NYC's shadow government

Louis Proyect lnp3 at
Tue Dec 28 08:10:07 MST 1999

[This article is a surprisingly candid account of how big capital runs
NYC's government from behind the scenes. Two things to take note of: One,
Goldman-Sachs figures heavily in providing sub rosa funds to the right-wing
Republican Mayor, while at the same time it is one of the main financial
backers of the Clinton-Gore team. The other important slush fund player is
the Olin Foundation, which has its tentacles everywhere. It created a
scandal here at Columbia University a while back when it attempted to
provide the funding for a think-tank in the International Affairs faculty
of the graduate school. It was also the major financial backer for a
"Science Wars" conference at NYU organized by Alan Sokal's colleague and
co-thinker Norman Levitt, who went on to speak at an LM conference last year.)

NY Newsday 12/27/99

Public Office, Private Funds / Little-known entity gives private money to
mayor's projects
By Dan Janison

When Mayor Rudolph Giuliani collaborated on a children's book last year,
the giant investment firm Goldman Sachs & Co. kicked in $25,000 toward its

When Giuliani proposed a critical study of the City University of New York,
the John M. Olin Foundation, which promotes conservative causes, donated

And when the mayor wanted money for celebrations after New Year's, which
will help keep him in the spotlight during next year's U.S. Senate race, he
turned again to corporate donations-with more than $2 million raised so far.

All those funds were funneled through a little-known entity called New York
City Public-Private Initiatives Inc., based in a city office and run by
Tamra Lhota, a longtime political fund raiser for Giuliani who worked in
his 1989, 1993 and 1997 campaigns.

As its name suggests, the corporation falls into a fuzzy area among the
government, the business and the philanthropic worlds, where city officials
can arrange private financing for pet projects without directly soliciting
funds, which would be illegal.

It creates a government version of what's known in party politics as "soft
money," effectively allowing City Hall to control extra funds without the
constraints that apply to either public budgets or private campaigns.

You won't find PPI listed in the phone book, or in the city directory, or
even the lobby directory of the building at 10 Church St. where it leases
space, with phones and office equipment, inside the Mayor's Office of
Operations on the 20th floor.

Yet, boosted by $374,000 last year from city taxpayers-in a contract signed
and currently overseen by Deputy Mayor Randy Levine-PPI has raised and
committed more than $6 million for 32 favored mayoral causes since its
creation in 1994.

It is a registered charity with a full-time staff of four. It also has more
than 7 board members, mostly from the city's real estate, financial, media
and entertainment elite. The list, filed in April with the Internal Revenue
Service, included former Secretary of State Henry Kissinger, financier
David Rockefeller, businessman Roland Betts, singer Carly Simon, Daily News
publisher Mortimer Zuckerman, former New York Post publisher Martin
Singerman, Queens developer Joseph Mattone and retired corporate magnate
Preston Tisch.

Not surprisingly, many of Giuliani's campaign contributors also are PPI's
benefactors. Thirty-three board members contributed a total $185,050 to the
mayor's 1997 re-election campaign, many of them donating the legal maximum
for individuals, or $7,700, records show.

But the corporation attracts other contributors as well-notably, bond firms
that, as underwriters of city debt, are barred from supporting candidates
in municipal elections.

Four firms with leading roles in issuing city bonds-Paine Webber, Merrill
Lynch, Goldman Sachs and Morgan Stanley-had donated a combined $295,000 to
five PPI efforts as of June, according to the corporation.

PPI has "done a lot of good things," Levine said. Backers cite
contributions to children's funds and efforts against domestic violence
among the beneficiaries.

But critics see potential problems.

"This is shadow government," said Peter Bienstock, a lawyer who led a state
integrity probe about a decade ago that criticized the proliferation of
off-budget entities that fall outside the checks and balances of
representative government.

That investigation's report, issued in 1990, said of such nonprofits,
authorities and foundations: "Although these entities are all created by
governments to serve a public purpose...their transactions are generally
not subject to normal government oversight and control.

"Over time, they have collectively become, in effect, a shadow government,
quite powerful but little known and understood," the study said.

Asked if PPI fits this trend, mayoral spokeswoman Sunny Mindel quickly
replied: "We'll leave you to make that assessment." Public, Yet Private
Sometimes PPI projects bolster the mayor's public image. And sometimes they
provide just another element in the informal, high-level relationships with
City Hall that can benefit businesses in ways not routinely available to
ordinary citizens.

It was after a meeting during a meal with then-Goldman Sachs co-chairman
Jon Corzine (now a New Jersey Democratic Senate candidate) during the
summer of 1998 that Giuliani said he ordered specially reserved Manhattan
street parking for the firm's limos and livery cars in a first-of-its-kind
pilot program.

Shortly before that, in June, 1998, the Goldman-backed Giuliani children's
book "What Will You Be?" -which encourages children to stay in school and
keep a flexible career goal in mind-was unveiled. Handled through PPI, the
project gave the mayor an ideal instrument in the increasingly popular
politicians' practice of reading to children for photo opportunities.

Corzine denied any link. He acknowledged through a campaign spokesman that
he broached the issue of the firm's parking problems during "a luncheon the
mayor has on a regular basis with CEOs of major corporations in New York
City." But the spokesman, Steve Goldstein, said that had nothing to do with
any of Goldman Sachs' support for PPI. Corzine supported Ruth Messinger for
mayor in 1997, he said.

In another PPI project, in February, 1998, City Hall boasted a civic
victory when the NBA All-Star weekend came to New York, financed with
$865,000 from 33 contributors, including $65,000 from Cablevision, a city
cable franchise and owner of a controlling interest in Madison Square Garden.

In this instance, too, Giuliani ordered a first-ever pilot program for the
PPI-coordinated project-supplying police, in uniform, who were to be hired
and paid as security guards by Madison Square Garden.

Its backers point out that PPI helps charities, and benefits the city's
civic and economic welfare, with private funds.

Aside from organizing high-profile events, PPI in recent years has given
hundreds of thousands of dollars to arts education, Project Smart Schools,
the Victims' Services Agency and United Way of New York, among other
nonprofit groups, tax filings show.

Developer Lew Rudin, a PPI supporter, praises the extracurricular efforts
of its director, Tamra Lhota, the wife of Deputy Mayor Joseph Lhota, and of
outgoing chairman Peter Powers, the former deputy mayor.

"They're really trying to do the right thing," Rudin said.

Partial Disclosure But the operation has not named all of its donors. A
list of dozens of contributions, obtained by Newsday in response to a
Freedom of Information Act request, describes as "anonymous" the donor of
$27,000 for a housing development study, for example.

And in 1997, PPI financed a high-profile immigration conference in midtown,
using $115,000 in donations, mostly from major corporations. The nonprofit
also logged nearly $400,000 for the event in unitemized, noncash-or
in-kind-donations, according to a summary provided in response to Newsday's

Establishing itself as a charity requires PPI to reveal in detail its
sources of income-to both the state and federal governments. But legal
experts note that donor lists submitted with their nonprofit tax filings
are considered confidential.

Tamra Lhota, who is paid $100,000 a year by PPI, said of its disclosure
policy in a telephone interview: "We periodically release contributors at
the end of major programs...[Funding lists are] something we maintain to
follow the requirements of the IRS." She also insisted that her campaign
work for Giuliani and her PPI fund- raising roles have never overlapped.
"There was no crossover, no list-sharing," she said. "No one even asked to
share a list." Bienstock, who headed the state's Commission on Government
Integrity and now is a private lawyer, said generally of these off-budget
foundations: "The question always is, where's the money coming from, how is
it raised, who says what to whom to raise it? "We ought to oppose shadow
government because it's in the shadows. It's not disclosable; it's not
accountable," he said.

By contrast, city funds go through a public budget process that subjects
them to review by community boards, borough presidents and the City Council.

NYC 2000

Organizers of the mayor's post-New Year's events say more than $2 million
has been raised for the array of so-called NYC 2000 projects, which
together will amount to PPI's biggest single effort yet. They have not
given a detailed public accounting, but Continental Airlines and the
American Express Co. have emerged so far as major contributors. Continental
and American Express have jointly contributed $1million for school
libraries. The airline also hired Peter Max to paint a new jumbo jet in
honor of the city.

Among the NYC 2000 plans after New Year's: Kissinger, who advised
Republican presidents, is expected as early as next month to begin
moderating a series of lectures and discussions in the city featuring world
leaders, organizers said.

It comes as Giuliani seeks to show an ability in worldwide issues to offset
his likely Democratic Senate rival, Hillary Rodham Clinton, who has
traveled extensively as first lady.

Reached on a trip to the Dominican Republic, Kissinger said, "They [city
officials] have a millennium series of discussions. I think I'm playing a
role... I'm doing this as a service to the city. It isn't a political thing.

I'm pretty sure there are Democrats involved, too." NYC 2000, based in the
mayor's special-events office, is run by a small executive council of
Giuliani loyalists, including PPI's Tamra Lhota; the mayor's Senate
committee director, Bruce Teitelbaum; Cristyne Lategano of the New York
Convention & Visitors Bureau; and longtime Giuliani friend and former City
Hall aide Lou Carbonetti.

Some of the funding for the post- New Year's events has already sparked
public controversy.

In September, American Express paid $1 million for the use of Central Park
to stage an invitation-only Sheryl Crow concert. Half that total was
quietly steered to the NYC 2000 effort- for which PPI is the official
fund-raising arm-despite earlier plans to turn the full amount over to the
city Parks Foundation.

Elizabeth Cooke, executive director of the Parks Council, an advocacy
group, has contested the use of the money for anything other than parks,
saying the practice encourages using the parks to generate cash.

Other upcoming NYC 2000 events are expected to feature tributes to big New
York industries, including film, theater and music, said NYC 2000
spokeswoman Kim Serafin.

Varied Agendas "It is the foundation for those city activities that don't
have their own foundations," explained PPI's counsel, Robert Kaufman of the
Manhattan law firm Proskauer, Rose-where Kaufman in 1997 also served as an
intermediary for Giuliani campaign donations from fellow firm members.

"The mayor thought every department ought to have a foundation, or one
citywide," Kaufman said.

Another concern from critics is that there is only a limited pool of
charity dollars available, and PPI might not be competing on a level
playing field.

Contacted for comment, Peter Swords, director of the city-based Non- Profit
Coordinating Committee, an organization with 96 members from universities
to museums, expressed interest in PPI's status under Section 501(c)(3) of
the Internal Revenue Code.

"I believe that while it is entirely legal for a government entity to set
up a 501(c)(3), it is awkward, because it puts the government entity in
competition with genuine private  that don't have an ability to raise
taxes," Swords said.

Other charitable foundations of this type have operated for years, but
typically with narrower missions than PPI's. Such entities usually raise
private funds for rehabilitating certain parks, or updating firehouse
equipment, or staffing a police museum.

Such entities have sometimes drawn scandal. For example, there is an
ongoing criminal investigation of the city- controlled Parks Foundation, on
behalf of which park officials allegedly pressured citizens for donations
in exchange for services.

The city under Mayor David Dinkins drew criticism when it used an existing
off-budget corporation, the Business Assistance Corp., to raise money for
the mayor and an entourage to travel to South Africa. Bill Lynch, then
deputy mayor, recalled that the strategy was changed to have a private
citizens' group gather the donations.

By contrast, as of June 30, Giuliani's PPI listed 32 programs in seven
categories: child welfare; public information and education; youth and
education; historic preservation; community events; tourism and economic
development; and social welfare.


Perhaps the most controversial of those was the CUNY study.

The Olin Foundation, headed by President Richard Nixon's former Treasury
Secretary William Simon, joined with the Henry Luce Foundation and the
David and Lucille Packard Foundation in providing the $115,000 that went to
the mayor's controversial Advisory Task Force on CUNY.

It was listed by PPI as one of its youth and education initiatives. But
unlike the others, which included computerizing schools and creating
student summer jobs, the task force had a more politically charged mission.

The 109-page study, completed over several months, echoed many of the
mayor's sharp criticisms of CUNY, concluding that the system is in a
"spiral of decline." Upon its release earlier this year, several city
council members shot back that the report failed to address how substantial
budget cuts in recent years might have hurt the system.

Another PPI effort, the 1998 Grammy Awards, drew an unusual amount of
attention from the news media, although for unplanned reasons.

Giuliani had been scheduled to speak at a nomination ceremony for the
awards that spring in New York. When the mayor was abruptly bumped from the
program, a Giuliani staffer demanded an explanation from the president of
the National Academy of Recording Arts and Sciences, and a nasty feud
ensued that ended with the Grammys returning to Los Angeles.

But for the final New York show, PPI raised $627,473 for the Grammy host
committee and $681,341 more in unspecified "in- kind" donations.

PPI also has funded pet historic preservation projects. Top a- mong those
was the restoration of City Hall's Blue Room, the site of mayoral
ceremonies, which got $277,000 in cash through PPI, $125,000 of it from
financiers Shelby White and Leon Levy.

Also, the city's Administration for Children's Services had its
restructuring plan funded through $281,680 in private donations to PPI. The
restructuring came in response to a heart-wrenching public crisis: the 1995
death of 6-year-old Elisa Izquierdo due to parental abuse, a case that had
fallen through the cracks of city bureaucracy. In this case, the donations
covered the cost of a major ACS management consulting contract.

PPI even handled $100,000 from Giuliani ally George Steinbrenner's New York
Yankees for hurricane victims in the Dominican Republic. And there was
funding for several city parades, including a veterans' ceremony.


Tamra Lhota said this year's $374,000 in aid to PPI from the city, an
increase from previous years, allows fund-raising proceeds to go
exclusively to desired programs, rather than to overhead.

But the contract with the city also establishes PPI's tether to City Hall,
saying in part that the nonprofit entity would perform fund-raising
services or related activities "as are from time to time requested by the
deputy mayor." The contract puts PPI, like a city agency, under the
monitoring of the city Department of Investigation if issues of misconduct
ever arise. One city official who declined to be identified said that
language is mere boilerplate, meant to protect the city's interest.

But Cooke of the Parks Council sees a wider issue in PPI's ties to City Hall.

"The public does not think of nonprofits as the discretionary spending
funds of elected officials," she said. "I think this really is a new genus
and species in the nonprofit world."

Following are Public-Private Initiatives board members who also contributed
to Mayor Rudolph Giuliani's 1997 re-election campaign, according to the New
York City Campaign Finance Board's electronic database:

Ralph M. Baruch, Viacom International: $7,700
Abraham Biderman, Lipper and Co.: $2,500
Andrew Blum, Unterberg and Harris: $7,700
William R. Chaney, Tiffany and Co.: $3,700
Saul Cohen, Proskauer Rose LLP: $7,500
David Cornstein, Finlay Enterprises: $7,000
Victor Ganzi, Hearst Corp.: $7,700
John J. Gilbert, Rudin Management: $2,000
Barbara Gimbel: $6,750
Robert Kaufman, Proskauer Rose LLP: $7,700
Gail H. Hilson: $4,000
Alan S. Jaffe, Proskauer Rose LLP: $2,500
Steven Klinsky, Forstman, Little: $3,500
Jeffrey B. Lane, Travelers Group: $2,000
Kenneth Langone, Invemed Associates: $7,700
Tamra Lhota: $3000
Samuel Lindenbaum, Rosenman & Colin: $7,700
Howard Lutnick, Cantor Fitzgerald: $7,700
Bernard Mendik, Mendik Company: $7,700
Gordon Pattee, MAP Capital Corp.: $7,000
Charles Peebler, Bozell, Jacobs: $6,500
Carroll Petrie: $7,700
David Rockefeller: $7,700
Lewis Rudin, Rudin Management: $7,700
Iris Sangiuliano: $7,700
Frederick Schaffer, Schulte Roth & Zabel: $5000
Jerry Speyer, Tishman Speyer Associates: $3,250
Stuart Subotnick, Metromedia Co.: $7,450
Preston Tisch, Loews Corp.: $6,000
Edward Weinstein, Deloitte & Touche: $2,500
Reba Williams, Alliance Capital Mgt.: $7,700
John Wren, Omnicom Group: $6,000
Guy Wyser-Pratte, Wyser-Pratte: $5,000

Louis Proyect

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