After he left office, Carey led a relatively private life with his family.

Mr. Stern, a frequent contributor to the Sun, is president of New York Civic.

The New York Sun

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