New York City's Shadow Government

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 publication.

When Giuliani proposed a critical study of the City University of New York, the John M. Olin Foundation, which promotes conservative causes, donated $25,000.

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 request.

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.

CONTROVERSIES

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.

'A NEW GENUS AND SPECIES'

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."

WHO'S WHO: 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