city limits magazine, january 1995 issue

8/3/2019 City Limits Magazine, January 1995 Issue

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Limi

AIDS at Center Stage Nelghborhoocl Yenture Capi


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C j ~ v L j m j ~ s Volume XX Number 1

City Limits is published ten times per year,monthly except bi-monthly issues in June/ Julyand August/September, by the City Limits Community Information Service, Inc. , a non-profitorganization devoted to disseminating information concerning neighborhood revitalization.Editor: Andrew WhiteSenior Editor: Jill KirschenbaumAssociate Editor: Kim NauerContributing Editor: James BradleyIntern: Amber MalikLayoutlProduction: Laura GilbertAdvertising Representative: Faith WigginsOffice Assistant : Seymour GreenProofreader: Sandy SocolarPhotographers: Steven Fish, Eve Morgenstern, Gregory P. MangoSponsors:Association for Neighborhood andHousing Development, Inc.Pratt Institute Center for Communityand Environmental DevelopmentUrban Homesteading Assistance BoardBoard of Directors*:Eddie Bautista, New York Lawyers forthe Public InterestBeverly Cheuvront, City HarvestFrancine Justa, Neighborhood Housing ServicesErrol Louis, Central Brooklyn PartnershipMary Martinez, Montefiore HospitalRima McCoy, Action for CommunityEmpowermentRebecca Reich, Low Income Housing FundAndrew Reicher, UHABTom Robbins, JournalistJay Small, ANHDWalter Stafford, New York UniversityDoug Turetsky, former City Limits EditorPete Williams, National Urban LeagueAffiliations for identification only.Subscription rates are: for individuals andcommunity groups, $20/0ne Year, $30/TwoYears; for businesses, foundations , banks,government agencies an d libraries, $35/0neYear, $50/Two Years. Low income, unemployed,$10/0ne Year.City Limits welcomes comments and articlecontributions . Please include a stamped, selfaddressed envelope for return manuscripts.Material in City Limits does not necessarily reflect the opinion of the sponsoring organizations. Send correspondence to: City Limits, 40Prince St. , New York, NY 10012. Postmaster:Send address changes to City Limits, 40 PrinceSt. , NYC 10012.Second class postage paidNew York, NY 10001

City Limits (ISSN 0199-0330)(212) 925-9820FAX (212) 966-3407Copyright 1994. All Rights Reserved. Noportion or portions of this journal may bereprinted without the express permission ofthe publishers.City Limits is indexed in the Alternative PressIndex and the Avery Index to Architectural Periodicals and is available on microfilm from University Microfilms International, Ann Arbor, MI48106.

2/JANUARY 1995/CITY LIMITS

Survive in '95

There is one certainty of history: the future is guaranteed to shockTwo months ago, who among us could have guessed where the community development and anti-poverty movements would stand ithe politics of 1995?Evefi for those who were not surprised by the Republican victories iWashington, D.C., and Albany, the rapid and impulsive collapse of thClinton administration on poverty issues has come as a real stunner. Aftemore than 18 months of reformist activity within the bureaucracy of thDepartment of Housing and Urban Development-efforts praised by manin the advocacy, public housing and business circles as collaborative ansincere-the entire agenda for paring down regulations and improving eficiency has been thrown out the window. In its place is a proposal to vasly diminish all affordable housing programs and turn most of them over tthe states in the form of a block grant with much less money includedEven Ronald Reagan never came up with a plan like this.Of course, the Republican Congress is commit ted to major cuts in houing and welfare programs. As Fred Karnas of the National Coalition for thHomeless puts it , Clinton's crew might as well have just painted a bbull's-eye on the front of HUD headquarters. A hostile Congress will usthe administration's dismantling ofHUD as a starting point, and go furtheSpending what funding is left in the block grants that eventually reacstate governments will be up to local political forces to decide; with programs designed to support housing and services for formerly drug addiced homeless people thrown into a pot alongside housing for senior citzens, only one can win.Washington sources all confirm that there is currently a very deep feeing of resignation among progressive activists inside the Beltway. ThClinton administration has decided to toss programs for low income Ameicans into the maws of Congress, and the status quo-where Washingtoonce played the role of defender for many poverty programs-is no moreWhatever hope there will be in the coming year has to come from out herin the urban hinterland, where we are all still working for positive changeIf Washington's assault on low income people proves as vicious aspromises to be, there will undoubtedly be a reaction. One out of every 1Americans depends on food stamps, after all. The poor haven't been hearfrom as a major political force for a long, long while. But times do changeThe future is guaranteed to shock.

* * *Last month's cover and inside photos of Geoffrey Canada were taken bEve Morgenstern. Sorry, Eve.

Cover design by Lynn Baldinger. lllustration by Barry Canter.


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S P E ~ I A L REPORT ON ~ I T Y GOVERNMENTPar t 1: Uncivil Service 12Mayor Giuliani claims he wants to strengthen the core functions ofgovernment by plugging the holes in New York City's leaky ship of state.Who's likely to get thrown overboard? Women an d children first.by James BradleyPar t 2: Balance of Power 18When Rudy took office, he knew he was going to have to tango acrossthe city's budget gap. Bu t there's more than one way to tango: A CityLimits primer on balancing the budget. by Robert Kolker

PROFILEBlessings in Disguise 6Th e theatre project at Housing Works is teaching audiences abouthomelessness an d AIDS. It's teaching cast members about themselves.

by William HarrisPIPELINESBucking the Odds 8By most definitions , venture capital investment funds ar e tools fo rultra-high-risk speculation. So how can they help the neighborhood?by Kim NauerBusiness as Usual 24When it comes to city contracting procedures , CrItIcs say it's thespirit, not the letter of the law that's being violated. Either way, it'scos ting us millions of dollars. by John Gilmore

~ O M M E N T A R Y CityviewFreedom of ChoiceReviewA Vision With a Task

DEPARTMENTSEditorialBriefsNagging OdorsLandlord DetenteLead-Free Zone

2445

LettersProfessionalDirectoryJo b Ads

26by Bill Lipton27by Marti Bombyk

29

29,3028,30,31

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2CITY LIMITS/JANUARY 199


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BRIEFSNagging Odors the worst polluters.City Council Member KenFisher has joined Nekboh's detractors. "When Nekboh firstcame to Greenpoint-Williamsburg, I was unhappy about it be

cause they were taking a primepiece of waterfront real estate.But as long as they were operating within the law, there wasn'tmuch anyone could do about it,"he says. Fisher charges that thecompany is now violating regulations by allowing trucks toform long lines outside plantgrounds, however, and that thecity is failing to enforce the rules.

Residents in the largely industrial neighborhoods ofWilliamsburg and Greenpointhave long had to deal with thepollution and stench of thearea's 25 garbage transfer stations. But recent construction onthe Brooklyn-Queens Expressway (BQE) has forced trucksonto the community's streets,and the resulting congestion hasleft residents angrier than ever.Trucks carting garbage to thetransfer stations-where wasteis stored and sorted beforebeing sent to out-of-state landfills-formerly used the BQE.Now they have switched to Metropolitan Avenue, congestingone of the area's main thoroughfares. Tensions over thetraffic came to a head last October when a truck hit and killedan elderly woman crossing thestreet. The driver reportedly hada suspended license.It's been more than four yearssince Community Board 1 tookthe city to court to challenge thedisproportionate number oftransfer stations sited in Greenpoint and Williamsburg. NorthBrooklyn is home to one-quarterof the city's transfer stations,says local activist Peter Gillespie.The court concluded that nosingle facility was illegal, but 25transfer stations operating in a4.9 mile stretch was excessive. Itordered city officials to take thisinto consideration in the location and regulation of new plants,says Inez Pasher, chairperson ofthe community board's environmental committee. So far, the decision has had little effect in theneighborhood, she says.Recently, an activist groupcalled Neighbors Against Gar-

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bage (NAG) organized a marchof more than 200 people inWilliamsburg. The protestershad several grievances: thestench of garbage waiting to becarted away, the exhaust fumesof trucks that can number up toa dozen in line, and the enginesleft running as the trucks waitsometimes all night-to get intothe station and unload. Themarch ended outside the Nekboh recycling plant, a facilitywhich activists charge is among Today, NAG and anothercommunity group, the Make A

Landlord Detente?Call it Heat 101. A prominent pro-tenant organizationand the city's leading landlord group are conSidering aplan that would force certainsmall landlords into boilerschool if they fail to keeptheir buildings warm.The Community Trainingand Resource Canter (CTRC),a Manhattan-based tenant-organlzlng and advocacygroup, and the Rent Stabilization Association (RSA) areworking on the proposal.Some landlords fined fo rcommitting heat violation&primarily first-time offendersand "mom-and-pop" owners-would be required to take acourse in boiler maintenanceand energy conservation,possibly in exchange for finesbeing forgiven or reduced.The alliance is unusual,given the city's bitter housing politics. However, CTRCDirector Anne Pasmanicksays her goal is to keep tenants warm, not punish landlords. The plan would givesmall property owners abreak without weakeningrent regulation or code enforcement, she says. Andhardcore violators would beexcluded. "You wou ldn't haveLeonard Spodek or AnthonyMorfesis" qualifying for theprogram, she says, referringto two of the city's most notorious slumlords. "We'll tr y

to differentiate between thosewho don't know how to run abuilding and those who don'twant to run a building."

"I don't see any downside,"agrees RSA president Joe Strasburg. Many small owners are inexperienced or are immigrants"with absolutely no clue" aboutheating regUlations, he says,adding that they need classeslike this.If the program is implemented, the Department of Housing

Preservation and Development(HPD) will look at the owners'records of past violations beforegiving them the option of takingthe course, says Deputy Commissioner Harold Shultz. Othergauges might include how manybuildings they own and whetherthey use a professional management company, Strasburg adds.The RSA and CTRC are stilldiscussing the plan with cityhousing officials; its size, structure and financing remain unrasolved. Pasmanick says shewould prefer that the city hireComell Universi ty's Cooperative

Difference Community ActioProject (MADCAP), are lookinfo r alternate uses of the watefront property that these transfer stations now dominate. Witthe assistance ofthe communitboard, residents are drawing ua light-manufacturing and resdential plan fo r the riversidproperty. It will be submitted tthe city next year.Activists at NAG and MADCAP hope that publicizing illegaand non-permitted activities athese transfer stations will pressure regulators in to action. If thahappens, say local residentsthey may finally get a breath ofresh air. Kurt Gottschalk

Extension-which ran management train ing classes forthe city during the 198Os-toteach a four-session courseat various neighborhoodsites. Anything less, shesays, would be "toothless."HPD, according to Shultz,is still mulling over whatherto run a class strictly fo rheat violators, which hesays could be more efficiently monitored if done inhouse at a Lower Manhattansite, or to do a larger-scaleowner-education program,working with Cornell andneighborhood banks andcredit unions.

How to pay fo r the program is another question.Between 1,000 and 2,000landlords are fined fo r heating violations each year. If alandlord's fines-$125 a dayfo r buildings of six or moreapartment&-are applied toward tuition, that wouldcover costs. But the RSAwants these fines waived orreduced to encourage landlords to take the course.HPD's Shultz says he isinclined to agree, addingthat the course should reduce code enforcementcosts anyway by reducingheating problems. The hopeis that some version of theplan will be in place by theend of this winter, he adds.Steven . . . . .n .


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B R I E F S

During the 198Os, the Brooklyn Anns Hotel on Ashland Place in Downtown Brooklyn housed more than 260 homeless fllmHies-a II1II", as 1,500 people-at a time. It was one of the city's largest welfare hotels, and the birthplace of the homeless family rights ac:tIvIst group Parents on the Move. In recent years,the orpniDtlon's membenhlp has IIIOYtd on to other things. And the hotel, empty for nearly five years, has been flattened to IIIIIke way for a parking lot.

Lead-Free ZoneFamilies of children sufferingfrom lead poisoning can nowget out of their contaminated

homes and into state-of-the-arttreatment programs at the newMontefiore Lead Safe House inthe Bronx, the first of its kind inthe nation.The safe house provides families with more than just atemporary place to stay, saysMegan Charlop, director of Montefiore Medical Center's LeadPrevention Program. Childrenget ongoing medical treatmentand their parents are taught howto cope with the brain damageand behavioral problems thatfrequently follow prolonged leadexposure, she says, such ashyperactivity and learning disabilities. They also get advice ontreatment, nutrition and education for their children.

Following a successful threeyear pilot, the program is nowpermanent, thanks to a $1 millioncommitment from Bronx Borough President Fernando Ferrer.Ferrer has been involved in the

f ight fo r lead abatement since1986 when he was chairman ofthe City Council Health Committee,says spokesman Clint Roswell.The grant, to be dispersed overthe next three years, was a sizable chunk of Ferrer's discretionary fund, he adds.The safe house can providesix families at a t ime with four tosix weeks of shelter while leadpaint is being removed fromtheir homes.Because lead-poisoned chil dren can be very hard to handle,the safe house concentrates onparenting and nutrition skills,says Mary Martinez, director ofthe project. In some cases, thissimple course of treatment cansuccessfully reverse the damage, she adds.

"Sometimes, learning has tobe reconstructed in another partof the brain," adds Charlop,whose own daughter was a victim of lead poisoning years ago."We teach parents to help theirkids sit still so they can learn.

Montefiore has long been es-

tablished as a pioneer in treating lead poisoning, and advocates from the program arepushing hard fo r reforms in thecity's regulation of lead paint removal. They argue that betterprevention would save taxpayers millions of dollars in thecost of medical care for low income New Yorkers. Dr. JohnRosen, professor of pediatricsand head ofthe division of environmental sciences at the Albert Einstein College of Medicine, an affiliate of MontefioreMedical Center, maintains thecost of hospitalization, outpatient treatment and special education services fo r each leadpoisoned child is $25,000 forthe first year of care-totalingbetween $38 and $50 million in1993 (See City Limits, November 1994).One major problem, Charlopadds, is the lack of adequatetraining fo r workers who removelead paint from housing. Improperly trained employees ofprivate lead abatement companies can just make a bad situation worse. She says she hasseen numerous cases in which a

second child has been poisas parents try to rid their hof lead that poisoned a first

A bill mandating goment certification of leadworkers was shot down bstate legislature last sesLandlords opposed its pasarguing that property owwould bear much of thcreased cost of hiring theter-trained workers, she saCharlop points ou t thaof the safe house's missioto train parents to becomeawareness activists incommunities-as well ascates fo r improved governregulation .Montefiore may have sa trend. Lead poisoning acin Brooklyn and Westchestenow looking for money to ssimilar homes. "The numbpeople who stay in homesperilous levels of lead is ably high," says Dan Kaff, difor the Center for Occupaand Environmental Healtthey had a place to go,would not only want lead ament, they would demanAmber Malik

CITY LIMITS/JANUARY 19


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Blessings in DisguiseA theater proiect is transforming the lives of homelesspeople living with AIDS and HIV.I as so happy to beborn," began PaulineJones, during a recentperformance of the rockgospel musical, "ReleaseMe," at St. Peter's Church inthe Citicorp Building. "Mymother and father thoughtthat I would be a boy, because they really wanted aboy. But I'm a girl.. . At theage of seven, my father started coming into my roomevery night to lay with me.He told me that if I ever toldanyone, he would hurt meand my family. So I nevertold anyone. He kept on raping me until he made mepregnant at the age of 15 ... I Roger Steele lforeground) and fellow cast memben in a rehearsa lof "Release Me," a project of Housing Worits.wanted to tell my mother it was his,bu t I didn't. So I carried the baby andturned to drugs, which seemed to bethe only way out."Jones delivered these autobiographicallines with a cool matter-of-factness,making the horror of her childhoodeven more emotionally resonant. Yetshe is not a professional actress. Jonesis a client of Housing Works, the fouryear-old nonprofit organization devoted to housing, advocacy and servicesfor homeless people living with AIDSand HIV. Housing Works is no t onlyserving this marginalized group, manyof whom are still active drug users; itis also giving them a voice through itstheater project, directed by VictoriaMcElwaine.To be sure, it is a potent voice. Jonesis just one of 14 cast members with apowerful story to tell. Roger Steele remembered losing his job, his place tostay and all of his material possessionsin the course of one week. IsabelSanchez told of how her father diedwhen she was seven, the same year shestarted sniffing model airplane glue.She graduated to heroin at age nine.Tony James spoke of how his fatherleft the day he was brought home fromthe hospital. His mother subsequentlywent to jail and he became a ward ofthe state, institutionalized for 10 years.Each described the time theylearned they had been infected with6 /JANUARY 1995/CITY LIMITS

HIV, how they survived being homeless on the streets and how they weretreated by passersby. Some of these observations were funny; most were harrowing. Yet ultimately, "Release Me"was an affirmation of being alive and acelebration of community building.Columnist Amy Pagnozzi of The NewYork Post wrote: "What's it about?Drugs. Drunkenness . Degradation.Prostitution. Rape. Rejection. Incest.AIDS. I kid you not when I tell you itis the happiest show in town."The Process"Release Me," written entirely bythe cast and developed over a sixmonth rehearsal period, is a collage ofimages and anecdotes, punctuated byHarry C. S. Wingfield's songs an dstitched together by director McElwaine. I t ran for eight, mostly sold-outperformances over two weekends lastNovember. For many in the cast, thoseperformances provided an opportunityto be reunited with their families forthe first time in years. I t is hoped thatthe production will be performed forNew York State officials in February,followed by a performance in Washington, D.C. There have also been preliminary discussions about buildinganother piece in conjunction with theNew York Shakespeare Festival.Putting on a good show is rewardingbut somewhat beside the point, says

By William Harris

McElwaine. The theater project, she says, is aboutproviding Housing Worksclients with a structure thatcan help them take control oftheir lives. "It's not the playthat's so important," she saidduring a recent interview atthe organization's Soho of-fices, "as much as the experience for the people-the rehearsal process and the experience of getting out thereand talking about themselvesJ nd letting people see thatthey are real people with reallives, feelings, backgroundsand families."Somewhat by accident,McElwaine also discoveredthat putting on plays helps HousingWorks clients develop skills that areuseful outside the rehearsal studio. I fpeople can commit to spending sixmonths creating a project, for instance,they can also learn to keep doctors' appointments or to take their medicines.These seemingly simple tasks can beoverwhelming for a person who hasspent the night in the subway, say, orfor someone shooting drugs.Teaching people to be less self-destructive falls into the broad categoryknown as harm reduction. In its simplest form, harm reduction is aboutteaching people how to use drugs safely so that they do the least amount ofharm to themselves and to others.Using clean needles to prevent HIVand other infections is an obvious example. For McElwaine, harm reduction is also about creating a situationthat is stimulating and fun.As seven members of the "ReleaseMe" cast assemble in a conferenceroom at Housing Works a month afterthe performances, the affection theyfeel for each other is palpable; theircomments are often interrupted bylaughter or applause from one another,with the occasional "Amen" thrown infor good measure. Only at the end doesone of the cast members start to cry,saddened by the fact that the group,which had worked so closely togetherfor so long, is now dispersed.


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Each speaks about why they wantedto be in "Release Me.""The play gave me a chance to dealwith a lot of feelings that I had suppressed," says Idell Gillard. "Thegroup bonded, and it became like asupport group. It took up a lot of mytime, and it was something constructive that I wanted to complete. I can bemy own worst enemy with a big blockof time on my hands.""I saw it as a chance to learn moreabout the theater and to involve myselfwith other clients" says Steele, a clientwho recently, after competing the organization's job training program, hasjoined the Housing Works staff. "As aperson living with the HIV virus, itwas also a great opportunity to get intouch with how I feel about being HIVpositive. It's a fight not to isolate myself with this virus.""This show gave me the opportunityto tell my life story," adds James. "ThatI am black, gay, have the virus and wasborn deaf. I t was a way to tell otherpeople that you don't have to worrythat there ain't no help. There is help."We're Artists, TooThe theater project was born twoyears ago, shortly after McElwainecame to Housing Works to manage itscontracts department. Back then, theorganization was fighting to obtaincommunity board approval to transform a building on Grand and GreeneStreets into a client residence. Duringstrategy discussions with the organization's executive directors, McElwainesuggested that instead of having thestaff plead Housing Works' case, whynot create theater pieces and let theclients speak for themselves?"There was a lot of local oppositionto our opening a residence in Soho,"she recalls. "Their main argumentwas, 'This is Soho, and if we're goingto have an AIDS cente r here, it must befor artists.' We took the stand thatwe're artists, too. Whether or not we'reprofessional, our art is vital and real.We created a piece called 'A CommonGround,' which was about twenty-fiveminutes long. In the process of gettingto production, we discovered enormous benefits for the performers thatwe hadn't really thought about. We noticed people who had participatedwere maintaining apartments longerand having a lot more control overdrug use and becoming more involved,more clear and articulate about whattheir rights were."

Housing Works never acquired community board permission for theGreene Street residence, although ithas subsequently located a space-andwon approval-for a residence on EastNinth Street. But the efficacy of thetheater project as both an advocacyand therapeutic tool had been established. Since 1992, there have beenthree other shows: "You and Me,""After Us," featuring women livingwith AIDS and their daughters, and"Release Me." Auditions for the nextproduction will be held January 1I.Auditions are something of a formality; McElwaine will cast anyone whoshows up. "Release Me" began with acast of 27; only 14 people ended up inthe show. People drop out along theway for various reasons, often becauseof their illness. For the most part, people are expected to show up regularlyfor rehearsa ls and to be on time. I f theyhave too many unexcused absences,they are asked to leave the production."I try to keep it as traditional as possible," says McElwaine. "I want themto be familiar with the vocabulary of aregular rehearsal, the limitations andthe tools of regular theater. I t has a clinical value, bu t it is not a clinical program. Nor is it a group session; they'renot going to discuss what happenedthat day. It's task-oriented. They'regoing to work on a project and they

harm reduction, part of my job, create an environment where yoteract comfortably."McElwaine hopes to build onperformance success-and topeople involved-by instituting ries of theater classes such as mment, speech and singing. Eventushe hopes also to involve the clienall aspects of designing, buildingmaintaining the productions."The nature of the process andobjectives are becoming moremore clear," she says. "These arenecessarily political objectivThey're about an opportunity forclients to do something for themseto take a look at themselves anfinally be given a forum for claispace. Its about awakening self-estand it works."Saved My LifeI t has also given them a diffperspective on AIDS. "I was glad onstage and tell people I have Hsays Isabel Sanchez. "I wanteknow how many hearts I opened uhow many cans of worms. SometiI say that this disease has been a bing in disguise. I f I hadn't acceptefact that I have the virus, I wouldbeen out there killing myself.""I feel the same way," adds KPena. "It isn't a death sentence.

1 was glad to go onstage and tel peophave HIV. I wanted to know how many heaI opened up or how many cans of worms."will make it happen and we will perform it and we will have an audience."Although the rehearsal process resembles that of ,any experimental theater production Where the script is created collectively, McElwaine pointsout that it is not easy. In addition to encouraging people to talk about difficultissues, life and death and all kinds oftrauma, she is also dealing with thetensions amongst the Housing Worksclients themselves. The fact that someare gay and some are straight is theleast of her problems. Some clients arestill using drugs and others are in recovery; some have found housingwhile others still live in shelters or onthe streets; some are sick with AIDSwhile others remain asymptomatic."Some cast members get mad andwant to leave," she says. "But part of

disease saved my life. I was homeI was shooting heroin, I wasn'ttling, bu t I was sticking up drug deand I was going to get killed evenly. When I found out I had the vicame straight to Housing Works. Ihave my mother and daughtergrandchild back in my life.""We're all survivors," Steele "We're surviving this virus, althwe know people who haven't chatheir lifestyle, who are still outgetting high and drinking. Weknow people who have died. Othe best reasons for having a thgroup is we all got to know each and became friends." 0William Harris writes frequentlthe Arts &- Leisure section of TheYork Times.



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Bucking The OddsCommunity groups are adopting the ultimate capitalist tool-venture capital-to create inner city jobs.L ooking to build a new careertrack for low-skilled workers?A group of Brooklyn activiststhinks they have found apromising solution.The Park Slope-based Fifth AvenueCommittee (FAC), an organizationwith a long history of developingaffordable housing and providing support for small businesses, plans to setup a for-profit oil-change franchise,staff it with workers from SouthBrooklyn and give them ongoingmechanical training. The hope is thatafter a year or so, these workers will beprepared for higher-paying jobs asmechanics in the private sector.FAC needs more than bank loans tostart this business, however. Like mostentrepreneurs, the group needs somer i ~ capital to invest up front. Such fi-nancing is rare in inner cities and,with the exception of foundationgrants, almost unheard of in the nonprofit world.It may have been a long shot, but

this unusual enterprise. They have setup a new venture capital fund, andwith the goal of improving employment prospects in South Brooklyn,LEAP may invest as much as $75,000for stock in the franchise, says LEAP'schairman Lyndon Comstock. Thiswould not be a loan, he explains.Rather, his organization would be buying a full-fledged stake in the newcompany.In doing so, LEAP gingerly joins a

handful of other community development financial institutions that haveentered the high stakes venture capitalbusiness. And there are signs that others may soon begin to join them. Justlast month, the John D. and CatherineT. MacArthur and Ford foundationssponsored the first meeting of the Community Development Venture CapitalAlliance, a nationwide trade group forsocially-minded equity investors whoare exploring new ways to boost economic activity in neglected areas.Its members include both nonprofitand for-profit institutions that have traditionally stuck to themuch less risky business of offering loansto entrepreneurs inlow income communities. But loans arenot enough, saysComstock. While theidea of venture financing is still onlyexperimental, thisself-sustaining, freemarket approach mayturn out to be a veryeffective way to seednew businesses, he1 ays."A lender is nevergoing to provide 100

The fifthA_ c-dttee's lind Lander (UcMt) hopes to ..... a _busIn_ and _ ......... this Gowa_ street comer.

percent financing.They want to see riskcapital there first. ButFAC appears to have found its backer.Officials at LEAP, Inc., an economicdevelopment techical assistanceprovider affiliated with Brooklyn'sCommunity Capital Bank, say they areset to become the guardian angels ofS/JANUARY 1995/CITY LIMITS

a business in the South Bronx is notgoing to get traditional venture capital."There is no ready source of capitalat all, other than family and friends,"Comstock says. "That's why we're trying to make this happen."

By Kim Nauer

Such investments are tricky, however, says Kerwin Tesdell, program investment officer at the Ford Foundation. The failure rate o f small businesses is estin;lated to be as high as 70 to 80percent. To make any money as a venture capitalist, a smart investor mustbuy into a number of promising enterprises so that profits from big winnersoffset losses from the inevitable failures. And anyone getting involvedwith venture capital, he adds, needs toappreciate exactly how it works, how itdiffers from loan financing and whatthe potential perils are.Refined GambleDozens of venture capital fundshave sprung up on the mainstreamfinancial scene since the early 1980s.For the most part they are a refinedform of gambling for capitalists. Patterned like mutual funds but reservedfor high stakes players, these funds areinvestment pools run by professionalWall Street money managers who scourthe country, and sometimes the world,for cash-hungry businesses with bigtime growth potential. Typically, suchenterprises have focused on the technology and biotech industries, whereone successful patent can turn a struggling company into a multimillion-dollar corporation. The fund, or sometimesrich private investors, will providecompanies with a large infusion ofcash to help pay for a new plant orequipment. The money can also beused to leverage even more financingfrom banks. And unlike bank loans,venture capital can be used-free fromrepayment obligations-for years.Companies with the benefit of thesefinancial "angels" can grow by feetrather than inches, Tesdell explains.But the risky nature of the investmentmakes such money hard to come by.Experienced money managers willconsider only the most promisingcompanies for investment.Translating these concepts of highfinance to the community development world is no simple thing. Activists have long grumbled that upand-coming businesses in disadvantaged neighborhoods rarely make the


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cu t for outside investors, though theyconcede there are valid reasons forcaution. Unlike banks, venture capitalists actually bu y a percentage of a company. I f the business thrives, investorssimply let the value of their shares increase until the return is large enoughto "exit" by selling out. But i f growthstalls, they may have a hard time finding anyone to buy their shares. Worseyet, venture capitalists, unlike banks,are among the last to get paid in bankruptcy proceedings. I f the businessfails, they can bet on losing all of theirinvestment, Tesdell says.Innovative InvestorsBut in some parts of the UnitedStates, innovative investors are bucking the odds in low income communities. Five years ago, a disastrous recession in the iron mining an d steelindustries left the northern Minnesotaregion with pockets of 100 percentunemployment. Nick Smith, thenmanaging partner of Duluth's leadinglaw firm, set ou t to convince hisfriends an d neighbors that they couldturn things around. It wasn't easy: almost overnight, the area ha d lost 7,000mining jobs an d 20,000 people, hesays. One sign on 1-35 south of Duluthread, "Will the last person to leaveplease turn off the lights?"That sign is gone now, in part because of Smith's work. The founder ofNortheast Ventures in Duluth, Smith iscredited with building one of thecountry's most successful, albeit small,community venture capital funds.With $8 million fronted by foundations an d several hopeful bu t leerycorporate investors, 12 new companiesemploying more than 400 people haveopened in the last four years. Smith reports all bu t one of the businesses aredoing well, an d he has already successfully exited two deals."On one, we had a twenty-three percent profit," he says. "The other hasgone public and we've decided not tosell ou r stock yet. But I think it will bea real winner. They make a portableblood gas analyzer, an d that's breakthrough technology."

In Maine, a state with one of thehighest per capita welfare dependencyrates in the nation, a community development financial institution calledCoastal Enterprises has been quietlymaking similar investments for 15years. This has been only a sideline toit s traditional loan business, saysNathaniel Henshaw, an d its earlies t in-

vestments-$200,000 made to two fishcutting enterprises in the late 1970swent bust. But the last three years havebeen so successful that Coastal decided last October to spin off a for-profitventure capital subsidiary. Today,Henshaw is president of CEI Ventures,responsibile for maintaining an dbuilding Coastal's $1.5 million venturecapital portfolio.One business, a manufacturer ofmonitoring equipment for undergroundstorage tanks, is apply-

for these jobs. I f possible, Henadds, he also likes his companiproduce socially beneficial prodThe restrictions do make investmore challenging, Henshaw says,in his market at least, they haveprevented profitable deals."We're looking to be compewith [mainstream] venture fundssays. "And we're not restrictingselves in a majo r way. Any succebusiness is going to create jobs.

ing to trade shares on The hallmarkthe stock market and issue is whether thhire low-income pean d generally speaCoastal can sell its stakeat any time. Four otherslook like they will offer"very substantial" profits, Henshaw says. Moreimportantly, he adds,the six most recent dealsrequiring just $600,000in investment have resulted in 147 jobs beingcreated or sustained in

of th fi we can work withese nns IS companies] so theytheir insistenceon tying socialgoals to invest-ment dollars.

"All we're rruling out is destive firms, an d preably, over the longthey won't doanyway. They'll beislated out of busor they'll haveproblems."the last year and a half. Other than hisoutfit, Henshaw says, "there's very littleequity capital here at all for communitydevelopment. An d that means there'sreal opportunity here for us."

Social GoalsWhile increasing employment is always important to any deeply impoverished area, the hallmark of thesefirms is their insistence on tying socialgoals to investment dollars.LEAP, for example, will invest onlyin firms that pay a living wage to lowskilled workers who might otherwisebe left out of the labor market. CEIVentures shares similar goals, an d hasa partnership program to train workers

But Henshaw an d others alsothat these endeavors are notoriolabor intensive an d require vighandling on the part of the fundager. It's also important to studymarket carefully before jumpinThere's no guarantee that anyongion or neighborhood will have thterest, or entrepreneurial talent, totain a successful venture fund, Robert Schall, president of theyear-old Self Help Ventures FunDurham, North Carolina.Despite the organization's nSelf Help Ventures is strictly inbusiness of loans. Schall says hebeen intrigued by the venture caworld and explored the idea ove

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last year. In the end, however, he decided that the benefits were not therefor his community."Venture capital firms make theirmoney because a business growsquickly. But our customers are notFederal Expresses or Apple Computers or biotechnology companies, " hesays. "The companies we deal with

will never go public. They will notgrow 20 times their size. They aresmall proprietorships and corporations that are , for the most part, run byindividuals and families. They willgrow, but they will grow slowly.Therefore, there 's no way for us to geta return off their growth."Another big question remains. Can

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this idea be successfully transplantedto a city? Notably, the core members ofthe newly formed Community Development Venture Capital Alliance hailalmost exclusively from poor ruralareas where creating even a dozen jobscan be a large step forward for the region. In a city with more than a millionpeople on public assistance, the task issomewhat more daunting.But LEAP's Comstock is confident.By using the same screening andtraining strategies that have made thecity"s community banking movementsuccessful, he says, venture capitalcould have a significant impact introubled communities. In the case ofthe proposed Fifth Avenue Committeeproject, LEAP would have a partnership position in the oil-change business and take an active role with itsmanagement.Sophisticated TrainingUnder the plan, the station willhire eight to 10 people a year fromboth the Gowanus neighborhood,which FAC serves, and Red Hook,which LEAP has taken an interest in,says FAC executive director BradLander. The business is expected tomake enough money to buy LEAP ou tin five years , but Lander says hehopes LEAP will want to keep itsstake in longer and allow the profitsto be plowed back into more sophisticated training programs.A conventional venture capitalistwould choke on the suggestion, butLEAP's Comstock, who disdains eventhe term venture capital, just laughsand says this may be unrealistic. "Wedo want to reinvest in this business,bu t we also want to keep using themoney to invest in new businesses,"he says. "I guess we'll have to learnhow to strike this balance." 0

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Specia l Repor t on City Governmen t , Par t 1

unCIVIserviceby James Bradley

~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~ ~ 12/JANUARY 1995/CITY LIMITS


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Is Giuliani cutting the fat outof the budget-or the heartout of the government?

A ear into office, Mayor Rudolph Giuliani's "reinventing government" agenda is beginning to takeshape: an increasing number of public services arebeing contracted out to private companies; an aggressive "workfare" experiment goes into effect this month;the city workforce will soon be the smallest it's been in 10years; and new contracts with the sanitation and schoolcustodian unions include unprecedented productivity requirements. Like it or not, the mayor has taken some concretesteps towards reshaping the city government.But a number of critics, from social service advocates to

independent fiscal auditors, charge that while the mayor'sapproach to government is politically populist, it is deeplyflawed. The mayor plans to cu t the city workforce by 10percent, bu t other than a vague plan for shifting employeesaround, he has proffered no cohesive strategy on how theseagencies will be restructured to maintain an acceptablelevel of services. Giuliani has promised to get rid of government waste, bu t has exempted the police and fire departments-agencies notorious for bureaucratic bloatfrom scrutiny. And for all the wonkish rhetoric emanatingfrom City Hall these days, a bold vision for city governmenthas yet to be clearly articulated.

These ambiguities have led some people to conclude thatthe mayor's policies are little more than slash-and-burn assaults on social spending couched with souped-up slogans.To many, that's decimating-not reinventing-government.

"The mayor has a very simplistic notion of government, toprotect the uniformed services," says Harvey Robins, formerly the city's Director of Operations under Mayor David Dinkins and now a full-time critic of Mayor Giuliani. "He needsto show that there's a strategic plan, that there's going to beshared sacrifice. The nip-and-tuck approach he's taken willin no way achieve the systemic changes that are needed."Advisors within Giuliani's inner circle ask for patience. Ittakes time, they say, to tame a bureaucratic beast of New YorkCity's magnitude, and after a year of bruising budget fightsand election-year scrapping, the mayor can no w devote moreenergy to making government work for all New Yorkers."Reinventing government is an ongoing process," saysRichard Schwartz, a senior policy advisor to the mayor. "I ttakes months, even years, to be fully implemented. It's aconstant process of refinement and improvement. It's whatthe private sector has been going through over the past tenyears, and it's something governments have to do, too."

e phrase "reinventing government" comes from apopular book of the same name that detailed how thespirit of entrepreneurialism was revitalizing ~ e : i -ca's staid public sector. In recent years, many bIg CIty

mayors, governors, even President Clinton, have embrthe rhetoric of reinvention and its emphasis on makinpublic workforce smaller, more efficient and, theoreticmore democratic.

But what's really behind the popularity of reinvengovernment, many policy analysts argue, is the expepractice of bureaucracy-bashing. "The appeal is mpolitical," observes Dean Baker, an economist at thenomic Policy Institute, a Washington-based think"It's the sort of thing where it's nonsensical to arguopposite. No one's going to say, 'I'm in favor of wasgovernment.'"Locally, critics charge that Giuliani is just pursuingother classic form of populism: the political pay-off.Giuliani people are no t reinventing anything. They're gback to another model, a pre-New Deal model of paage," argues William DiFazio, a st . John's University ology professor who specializes in labor issues, referrithe mayor's eagerness to turn more city services over tprivate sector.Indeed, privatization is one aspect of the reinvengovernment debate that the administration has whheartedly embraced. Already, the city has moved forin hiring private workers to maintain parks, roads,office buildings and homeless shelters. This year, theministration is planning to have public and private wers compete with each other for contracts to offer servsomething proponents believe is the true test of privation's merits. "We want to go through the competprocess an d have the market dynamic determine whthe most efficient and the most competitive at deliveservices," says Schwartz.Despite the administration's enthusiasm, however,expect to see privatization employed on a significant in New York. Already, the mayor has faltered in his plasell municipal hospitals and the city's Off-Thack Beagency. As Dean Mead of the Citizens Budget Commisa business-supported watchdog group, points out, "Itbe a part, bu t it will no t be the biggest part [of reinvengovernment]. There's just too large a portion of city servyou can't privatize."At this point, it is difficult to confirm what other aspof the reinvention revolution are being explored withiGiuliani administration. Observers on the periphery ofgovernment sayan aura of mystery still shrouds Giuliplans, partly because the entire concept of reinventiomains largely enigmatic. "Nobody's clear on what reining government really is," says Glenn Pasanen, an analythe budget watchdog group City Project. "That's whatconvenient [for the mayor]; it's new ground for everyboEven the city's official fiscal monitors note thamayor has been less than forthcoming about his long-rplans. The Financial Control Board (FCB), an indepenstate agency that reviews and oversees New York City'cal management, wrote in a recent report that therebeen a "conspicuous lack of publicized implementplans" about the city's finances. Rosemary Scanlonstate deputy comptroller for New York City, admits salso largely in the dark on this matter. "In terms of hismitment to bring down the size of government and holgrowth of expenditures, he's very clear in his actions,



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explains Carol O'Cleireacain, the city's budget directorunder Mayor David Dinkins. "It doesn't tell you the degreeto which each of those agencies coped with [headcountreductions], and how much they changed the way they didbusiness, and whether those changes worsened or improved services."

Many activists who work with city government in providing and coordinating services have experienced significant problems under the current

and other public assistance have ha d to wait several mofor their applications to be processed, well beyond the dated limit of 30 days. According to Melinda Duttonattorney with South Brooklyn Legal Services, monthsbefore some Medicaid applicants have the opportunipresent documents proving their needs. As a resultoffice has filed a lawsuit to force HRA into compli"This is a federal mandate. The city takes federal dolla

implement this program,"administration. Staff cutbacks,personnel changes and new policydirections have strained relationships with nonprofit contractors,further undermining service delivery. "There seems to be a new kindof attitude at the Department ofHousing Preservation and Devel-

Cutting staff will save the city$342 million-but the totalovertime costs for the yearwill exeed $500 million.

Dutton. "The only disputwhether the city chooses tospect the law or not."A similar state of disarray icoming commonplace at neighhood welfare offices. Liz Kruassociate director of the Comm

opment," notes Jay Small of the Association for Neighborhood Housing and Development. "There used to be people,from assistant commissioner on down, who were accessible,who were willing to talk, who knew what the terrain was.They understood that the nonprofit sector was important tothem ... Now the agency seems a lot more closed. "Indeed, city employees report that most divisions of thehousing agency have been subordinated to the administration 's primary goal of selling city property to the privatesector. Other parts of the agency have lost as much as halftheir staff, they say, making even basic administrative tasksextraordinarily difficult.

Elizabeth Darguste, coordinator of the EmergencyAlliance for Homeless Families and Children, has encountered such problems in dealing with other city bureaucracies."It's a very confusing time," she says. "There's an overalllack of coordination in dealing with family homeless policies among the agencies ." Darguste has been pushing forthe city to improve the Emergency Assistance RehousingProgram (EARP), which gives landlords cash bonuses tohouse homeless families. Four different city agencies administer various portions of EARP, bu t budget and staff cutshave left the program in disarray, making i t more difficultfor families to move out of the city's costly shelter system."Each agency manages a different component of EARP,"says Darguste. "If one component fails, the entire programfalls apart."Budget analysts and fiscal monitors note that staff shortages have also lead to severe increases in overtime costs,enough to threaten the savings from headcount reductions.The administration estimates that cutting staff will save thecity treasury $342 million during the current fiscal year, bu taccording to a recent report by the City Council FinanceCommittee, overtime costs for the year will exceed an astronomical $500 million, the highest level in the city's history.Although all of the increase cannot be attributed to staffreductions, much of it can: last July and August, followingthe first round of severance, overtime in the Department ofCorrections was up 144 percent from the previous year. Inmany other agencies burdened with an increasing workloadand decreasing staff, overtime costs have grown considerably, as well.Problems with staff shortages may also lead to increasingfines and litigation costs. At HRA, people seeking Medicaid

ty Food Resource Center, saystaff at the Waverly Income Support Center on WestStreet is operating with 20 percent fewer staff, accordinworkers there. Even the center's director is gone. "The cis mind-boggingly behind. Caseloads of work are pilingsays Krueger. "It's pretty easy for hysteria to prevail inkind of circumstance. When there is no rationality to a dsizing structure, anything and everything can happen."

The administration's own September 1994 Mayor's Magement Report confirms a notable drop in the city's abto hold public assistance hearings and complete Medand welfare applications within the period mandatelaw. The staff cuts at HRA-including a reported 25 perdrop in eligibility specialists-will reinforce this trendtivists predict, resulting in increased fines and litigaCourt fines for failures to comply with state laws in jussmall area of the agency-the Child Welfare Adminition-have averaged $13 million annually in recent yaccording to the city comptroller's office.

Of course, by not including school teachers orlice and fire officers in severance plans, Giuhas let the city know what he means by "core"vices in the broadest sense. The hardest-hit acies are the Board of Education's administrative staffpercent cut, 2,630 workers), Housing, Preservation andvelopment (27 percent, 344 workers), the Police Dement's civilian staff (25 percent, 1,851 workers), Parkspercent, 689 workers), and Social Services (18 per4,331 workers). The Sanitation and Correction departmhave been heavily slashed as well.

The administration has also used a number of gimmto give the impression that government is getting smawhen in fact the costs are simply being shifted elsewhAccording to the City Council's Finance Division, thnancial Control Board and the City Project, many ptions are being eliminated via severance and attrionly to be contracted ou t to the private sector. Also,eral hundred employees were shifted from the Departof Health to the Health and Hospitals Corporation, w



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workers are no t included in the city's overall headcount.The costs will still be there, but they won't show up on theledger. As O'Cleireacain notes, budget numbers give onlyone side of the story.

Meanwhile, the police force will be beefed up withnearly 1,500 new uniformed officers. Giuliani has justified this course by highlighting the need for more publicsafety, bu t even the administration readily concedes thatthousands of uniformed officers will now move into deskjobs and other posts formerly held by low-cost civilianswho have lost their jobs. This has been exacerbated by astate law requiring that the city increase its police force(the civilians don't count). I f officers wind up behind adesk rather than on the street, however, the public losesout on two fronts : little or no improvement to public safety, and a bigger tab to pay for it."It's hard to understand why the mayor hasn't attackedtwo very bloated bureaucracies like police and fire," saysMead of the Citizens Budget Commission (CBC). "They,more than any other agencies, with the possible exceptionof the Board of Education, have a tremendous amount ofbureaucratic fat that could be trimmed with little pain."The CBC released a detailed report last April outlining howthe police department could be made more efficient; it wassummarily dismissed by the mayor.Another problem with severance is its randomness. If hecity intends to downsize through

partment is scheduled to receive 5,000 participants underthis program.B the standards set forth in just about every treatiseon reinventing government, the ultimate measure ofsuccess is not only reducing the cost of governmentbu t improving its cost-effectiveness. The mayor'stough talk about dismantling bureaucracies may make goodpolitics, bu t that means little when it comes to improvingservice delivery and worker productivity. "The real tes t ofthe downsizing effort must be more than bringing largebureaucracies to their knees," observes Harvey Robins."The challenge is to reshape them into responsive servicedeliverers." So far, Robins doesn't see that happening.One of the integral problems is that privatization, whilesometimes cheaper, is easily turned into a threat held overthe heads of municipal unions to demand concessions onwages, benefits and work rules (see City Limits, February1994). The same can be said of any rapid dismantling ofgovernment programs and services."When you create an environment of fear, people aredemoralized and don't deliver services better," says StanleyAronowitz, a sociology professor at CUNY and a labor theoretician. "If you say to people, 'We're going to share workduring a fiscal crisis ..and our policy is to keep people work-ing and keep services flowing toseverance and attrition, what is

the impact when key personnelleave, par ticularly those that provide essential services? At the Department of Health, for example,242 positions were eliminatedunder the first phase of severance.But many of those who took the

/I How many billions of dollarsare we going to cut beforewe decide we have to rethinkthe whole mission?/I

the communities,' you'll have amuch more effective and efficientgovernment. "Other analysts see democracyas the catalyst for making the public sector work more efficiently."If you give workers more respon-

package held important positions in highly specializedfields, and included lab microbiologists, pharmacists, andepidemiologists. Others were pu blic health advisers who gointo low income areas to help tuberculosis patients or totest for lead poisoning. At this point, it is unclear how thedepartment will cope without this personnel.The administration plans to make up for such vacanciesby shifting workers either within agencies or from one toanother. So far, only about 1,000 workers have been redeployed as of the end of the year, according to the Mayor'sOffice of Operations. Little information about the detailshas been made available except by agency leaks, leadingmany observers to wonder about the planning process.There seems to be an assumption that employees from HRAcan be easily shifted over to the transportation department,for instance, notes Pasanen. "But the jobs are differentenough that the managers on the receiving end wouldn'twant that person."

One way to deal with staff shortages without spendinga lot of money is to use cheap labor. Under the mayor'snew "workfare" proposal, called NYC WAY (Work, Accountability, You), Home Relief recipients-mostly childless men and women who receive an average of $350 amonth in public assistance-will be given work assignments such as cleaning parks, sweeping streets an d doinglow-level clerical work at city agencies. The Parks De-16/JANUARY 1995/CITY LIMITS

sibility, they tend to rise to the occasion," says Dean Baker of the Economic Policy Institute."Then you'll have more innovative ways of doing things,and it will save you money in terms of employing supervisors, who won't have to watch workers all the time. Unionscan be used to further that."Not surprisingly, organized labor agrees. "How many billions of dollars are we going to cut before we decide wehave to rethink the whole mission?" asks Ed Ott, politicaldirector of Local 1180 of the Communications Workers ofAmerica. "I don't want to reinvent government by this leaner, meaner approach. It's not working. We have to talk aboutwhat the mission is, what the needs are, and then how wereorganize to get that done.

"That requires input from all levels of government. Itcan't just be the mayor," Ott continues. "It has to involvethe business community, the social service community,labor and neighborhoods. Then we can decide how to reinvent government."

In other words, broken bureaucracies and busted services do not a government make. 0

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Specia l Repor t on Ci ty Governmen t , Par t 2

a anceowe rby Robert Ko lker


19/32

A primer on the / I structuralimbalance" in the budget,and what people whoabout government canabout it.caredo

Once upon a time, before urban renewal gave way tourban unease, keeping up with the Joneses meantwho in the apartment building had cable TV, orwhether your vacation plans measured up to theneighbors'. But have you checked in on the Joneses lately?Shifting from the prosperous 1980s to the uncertain1990s, Mr. and Mrs. Jones have ha d big trouble just balancing their budget. Their paychecks aren't as fat as they oncewere, and the debt payments on their latest home repairloan are becoming increasingly difficult to meet. The Joneses are learning the difficult skills of doing more with less.

The City of New York has fared no better. From the stockmarket crash of 1987 right up until 1994, New York's workforce and tax base steadily shrank. At the same time, moneyborrowed in the 1980s for infrastructure projects has to bepaid back, and the size of our interest payments is risingfast. Health care costs, particularly the cost of Medicaidfunded services, are shooting through the roof.All of these problems, along with dwindling state andfederal funds , have helped spawn what economists call the"structural budget imbalance," the year-to-year budget gapthat never goes away, no matter how many services themayor or City Council may cut. Like the Joneses, the City ofNew York is losing ground fast.

"There cannot be a pretense among people who believein government, who think government should do thingsthat help people, that there is not a long-term structural imbalance in the city's finances," says former city budget director Carol O'Cleireac8in. "This is not a hoax from thepages of the Post or the Daily News."

What exactly has caused the structural imbalance is amatter of debate. The only point of agreement among people across the political spectrum is this: the growth rate ofcity revenues falls far short of the growth rate of city expenditures. And the disparity is only getting worse. According to the Mayor's Office of Management and Budget,the likely budget gap for fiscal 1996-which begins nextJuly-is in the range of $1.3 to $3.2 billion, depending onwhat kind of shifts are made in the coming months.Some officials, including Mayor Rudolph Giuliani, blamethe problem on the size of the city bureaucracy, the demandsof unions and the state-mandated hiring of new cops. Privatization and cutting city agency personnel, they argue, is thebest way to close the chronic budget gap.

Yet as schools chancellor Ramon Cortines tearfully told

the City Council in November, you can cut only so muwithout causing serious damage. If we are ever to corrthe chronic, year-to-year imbalances, economists say, goernment must find new ways to raise money and gain cotrol over expenses-like Medicaid and debt service costthat are rising well beyond the rate of inflation.

"In each round of budget modifications, the mayorplaying fast and loose with the quality of life," argues Mahattan Borough President Ruth Messinger, who believes tmayor's approach is misdirected. Her office recently repoed that the city's debt payments, as well as its medical coand fringe benefits for city workers, are growing by aboutpercent a year. Meanwhile, most other budget items, cluding personnel and social services, have grown by onone percent. "He keeps cutting money for neighborhooand curtailing neighborhood services, [butl this is not wis growing fastest in the budget," Messinger says. Clearthe big-ticket items should be falling under the scrutinythe budget makers. But they are not.There are a number of areas where fiscal managers looking to find new revenues, or where extraordinarily pensive items can be dealt with in innovative ways. Sooptions, such as reducing unfunded federal and state mdates, may be more feasible now, given the new Republicgovernor and Congress. Others, such as raising taxes arequesting new money from the state and federal govements, appear to be little more than pie-in-the-sky scenarigiven the recent political upheaval. Indeed, Mayor Giulihas already committed himself to a series of tax cuts-nea$1 billion worth by 1998-a move fiscal monitors say wonly deepen the budget crisis. With all of this in mind, tfollowing is a rundown of some of the ideas now vying a hearing in the corridors of City Hall.

The Medicaid Monster

n average, cities and counties in the United Stapay only one percent of the cost of health care residents covered by Medicaid, the federally-madated, state-administered health insurance pgram for low income people. Uncle Sam picks up at le

half the tab, while states usually pay for the rest.But for New York City, it's another story entirely. Here, tfederal government pays about 50 percent, the state aboutpercent, and the city antes up a whopping 21 percent.In his attempt to ease the budget imbalance last spring, tmayor pinned his hopes on the state or federal governmepicking up a greater share of the city's Medicaid paymenAccording to the City Council, this year's $1.1 billion budggap could be eliminated by relieving the city of only half

what it will spend on Medicaid this year. The size of thepayments is increasing rapidly: the Citizens Budget Commsion, an independent watchdog organization funded by buness and foundations, reports that the cost of MedicaidNew York City jumped 45 percent from 1989 to 1992.


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Early in his administration, Giulianiand five county executives from the suburbs teamed up and called for greaterstate assumption of Medicaid costs. Thestate did make a minor concession: Gover

nor Mario Cuomo agreed to assume a grandtotal of one percent more of the burden. Giu-liani has not given up, however; sources in themayor's office say top officials still dream of swing

ing a deal with the incoming Pata-

quickly ad d up. "The result of having localities paythese functions is that they have to raise local revenue tso," explains Dean Mead, senior research associate forCitizens Budget Commission.

The new governor isn't entirely insensitive to manrelief. Easing his an d Giuliani's election feud in NovemPataki announced he would oppose a bill in the state lelature that would require the city to increase pensionments for public employees. He called the bill an "unfu

ed mandate," and said it woulki administration to relieve theMedicaid crunch.But Pataki is himself facing a

deep hole in his next budget goround, reportedly in the range of$2 to $5 billion next year, so anydeal between the city and state

In 1995, the city will pay a totalof $2.4 billion in interest andprincipal on its overall debt.

unfair to a city trying desperato close a $1.1 billion budgetIt may not be the best exampPataki is no great friend of onized labor, which supportsmeasure. But other politicians

will have to include some form of compromise. It is still unclear what Giuliani may be prepared to offer. The CityCouncil leadership has proposed a program in which, at theend of five years, the state would take on all of the city'scontribution to Medicaid-funded outpatient services-thatis, health care in clinics and doctors' offices-but only halfof what the city pays for inpatient hospital services. In exchange, the city would expand managed care and primarycare services for the poor, reducing the number of peoplewho seek care in expensive hospital emergency rooms.By the final year of the program, the council estimates, thestate would relieve the city of about $1.55 billion in Medicaid expenses. And as fewer of the city's poor residents spendtime in emergency rooms, the outrageous rate at which Medicaid costs are increasing-the real budget bugbear-shouldslow. Ultimately, they say, the program would pay for itselfby driving a stake into the heart of Medicaid inflation.

But others argue that the state is not likely to take overthe payments unless the city can first prove that the rate ofinflation can truly be slowed. And even the mayor himselfpoints out that the city lost one significant solution to Medicaid inflation when health care reform collapsed last yearin Washington. Congress' inac tion, he notes, is now costingthe city roughly $150 million a year.

Mandate Relief

Te state dictates many of the city's other budget decisions through laws and bureaucratic mandates. It'sa pattern that many policymakers, perhaps evenGovernor Pataki, would like to stop.The council has compiled a long list of money-savers tobe had if the state would just loosen some of its regulationsand pay its ow n way more often. I f the state covered the fullcost of road maintenance for state highways in New YorkCity, for instance, the city could save $5 0 million a year, according to the Department of Transportation. I f the statepaid the full cost of housing state prisoners in city jails, thecity could save $40 million a year. I f he state paid the samesubsidy for the City University's two-year associate degreeprograms that it pays upstate, the city would save $23 million a year. Faced with budget gaps in the billions, thesemeasures may no t seem like much, analysts say, bu t they

cluding Herbert Berman, the cof the City Council Finance Committee, confirm thatnew governor is open to discussing the mandate issue.Even so, none of this means Pataki wil l relieve other lstanding mandates or offer state money to cover their costThere are unfunded federal mandates, too. Overyears, city officials complain, Congress has ordered all sof social programs, bu t somehow has never approprifunding. According to the mayor's federal lobbying offseven mandates ranging from requirements for solid wdisposal to compliance with the Americans with Disaties Act cost the city a total of $475 million a year.

Of course, many of these underfunded or unfundederallaws are the result of long and vigorous campaigninthe part of activists with important goals in mind. Elimiing the federal requirement to remove lead paint from hing, for example, might offer some relief to the city budbu t it would do nothing to overcome lead poisoning.

Unless new funding sources are found, local and fedofficials looking to relax expensive laws and regulatwill encounter opposition from those who fought for tin the first place. Giuliani and Pataki could find themseon the sidelines watching liberals argue among themseover the relative costs and benefits of long-heralded lsuch as the Clean Air an d Clean Water acts.

Sharing the Pain

W hat the city wants most from the state an deral government is what it's least likelget-a return to previous levels of revesharing. A Lyndon Johnson/Nelson Rofeller-era policy that distributed general funds to cwithout any strings attached, revenue-sharing has dwdled for more than a decade. One of the biggest losersbeen New York City.


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!lBankersliustCompanyCommunity Development Group

A resource for the non--profitdevelopment community

Gary Hattem, Managing DirectorAmy Brusiloff, Vice President

280 Park Avenue, 19WestNew York, New York 10017Tel: 212 .454 .3677 Fax: 212 .454 .2380

you 'Fe 1nU1led!Family Planning Advocates' 18th ANNUALLEGISLATIVE CONFERENCE IN ALBANY

January 23rd andJanuary 24th, 1995Put your representatives to worldRecent changes in Albany and Washington have made thisyear's conference, "Upholding the Spirit of Choice, especiallyimportant. An impressive turnout by pro-choice New Yorkers iscrucial for making an impact on legislators.Take advantage of this opportunity to speak directlyto your elected representatives! Attend insightful paneldiscussions on how to use the legislative process, health carereform proposals, and teen health initiatives, as well as a workshop on confronting the anti-choice agenda of the religiousright. Take action and protect your right to make your owndecisions about your family and your reproductive life.

Join us for one or two days!Planned Parenthood of New York City has organized buses your trip to Albany. Buses will be leaving from ManhattaBrooklyn, Queens, and the Bronx. As a member of the PPNdelegation, you will receive a free copy of the 1995-96 Guito Your Elected Representatives and a briefing on currereproductive rights issues .For more information, please contact us at:Planned Parenthood of New York City26 Bleecker Street, 7th floorNew York, NY 10012TEl : (212) 274-7200 or 274-7348 FAX: (212) 274-727

Planned Parenthood of New York City


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Business as UsualEven legal methods of city contracting open the door towidespread abuses-and reform is nowhere in sight.Corruption is certainly nothingnew when it comes to the NewYork City contracting process.Every few years, another scandal percolates to the surface, incensingthe public and affording officials theopportunity to renew pledges to cleanthe rot from the system.But it's no t just the usual kickbacks,price-fixing and bid-rigging that undermine the competitive system. There areseveral legal contracting proceduresthat enable agencies and private vendors to circumvent strict procurementregulations meant to prevent questionable and costly deals. By some estimates, such practices are costing thecity hundreds of millions of dollarseach year. In her October 1993 report tothe Procurement Policy Board, theboard's executive director, ConstanceCushman, noted, "The city continuesto hemorrhage money through its procurement system." Citing half-heartedreform efforts, she added, "Nothingdone so far has even begun to staunchthe flow."$30 MillionFor a case study in government contracting, City Limits set ou t to explorethe recent contracting history of one ofthe city's major garbage-carting firms,Allied Sanitation. What we found was adisturbing trend of noncompetitive bidding, public subsidies and puzzlingprocurement practices that critics sayare endemic to the business of contracting in this town. Allied is part of agroup of Brooklyn- and Queens-basedcompanies owned by L&G Realty, aNassau County company that includesStar Recycling, P&F Trucking andGreater New York Leasing. Accordingto city records, the L&G group has morethan $30 million in outstanding or recently completed contracts and purchase orders with the City of New York.While the L&G companies appear tohave won their government contractsby entirely legal methods, they havehad the good fortune to receive millions of dollars in city contracts without competing against a single bid fromother local carting firms. L&G also hasa long record of generous campaign do-

nations that stretch over the last threeadministrations and has received millions of dollars in tax benefits and development subsidies from the city's Industrial Development Agency.The L&G group has won many contracts from city agencies in which theyoffered the lowest price among thecompeting bidders. That's the way thesystem is supposed to work. But in addition to these contracts, the group hasalso won millions of dollars in lesscompetitive ways.Allied Sanitation was the sole bidder for four separate Department ofHousing Preservation and Development (HPD) contracts worth more than

I ' ~ ' . , ...I ~ h [I

$2 million for the removal of trash andconstruction debris for fiscal years1995 and 1996. HPD officials dividedthe job into four separate contractsspecifically to encourage competition,according to Joy Fairtile, HPD Assistant Commissioner of Maintenance.But, she says, none of the roughly 300other carting firms in the city bid on asingle one of them."There is a tremendous history ofroute-fixing and collusion on the partof carters," Cushman explains. "That'sthe cartel," adds Jennifer Kohn, aspokesperson for Public AdvocateMark Green. "They decide who wins."Officials claim there is little they cando to counter solitary bids. "We can'tforce companies to bid," says Fairtile.But critics charge that the city is notcommitting resources to the kind of research and outreach necessary to encourage a broad range of firms to compete for city contracts, or to ensure thatpublic money isn't being wasted due tocollusive industry practices that pre-

By John Gilmore

vent competition."No one comes in from the ouand challenges these things," obseElliott Sclar, an urban planning prsor at Columbia University. "Andyou decide you're going to look the oway, it becomes a billion-dollar prob"If you want to have a fair andbidding process, you've got tomoney in the budget to pay for it," says. The Giuliani administration'sto privatize many city services c

lead the city into a contracting mfield-where taxpayers will be thetims, he adds. "These days, everylooking for a free lunch. 'Contraout will save money,' they say. Butdon't want to spend the money tosure there are no abuses."And even when someone does cin to challenge the status quo, theno assurance that anyone will listwhat they have to say."The school bus contracts for buhandicapped kids have not been lecompetitively since 1979," notesi1 mer City Comptroller Elizabeth HS man. "Competition in the lettinthose contracts could save $100 lion dollars a year. Well, the citythe middle of a budget crisis, bdon't see anyone doing anything athose school bus contracts."

No ExplanationThe city has also awarded Star Rcling, another L&G firm, at leastcontracts from the departments of Eronmental Protection (DEP) and Sation (DOS) for everything from hausewage sludge to recycling metalglass, even though lower bids werfered for each contract. Star Recyto date has received at least $6.7lion out of a potential value of than $21.1 million on the ninetracts. The earliest was signed in M1989 during the Koch administraThe most recent was registered witcomptroller in March 1994.Agencies may reject a low biddea variety of reasons, such as if thedetermines a company is no t technly capable of performing a task minimum labor standards are noserved. But, notes Cushman, city


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ployees responsible for evaluating bidshave not been properly trained to select contractors. When asked why lowbids were rejected in the awarding ofthe contracts to Star Recycling, DEPspokesperson Ian Michaels and DOSspokersperson Cathy Dawkins couldoffer no explanation.Agencies can also bypass manycumbersome city contracting procedures to buy goods or services valuedat less than $10,000 by using "purchaseorders." According to ProcurementPolicy Board rules, in order to issue apurchase order, a city department stillmust obtain at least five bids and selectthe lowest bidder for any given transaction. But unlike business done with acontract, the comptroller's office doesnot review purchase orders. Accordingto Cushman, while this provides agencies a quicker purchasing tool, the lessstringent review creates "absolutely agreater level of opportunity for abuse."Larger contracts-some for hundreds of thousands of dollars-havebeen broken up into smaller purchaseorders, each worth less than $10,000,thus evading the standard procurementprocess. "Agencies can and do usemultiple purchase orders when theywant to avoid competitive bidding"and steer deals to vendors they arecomfortable doing business with andleaving the door open for kickbacks,explains an investigator with the Inspector General of a large city agencywho spoke on condition of anonymity.In 1992, for example, William Jenkins, then the assistant commissioner offacilities management with the Department of Correction, was convicted ofaccepting bribes from a janitorial supply company to whom he had issuedpurchase orders of $9,999 every monthfor more than two years. Jenkins wasvideotaped accepting bags of cash fromofficials of the firm.Of course, purchase orders can andare used for thousands of justifiabletransactions every year. But critics sayit's the spirit, not the letter of the lawthat is being exploited in many cases.Last fall, Star Recycling received sixseparate $10,000 orders from the Department of Sanitation to providesewage sludge clean-up services in sixcommunity boards around the city.The fact that the services were to beprovided at different locations wasdeemed sufficient justification by DOSto issue purchase orders instead ofa competitive contract, according toDawkins.

These purchase orders were also issued on an "emergency" basis, whichallowed DOS to select Star Recyclingwithout soliciting bids from otherfirms. "Emergency" procedures werealso used to directly award Star Recycling a $650,000 contract in 1992(recently increased to more than$800,000) to process glass and metalgathered from the city's curbside recycling program.Emergency procedures are intendedto allow the city to respond quickly tounforeseen events, such as puttingextra snowplows on the streets after astorm or making repairs to a collapsedroof. But this reasonable provision hasalso been abused.Agencies have learned, "If you ignore a problem long enough you candeclare an emergency and direct contracts to sole-source vendors," observesSusan Mattei, who works for PublicAdvocate Mark Green. The scope ofthis problem was identified in a reportlast December prepared by then-Comp-

"Contractinggreasesthe politicalmachine"

troller Holtzman, which indicated thatmore than $250 million in emergencyrequests had been withdrawn or denied in the previous three years because they were inappropriate.Generous DonorsThese decisions are not made in apolitical vacuum. The L&G companieshave been generous donors to politicalcandidates, giving more than $25,000to politicians running for city officesbeginning with the 1989 elections, according to records compiled by theCampaign Finance Board.David Dinkins received the most ofany single candidate, with a total of$7,600 for his two mayoral races .Rudolph Giuliani came in second with$4,500, followed by Edward Koch at$3,600 and unsuccessful City Councilcandidate Pamela Fisher with $3,300.Currently seated elected officials whohave received donations from the firmsinclude City Council Speaker and Majority Leader Peter Vallone ($2,300),

Brooklyn councilmembers Victor Roles ($2,100) and Herbert Berm($500), and Queens Borough PresideClaire Shulman ($400) .Sclar notes the negative effects thcampaign largesse can have on reformeasures. "It's a big problem," he oserves. "Contracting greases the polical machine." L&G declined requests comment on its campaign contribtions or to be interviewed for this storThe L&G firms have also received amost $12 million in low cost loans antax abatements through the city's Idustrial Development Agency (IDA) fthe acquisition and development offacility in the Greenpoint sectionBrooklyn. IDA programs are adminitered by the Economic DevelopmeCorporation, a quasi-public corportion headed by a mayoral appointeAccording to EDC spokesman JoDougherty, the motive for bestowithese public subsidies was to "retajobs in the city."Keeping HonestExtensive review and oversight prcedures do exist for city contracting,course, and one of the primary tasksthe comptroller is to keep the agenciand contractors honest. But whilesource at Comptroller Alan Hevesoffice characterizes noncompetitibidding and abuses of emergency cotracts as "hot items" right nowspokesperson Leah Johnson declinto provide details of any plans to combat those problems.At the same time, the ProcuremePolicy Board has the power under thCity Charter to change the rules goerning the way New York City cotracting gets done. But that, as Cusman noted in her report last year, "essentially a question of political will"The board must live up to its owmission statement," she wrote in hblistering report, "and the Mayor anComptroller must empower it to so." Such unstinting criticism mahave cost Cushman her job, howeveshe resigned her post in DecembeMeanwhile, the unit within thMayor's office in charge of reviewincontracts and conducting audits hbeen all bu t eliminated. "The way itnow," observes one insider, " if aagency wants to get around the rulethey can." DJohn Gilmore is a freelance writbased in Brooklyn and a former planer for the City ofNew York.


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Freedom of Choice By Bill LiptoH ousing activists and organizers currently face an historicopportunity to help thousands of poor and workingclass New Yorkers become homeowners, never again to be forced out oftheir apartments by terrible conditions, landlord arson or gentrification.Whether or no t this becomes a reality depends in part on how tenantsand organizers choose to interpretstatements by city officials about theGiuliani administration's new push torehabilitate and sell city-owned apartment buildings.Commissioner Deborah Wright ofthe Department of Housing Preservation and Development, which ownsseveral thousand buildings taken fromtax-delinquent landlords, has outlinedher agency's privatization plan at several public meetings in recent months.There are the usual alternatives: private landlords, community groups andthe tenants themselves will all havethe opportunity to manage and purchase buildings. What's significantabout HPD's recent policy declarations, however, is the agency's repeated assurances that tenants will havethe right to choose which programthey want their buildings to enter, andwhich form of ownership will result.Commissioner Wright has confirmedunequivocally that she is committed totenant choice as an underlying principle of the privatization effort. Organizers and tenants should go one step fur-ther and interpret these statements as amandate to organize.Powerful EffectIn 1935, when Congress passed theWagner Act declaring the right ofworkers to unionize, labor leader JohnLewis and his fellow organizers wentacross the country exhorting workers,"The President wants you to join theunion." The argument had a powerfuleffect; for the first time, many workersfelt that their efforts to form unionswere sanctioned by the powers that be.Today, whether or no t city officials intended it, their public support for tenant choice enables activists to tell tenants, "HPD wants you to determine thefuture of your building."This point may seem minor to some.But for tenants who may fear reprisalsor be hesitant to organize, the argu-26/JANUARY 1995/CITY LIMITS

ment that their landlord-the ci tysupports their efforts can have a significant impact.Yet inadequate notification, poorinformation and lack of tenant organization could easily undermine thenotion of free choice. One thing iscertain: without organizing, the sale ofcity-owned housing is a game tilted infavor of private, for-profit landlords.

such as mutual housing associatioLeaders from the hundreds of succeful tenant-owned cooperatives afrom the emerging Neighborhood Nworks project can mobilize to give firhand account

city limits magazine, january 1995 issue

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