The Streets Were Paved with Gold (30 page)

Lee Oberst supposedly knows something about management. When the telephone company was in hot water with consumers in the late
sixties, it summoned Oberst to become V.P. of the New York region.
Fix it
, they told the fifty-one-year-old executive.
Fix
the lousy service.
Stop
those protests and investigations.
Stop
those damn newspaper attacks.

Lee Oberst did. Relying on the street smarts of a kid from the South Bronx who didn’t go by the book because he didn’t go to college, Oberst knew how to fix it. He and other executives neatly divided the management problem into two parts, one dealing with reality, the other with appearance.

Appearance came first. Oberst figured that if pay phones suddenly worked, the public would notice. So he spared no effort to fix them. At the same time, he figured that if journalists were pleased with their own service, they would assume everyone else was. So he pinpointed where key editors and writers lived—mostly in Manhattan—and rushed to improve service in those selected areas. The strategy worked. The protests subsided. The phone company purchased precious time, permitting it to plan to improve its management and the public’s phone service.

Since February 1977, Lee Oberst has been trying to fix the city’s primitive management system. The phone company continues to pay his $120,000 salary, but he’s on loan (till November 1, 1978) and serves as the city’s first director of operations. From their fourteenth-floor, barracks-blue Broadway offices, across from City Hall, Oberst and a staff of thirty on-loan business executives and fifteen civil servants struggle with reality.

And the reality is pretty grim. Everyone has his favorite villains, but the chief culprit of New York’s fiscal crisis is mismanagement. If previous mayors, beginning with Wagner, had not resorted to deficit financing, the city would not be crushed with $2 billion a year in debt service charges, consuming about 30 percent of all locally raised taxes. The federal government didn’t force the city to agree to an unbelievable array of work rules and costly benefits. The municipal unions didn’t force the hiring of political hacks to manage the city agencies. The banks didn’t raise taxes.

The final report of the Temporary Commission on City Finances, issued in June, 1977, sums up the import of past mismanagement:

The City’s relations with its organized employees were symptomatic of the increasingly near-sighted character of local political and managerial decision-making. Organized City workers began to make major
gains at the collective bargaining table, particularly—though certainly not exclusively—in the area of retirement benefits. Because pension improvements, unlike salary increases, do not have to be funded immediately, officials were able to defer payments into the future while reaping short-term political benefits such as municipal union support in electoral politics. The more than $8 billion in unfunded pension liabilities that exist today, much of it resulting from negotiated pension improvements in the post-1965 period, represents a not-frequently mentioned form of debt that New Yorkers are carrying above and beyond the $13.4 billion that currently is owed for outstanding notes and bonds.

The growth of debt in the decade prior to 1975, particularly after 1969, also bears witness to the increasing propensity of local political decisions to reflect short term political needs rather than long-term economic needs.… The short-run orientation of local political decision-making also was evident in the City’s tax policy. New taxes were introduced and existing taxes increased to the point where the City’s taxes contributed to the wasting of another important long term asset: businesses and individuals of means who were a major source of local revenues.… Essential services were consciously reduced in the early 1970’s when the City chose to limit its expenditures by reducing the number of police, fire, and sanitation employees rather than moderating salary and other benefit increases.… In short, the City’s political management was exacerbating rather than easing the City’s problems.…

The financial implications of the City’s management failures were enormous. During the 1961–1975 fiscal period, the average annual increase in labor costs was 10.65 percent. If through a combination of
slightly
better collective bargaining and
slightly
more efficient management, the City somehow had been able to hold the average annual increase in labor costs to just
one-half
of
one percent less
than actually occurred, the City would have saved $1.9 billion cumulatively.

The city’s management, while improved since 1975, was by its own testimony pretty primitive in 1975. A Productivity Council report, approved by First Deputy Mayor Cavanagh, concluded, “The writers of this report consider the most crucial deterrent to effective service to be management. Adequate management—at the top as well as in the middle-level positions—is lacking in almost every City agency.… The staff of the Productivity Council has found that for all intents and purposes middle-level management does not exist.”

One reason it didn’t exist is that mayors carved out or gave
jobs to people whose political connections exceeded their abilities. It was forever thus. Under the office of Superintendent of Streets, for instance, there were once six manure inspectors. That was in 1840. Throughout 1975, the first year of the fiscal crisis, it was an open secret that Sanitation Commissioner Robert Groh and Transportation Administrator Michael Lazar were inadequate managers, to put it kindly. Yet Groh clung to his job until September 1975, and Lazar until early 1976, because Mayor Beame felt an obligation to both—to Groh because he was backed by Donald Manes, the Queens borough president and Democratic county leader, and to Lazar because he was a major Beame fund raiser. Beame’s first budget director, Melvin Lechner, was appointed for the job because Beame and Cavanagh didn’t want a budget director, figuring they could handle it themselves. And also because Lechner was a nephew of Beame’s longtime friend Bernard Greidinger. Lechner was a nice man, in addition to being incompetent. He was openly laughed at by reporters as he struggled to brief them on the budget. He kept his good cheer—and job—until late 1975 when the joke became public and the state and financial community pressured the Mayor to replace him. Reluctantly, Beame did—but not before lining up two city consulting contracts paying Lechner almost $60,000.

Abe Beame, like previous mayors, was loyal to his friends. Jerome Hornblass, his Addiction Services commissioner, worked for Comptroller Beame. As a rabbi, he was also a political asset in the Orthodox Jewish community. He was not considered an asset as a commissioner. His staff openly protested that he was “unstable.” The federal government severed the agency’s funding because it said Hornblass couldn’t manage money. Finally, in March 1976, Beame announced that the agency, and Hornblass’s job, would be folded into the Health Department. A year later, in March 1977, Hornblass was still commissioner. At the time, First Deputy Mayor John Zuccotti frankly told me, “I do not think Hornblass is a good manager.” But Beame waited until Hornblass’s name finally cleared the Bar Association screening committee. The thirty-five-year-old Hornblass was made a criminal court judge.

John Burnell, Director of the Office of Labor Relations during Beame’s first three years as mayor, was thought ineffectual by everyone, probably including Beame. But he retained his post because he had a powerful friend, Harry Van Arsdale, Jr., head of the Central Labor Council. In early 1977, Beame replaced Burnell
with Anthony Russo. But he did not fire him. Instead, he created a new sinecure—director of the Office of Labor Management Relations—at the same $47,093 salary. Burnell was supposed to serve as “liaison” with private sector unions.

These were just a few of the politically connected people responsible for managing the city. After discovering that the city had never prepared a detailed organization chart, Oberst said that if he had a free hand he could identify up to 3,000 excess managers and supervisors on the city payroll, at a cost of $90 million. The problem wasn’t just political favoritism. Mayors also didn’t know how to manage. Robert Wagner knew how to manage political conflict, to put out fires, but he had little executive experience or inclination. John Lindsay had even less. Lindsay, like Koch, was a lawyer and legislator. Beame was an accountant and auditor. Obviously, some legislators make good executives—Mayor LaGuardia and Governor Alfred E. Smith spring to mind. But that owed to luck, not training.

The problem only begins at the top. “The current system by which the City’s managers are appointed is inadequate in many ways,” reported Mayor Beame’s Management Advisory Board in March 1977. The report, prepared under the direction of business executives, savaged the city’s management. It got the sort of reception such critiques tend to get: Mayor Beame released it late one Friday afternoon, a terse press announcement stated the Mayor would appoint still another committee to study its findings. Such reports were not new. As far back as 1963, a Brookings Institution study concluded: “The Brookings staff rarely interviewed an official who indicated satisfaction with the quality of the professional, technical, or managerial personnel the City was getting.” This study was ignored, as were others. By the late sixties, Mayor Lindsay was relying on outside consultants to cope with what he called “a middle-management crisis.”

Administrations changed, but the management problems lingered. “The City has failed to develop a strong identity for its managers,” said the Management Advisory Board. Former Deputy Mayor Edward Hamilton spoke of this when interviewed by the State Charter Revision Commission: “The problem in most governments is that the challenge to middle management is greater than other places, because they have to deal with employees over whom they don’t have the usual levers—they can’t fire them, they can’t lower their salaries, they can’t usually do much about their
promotion, they can’t do any of the things that a middle manager expects to use as his stock in trade.… Public managers on the whole have to be superb people to really motivate people in a situation like that. Despite this, middle managers in the city have virtually nothing on the other side.… They had no training, they had no sense of being part of a management cadre which was somehow looking over the shoulder of people who did what they did for a long time, and so forth. There is no equivalent to the key to the executive washroom; there is no recognition, no feeling of peergroup identification, none of the things that help turn a person into a manager.”

One reason the management ethos is missing is that many managers identify not with the city but with the union they belong to. Of all the city’s managers and supervisors, only 2,000 don’t belong to a union. In the Fire Department, deputy chiefs, who earn about $40,000 and supervise three to five battalions consisting of five to twelve companies, belong to a union. In all the uniformed services, less than 100 managers don’t belong to a union. In the Housing Authority, housing project managers belong to the same union as the people they are supposed to manage. In the City Comptroller’s Office, the auditors of District Council 37’s Health and Security Plan are members of D.C. 37. In the Offices of Labor Relations and Collective Bargaining, which are supposed to represent management and the public, only nine of ninety-two employees do not belong to a union. “In the Parks Department,” complains Russo, “the only men we have who aren’t union members are the borough park managers. The assistant park manager in each borough—the person responsible for discipline—belongs to Victor Gotbaum’s union, District Council 37. In case of a strike, who opens the door to let in workers who want to work? Who represents us—the people? In Parks, if the borough manager tells his deputy to do something, there is a conflict. He might do it. But he also has in the back of his mind the union identification.” And loyalty.

Managers not only develop conflicting loyalties, they naturally come to view the union as their source of protection, their vehicle to muscle higher salaries, their source of health and welfare benefits. The necessary adversary system between boss and worker breaks down. Union leaders concede, usually privately, that too many managers belong to unions. Publicly, union leaders are more circumscribed. They, too, must worry about the next election.
“Union leaders won’t let us sensibly define who is a manager,” says Jack Ukeles, former executive director of the Management Advisory Board. “Ask any private company and they’ll tell you 10 to 15 percent of their employees are managers.”

But it’s too simplistic to blame the unions. In late 1977, many nonunionized managers were clamoring to join a union. “I don’t want them,” declared Victor Gotbaum, understanding both their frustrations and the city’s dismal management. But Gotbaum may have no choice. For years, elected officials feared political reprisal if they raised management salaries. So they did nothing, allowing the salaries of many workers to surpass those of their boss. Managers had no grievance procedure, no weekend premiums, no increments, no night-shift differentials, no shared sense of community and management ethos. This is an invitation for bosses to seek protection by joining unions. When he assumed office, Mayor Koch courageously decided to risk the political heat and grant raises to 2,000 managers. His timing was awful, coming on the eve of citywide labor negotiations. Worse, he granted raises the way Beame cut budgets—across the board. Everyone got a raise, irrespective of whether it was deserved. Or, as Councilman Henry Stern observed, “The flat rates imposed under this plan reward the office rather than the person.”

Good management requires a clear, carefully defined structure. Is the manager given authority as well as responsibility? Does he know whom to report to? To fix responsibility, Mayor Lindsay grouped agencies into a superagency structure. Commissioners complained that they lost authority. Mayor Beame promised to return power to the sixty agency heads, with each reporting directly to the mayor. This tended to confuse responsibility. Mayor Koch came in vowing to have not one preeminent first deputy but seven co-equal deputy mayors. This risks deluging the mayor with both too much authority and responsibility, forcing the mayor to mediate minor disputes and bogging him down in minutiae.