Tuesday, February 3, 2009

The Good News IS the Bad News: Thanks A lot for Mayor Bloomberg’s “Charity” (Part II)

(Mayor Bloomberg above listening to public testimony about the term limits extension bill he signed immediately afterward.)

This is Part II of an article about why Mayor Michael Bloomberg’s contributions to charities from his ever-increasing wealth is bad news. The first part of this article (Click here) examines how Bloomberg uses “charitable” donations in an abusive conflict-of-interest way. This Part II of the article was necessary to address at length the important related concerns about high-level conflicts of interest in the Bloomberg administration.

We left off in Part I asking:

How separate are the worlds of big mega-deal city administration-assisted real estate development and the Bloomberg private-wealth businesses that are growing so fast? Perhaps the first and best clue would be how responsibilities divide up when Bloomberg puts his senior confidants in charge of these worlds. It turns out that at the very top of the Bloomberg administration there is a troubling lack of separation and all sorts of problems with conflicts. Let’s talk about two of Bloomberg’s top administration officials, two deputy mayors with key city real estate development responsibilities, Daniel Doctoroff and Patricia Harris. The latter, Ms. Harris is also key when it comes to Bloomberg’s charities, both dispensing them and collecting charitable donations from New York developers who are receiving city largess. Of course, Bloomberg’s own conflicts deserve further discussion too.
Doctoroff of Development: His Continuing Deputization by the Mayor

The person who was for most of Bloomberg’s administration the deputy director of development, charged with overall responsibility for the city’s mega-deal administration-assisted real estate development was Daniel Doctoroff. Daniel Doctoroff left that position relatively recently (the last day of December 2007) and when he left he became the President of Bloomberg L.P., the mayor's media corporation. That in itself may indicate insufficient separation, but Doctoroff wanted to keep working on the major city-assisted deals even when he was President of Bloomberg L.P..

Doctoroff went to the city Conflicts of Interest Board to get approval to do so. Megaprojects take decades to bring to fruition and at the times that Doctoroff went to the Conflicts of Interest Board the Bloomberg administration was destined to wrap up the end of 2009. It is doubtful that mention was made to the Conflicts of Interest Board that in less than a year the Bloomberg administration would ram through an extension of term limits in order to procure four more years in office. The Conflicts of Interest Board approved Doctoroff’s request despite the fact that Doctoroff would thereby be in a position where he was simultaneously dealing on the public’s behalf with the same developers of multi-billion dollar real estate projects and negotiating with these same developers as a private businessman (See: No Conflicts Over Doctoroff's Dealings, By Dave Hogarty in News on December 23, 2007)

Doctoroff’s continuing involvement involves some of the city’s highest-dollar volume deals. According to the Observer, Doctoroff said he:

wanted to continue on as chairman of the Hudson Yards Development Corporation—the agency that is involved in rezoning the West Side and finding a developer for the rail yards—and remain involved in the Moynihan Station proposal, Hunters Point South and congestion pricing.


(See: Doctoroff Wants to Stay Involved with Hudson Yards, Moynihan, by Matthew Schuerman, December 6, 2007)

One Clear Example of Doctoroff Conflict

The Gothamist article above points out that even though the Conflicts of Interest Board cited “extraordinary circumstances” to say that “Doctoroff's negotiations on behalf of the city with Vornado Realty Trust regarding the development of the Hudson Yards and Moynihan station were allowable,” that Bloomberg L.P.. of which Doctoroff will be president and chairman of the management committee:

will be negotiating with Vornado for additional space at the building that houses Bloomberg LP's headquarters on Lexington Ave., since Vornado owns that building. The Conflicts of Interest Board gave its blessing on the condition that Doctoroff have no direct dealings with Vornado for a year after he leaves his position as Deputy Mayor.
That is just one example of a problem, based on just one project. The Conflicts of Interest Board ruling also applies to“other city projects including the redevelopment of Governors Island, PlaNYC, and Queens West.” (See: Doctoroff Cleared to Continue Work on Moynihan Station, 2008-03-26.)

The five member Conflicts of Interest Board which considered that “extraordinary circumstances” presented themselves is made up of mayoral appointees.

An Example of How Confusing Doctoroff Conflicts Can Be, With Distinctions Not Made and Distinctions Not Observed

Adding to confusion, having issued “a waiver” in December 2007, the board followed up with a ten-page Ex-Official Cleared to Continue Work on Big City Projects, by Patrick McGeehan and Ray Rivera, March 26, 2008.)

Here is just some of what the Times wrote in that article pointing out aspects of the confusion:

The board’s decision underscores a reality that has often been noted in the city’s development community: Mr. Doctoroff may have left City Hall, but he remains a participant in — and has a big influence over — what is going to be built.

* * * *

It is not unprecedented for former city officials to be involved with public projects, but in the case of Mr. Doctoroff, the city’s longest-serving deputy mayor for economic development, the list is so long and varied that city officials and even some who serve on boards with him have expressed confusion about his roles. In response, City Hall circulated a memo in January advising city employees how to interact with him.

For a year after leaving public service, former officials are strictly prohibited from appearing before any city agency within the branch of government where they served; the ban is even longer if the subject is one in which the official was directly involved. The prohibitions do not apply, however, if the official is appearing on behalf of the mayor or another government agency.

Some questions about Mr. Doctoroff’s future role remain unanswered.

The board’s 10-page opinion did not address his participation in development decisions about the West Side railyards, known as Hudson Yards, although the city had asked for a ruling on the matter.

* * * *

On Wednesday, the transportation authority is expected to grant development rights over the railyards, a 26-acre slice of Manhattan overlooking the Hudson River, to Tishman Speyer, one of Manhattan’s largest real estate operators.

Mr. Doctoroff met during the week of March 10 with the teams of developers competing for the billion-dollar project, according to members of the teams, who spoke on the condition of anonymity because they did not want to offend Mr. Doctoroff.

Even after he left later on a business trip to Asia, Mr. Doctoroff remained in constant contact with the selection committee throughout the deliberations.

. . . . Mr. Doctoroff dismissed the notion that there might be a conflict of interest between his continuing work for the city and his new role at Bloomberg.

“Certainly, if I felt it was going to create conflict that I thought was going to be harmful to the company, I wouldn’t do it, and I’d be the same way with the city,” he said. “If there was a conflict, I just wouldn’t do it.”

At the time of that Feb. 22 interview, Mr. Doctoroff also insisted that his involvement with the city had been limited since leaving office. . . . That did not include the recent railyard negotiations.

* * * *

The opinion issued on Tuesday limits the role he can play in matters involving Vornado Realty, which owns the building housing the Bloomberg L.P. headquarters. The company is negotiating with Vornado for additional space.

The board said that given Mr. Doctoroff’s knowledge, it was best for the city for Mr. Doctoroff to continue his involvement with the Moynihan Station plans. Vornado is a developer of the station project and was one of the companies vying to develop the railyards with whom Mr. Doctoroff met earlier this month. On March 12, Mr. Doctoroff met with the Vornado chairman, Steven Roth, and the M.T.A. selection panel, and last Friday with David Greenbaum, a top Vornado executive.

The opinion advises Mr. Doctoroff to recuse himself from any discussions between Bloomberg L.P. and Vornado for one year from the date of the conclusion of the Moynihan Station negotiations, and from all dealings involving Vornado or Bloomberg L.P. in any of the other projects addressed in the ruling.

Gene Russianoff, a senior lawyer for the New York Public Interest Research Group, said he agreed with much of the ruling but was troubled by the absence of the railyards and the station exception.

“I can see recusing himself from landlord-tenant matters with Vornado, but is Vornado going to say, ‘O.K., we’re going to jack up the rent when we’re trying to make some kind of deal over Moynihan,’ ” Mr. Russianoff said.
We have set forth the above at substantial length because it is so valuable; it is worth reading the entire Times article carefully to appreciate how much more confusion of roles is involved in the Doctoroff situation.

Recusal, Refusal and Confusal

As good as it is, the above Times article did not mention yet another level of complication. Before Doctoroff officially left City Hall, he was responsible for matters from which his boss, Mr. Bloomberg was supposed to recuse himself because of conflicts of interest respecting Bloomberg, L.P. Doctoroff’s being at Bloomberg L.P. invokes those same conflicts and the need for Doctoroff also to recuse himself personally. (The Roles Blur for the Mayor and the Mogul, By Serge F. Kovaleski and Ray Rivera, December 8, 2007.) Who then is anyone reporting to and who in the chain of command doesn’t have a conflict of interest? That, in a moment, will bring us to Deputy Mayor Patricia Harris.

The Times reported on how, while Doctoroff was Deputy Mayor for Development, he had been officially charged with negotiations from which Bloomberg was required to recuse himself, but that: 1.) Bloomberg failed to effectively recuse himself, and 2.) people were skeptical about whether delegation to Doctoroff was, in any event, a sincere attempt by Mr. Bloomberg to recuse himself:

When the city began negotiating with Verizon on its bid for a cable franchise, Mr. Bloomberg, whose company, Bloomberg L.P., owns a business news channel, stepped aside and put Mr. Doctoroff in charge of the talks.

When Merrill Lynch, which owns 20 percent of Bloomberg L.P., was considering leaving Lower Manhattan and moving to Midtown, Mr. Bloomberg limited his involvement in negotiations. He let Mr. Doctoroff handle them.

The Bloomberg administration said these steps were intended to protect the mayor from any appearance of a conflict of interest. But other people were skeptical of the arrangement, given the close relationship between Mr. Doctoroff and Mr. Bloomberg.
The Times observed the following in relation to the Mayor Bloomberg / Doctoroff recusals (emphasis supplied):

The Conflicts of Interest Board agreement Bloomberg was supposed to follow:

. . .said that the mayor would recuse himself “from all city matters involving Merrill.” But when the drama erupted over Merrill Lynch’s possible relocation from Lower Manhattan, the mayor picked up the phone and called E. Stanley O’Neal, who was then the chief executive, “one or two” times, according to Jason Wright, the Merrill spokesman.

* * * *

. . . Mr. Bloomberg does not recall any such conversation. But he said that, while Mr. Doctoroff was put in charge of the negotiations with Merrill, it would have been “entirely appropriate” for the mayor to offer his administration’s assistance.

Mr. Loeser said Mr. Doctoroff will now recuse himself, as well, from any dealings involving Merrill or cable television.

In another matter involving Merrill, the mayor has signed off on $1.43 billion in municipal bond deals in which the investment firm was the lead underwriter and several more in which the firm was part of the underwriting team, according to city records.

* * * *

. . . the mayor’s office has never sought a waiver from the conflicts board to allow for an exception to its 2002 opinion.

* * * *

Councilman Avella has raised another issue involving recusal: this one about the city’s continuing negotiations with Verizon as it seeks to break into the lucrative cable television market here.

* * *.*

Bloomberg Television, which reaches more than 200 million households worldwide, is carried by major cable operators in the city. And the mayor has not been shy about voicing his views on cable industry issues, saying, for example, that cable rates should be able to rise without government interference.

Mr. Avella said it is not credible that the mayor is uninvolved, especially with the huge revenues at stake for Verizon and the city. He added: “Even if the mayor has recused himself directly, who is then overseeing the city negotiators? He is obviously involved in leading these discussions at some level, somewhere. Where is open government in all this?”
Bloomberg needs to recuse himself. Doctoroff now needs to recuse himself. Who does that leave in charge who is not recusing themselves? We are now ready to talk about First Deputy Mayor Patricia Harris, currently Bloomberg’s number one in City Hall.

Patricia Harris’ Conflicts

Deputy mayor, Patricia E. Harris (sometimes reported upon as “Patti Harris”) like former Deputy Mayor Daniel Doctoroff also has both Bloomberg L.P. responsibilities and responsibilities affecting major New York real estate development projects. Deputy Mayor Harris, a City Hall official, is who the Times went to in 2007 (when her salary was $225,000 a year) for information about and a characterization of the Bloomberg’s “private” giving through his Bloomberg L.P. business:

“He’s continuing to be more generous and give to more organizations, but the focus has remained consistent,” said Patricia E. Harris, a deputy mayor who helps oversee his philanthropy. She added that his main areas of focus have been medical research, public health and the arts.
(See: Bloomberg’s Gifts to Charity Exceeded $165 Million in 2006, by Diane Cardwell, September 17, 2007)

Ms. Harris, who once worked for the Koch administration ,shifted over to the private sector and was working for Bloomberg in 1994 before his ambition to become mayor emerged. She was “Bloomberg L.P.'s Corporate Communications Department . . . overseeing its Philanthropy, Public Relations, and Governmental Affairs divisions.”

Very important to the real estates industry, First Deputy Mayor Harris also oversees the city’s Landmarks Preservation Commission, as we noted in Times Coverage of Landmarks Preservation Commission: The Pieces Needing to Fall Into Place (Tuesday, December 9, 2008) and is likely to have had a hand in promoting the Atlantic Yards project when she and Mayor Bloomberg met with the Atlantic Yards developer Bruce Ratner. That meeting bore evidence of a quid pro quo exchange of contributions to Bloomberg charities in exchange for project approvals. For more on this, see: Are the Atlantic Yards Land Grab and City Official Fraud Being Used to Finance Bloomberg’s Bid for Billionaire Term Limit Exceptionalism? (Wednesday, October 22, 2008).

Deputy Mayor Harris’ Failure to Be Sensitive to the Conflicts

Certainly the probability of substantial conflicts is present in these dual roles. Can it at least be said that Ms. Harris and the Bloomberg administration were sensitive and attentive these likely conflicts? Now, it is reported that Ms. Harris and her assistant, Allison Jaffin, performed the dual roles, failing to inform or obtain approval from the Conflicts of Interest Board beforehand. From the Daily News coverage:

The city charter generally bans bosses and subordinates from entering into business relationships with each other or doing private work on city time unless the Conflicts of Interest Board agrees it is in New York's best interest.

As the mayor tries to figure out what his third career is going to be - politics, philanthropy, something else - the line between his public and private lives seems to be growing increasingly muddy.

He insisted this summer he had no involvement in his media company and then had to backtrack a few days later, admitting he talks to top execs frequently.
(See: Mayor Bloomberg's aides staff his foundation without city ethics check, by Kirsten Danis, December 23rd 2007.)

In the article a Bloomberg spokesperson referred to Harris’ Bloomberg, L.P. work as a “minimal amount” when just two months earlier the Times was quoting Ms. Harris and writing about her overseeing what had been $165.3 million to 1,077 groups the previous year and Bloomberg was going to be “more generous” (to quote Ms. Harris) to the tune of $205 million in the year when the question came up.

And the City Health Commissioner’s Dual Role

The article reported that the Bloomberg administration also had Health Commissioner Thomas Frieden working with the Bloomberg L.P. foundation (which involved travel to China) and because he had obtained permission from the Conflicts of Interests Board, the administration suggested that Ms. Harris similarly doing so was unnecessary. Because we at Noticing New York know and appreciate and care more about the possibilities for conflicts in the real estate industry we won’t comment to compare how similar the Health Commissioner’s possibilities for conflict were.

Bloomberg Entrusts Deputy Mayor Harris. . .

How involved in major city-assisted real estate projects is Ms. Harris and how sensitive should she have been to possible conflicts of interest with respect to them? It was Deputy Mayor Harris who submitted the request for a conflicts of interest waiver for Daniel Doctoroff to the Conflicts of Interest Board.

The Times reported that Ms. Harris’ job includes being:

officially in charge of New York City whenever Mr. Bloomberg leaves town. But perhaps more significantly, she will see to it that the mayor's vision for the city is carried out in his second and final term as he seizes on the momentum from his huge electoral victory.
(See: Bloomberg's New Deputy Has a Velvet Fist, by Jennifer Steinhauer, December 6, 2005.)

It reports:

Ms. Harris is by far the most powerful person in the Bloomberg administration, a role rooted in her past at Bloomberg LP, where she served as director of his philanthropy for several years.

* * * *

They have a very secure relationship.

* * * *

"The mayor trusts her implicitly,"
(According to William T. Cunningham, who helped run both of Mr. Bloomberg's campaigns.)

Explicit Acknowledgment of Harris’ Use of “Charity” for Political Purposes

The Times article which is almost in the nature of a puff piece reports explicitly about the her role in utilizing the mayor’s “philanthropy” as a tool for political ends; apparently without realizing the full ramifications thereof:

Last year, when Ms. Harris became aware that some people in the arts world who had benefitted from Mr. Bloomberg's philanthropy had given political donations to one of his early campaign rivals, City Council Speaker Gifford Miller, she called them and demanded to know what they were thinking.
Extensions of Deputy Mayor Harris “Philanthropy”-based Power

Right now Ms. Harris’ “philanthropy”-based power has been expanded because, besides overseeing the mayor’s Bloomberg L.P. giving, the article writes about the control and influence she exercises over the City Hall-based Mayor's Fund to Advance New York City and its chairman. That’s for now. What does the future have in store? As noted, Ms. Harris was once in the private sector working for Bloomberg (de facto chief of staff) on his “philanthropies.” Now as a city official she continues to do so and the Times article says that with respect to the future she:

will continue to run his philanthropy once he leaves office. That endows her with formidable power beyond his term, . .
(Ms. Harris’ predecessor, Deputy Mayor Mark Shaw, went to work for real estate developer Extel Development company upon departing government.)

Ms. Harris’ husband, Mark D. Lebow, is a lawyer with Lebow & Sokolow LLP whose practice areas include real estate. Bloomberg appointed him to the board of the Metropolitan Transportation Authority and Ms. Harris’ stepson also works for the Bloomberg administration.

The Conflicts of Mayor Michael R. Bloomberg Himself

What about the mayor’s own conflicts in running the city while accreting so much wealth through his private company? His conflicts while controlling so much “charitable” giving? Among other things, the above-discussed conflicts of his senior people must travel up the ladder to be laid at his doorstep as well. But Mr. Bloomberg isn’t good at seeing conflict. Even though the Times wrote so explicitly about Ms. Harris’ use of “philanthropies” for political purposes, when the need for Ms. Harris to obtain Conflicts of Interest Board approval was raised, Mr. Bloomberg professed to see no possible conflict:

“She has been handling all of my philanthropies for all the years I’ve been in office,” the mayor said. “And whether she does it through a foundation or directly, there is literally no difference in terms of potential conflict.”
(See: Ruling Allows Wider Investment Options for Bloomberg and His Foundation, by Ray Rivera, December 27, 2007.)

The mayor is perhaps right: Whether the deputy mayor handles his “philanthropies” directly or indirectly does not affect the potential conflict. The conflict presents itself either way.

New 2007 CIOB Opinion

Ironically, the mayor’s statement was in an article that reported that the Conflicts of Interest Board was issuing a new 2007 opinion imposing specific theoretical restrictions on the mayor himself vis-a-vis his relationship with his private foundation. Given Mr. Bloomberg’s use of Ms. Harris to oversee his philanthropy, one would expect that she might easily be violating those same proscriptions applicable to Mr. Bloomberg without guidance.

What a Disobedient Mayor Does

It’s worse than that in several ways. The new Conflicts of Interest Board requirements were new because they were requirements that were being relaxed from what was previously required. At the same time, long into Bloomberg’s second term, it was being reported that Bloomberg had not complied with requirements to avoid conflicts that the Conflicts of Interest Board imposed upon him at the beginning of his first term.

In that same Times article:

In a 2002 agreement with the conflicts board, the mayor promised to limit his involvement with his company to major decisions that would have a significant impact on his ownership value. Throughout his two terms, the mayor repeatedly insisted that he had no involvement in the firm’s day-to-day operations.

This month, however, The New York Times reported that the mayor talked regularly to senior officials at the company about topics ranging from new data terminal sales to expansion into new markets and the general financial performance of the company. He even recruited the company’s spokeswoman.

And despite the 2002 agreement, which required him to recuse himself from any city business involving Merrill Lynch, the biggest investor in his company, the article said the mayor had taken numerous official actions that involved Merrill Lynch.
Not unexpectedly the Administration denied any problem:

Administration officials insist that Mr. Bloomberg has not violated the 2002 opinion.
Inadequacies of Agreement With Which Bloomberg Failed to Comply

The Times reports that much of the language of the 2002 ruling with which Bloomberg failed to comply was supplied by Bloomberg’s own lawyers. It also points out that its disclosure is antique, setting forth “Bloomberg L.P.’s top 100 customers” without update since 2002 when, comparatively speaking, Bloomberg was a considerably less bruising presence, his company’s customers now including “virtually every major financial institution in the city.” (The Roles Blur for the Mayor and the Mogul, By Serge F. Kovaleski and Ray Rivera, December 8, 2007.)

Once Again the Bad News is that “Charity” is Good

What seems to have convinced the Conflicts of Interest Board to give more freedom to a disobedient mayor in the new 2007 Opinion? Apparently, the deceptively all-too-simple argument that bolstering Mr. Bloomberg’s wealth and “philanthropic” potential would be good. To this end the board decided to:

allow him to move his money into more aggressive investments, including hedge funds and publicly traded stocks.
Because?

The mayor’s spokesman, Stu Loeser, said Mr. Bloomberg was not seeking the changes to expand his personal fortune, which has been estimated at anywhere from $5 billion to more than $13 billion. But he said that as the director of the Bloomberg Family Foundation, the mayor “has a responsibility to maximize the amount of money it has to give away to charity.”
(Note: The $13 billion figure is closest to the Forbes estimates.)

New Flexibility For the Mayor

The article explained:

The ruling by the five-member panel modified a key element of an opinion it issued in 2002 that urged the billionaire mayor to sell all of his stocks, along with his interests in a hedge fund, because the holdings violated the city charter.
(Bloomberg complied with that part of the directive.)

Specifically this was spelled out as the arrangements with which the mayor (Ms. Harris too?) was theoretically expected to comply:

Under the arrangement, the mayor will select one or more investment firms to oversee his personal and charitable foundation’s investment strategies, and then recuse himself from any city business involving those firms.

The firms will then choose managers who will carry out the investment decisions, but their identities will not be shared with the mayor, the board said.

* * * *

. . . the mayor could advise the investment firms about categories of investments and could hire or fire managers based on reports about their performance. But the mayor must receive no information about the specific holdings in his or the foundation’s accounts, and must not know the identities of the managers, the board said.
Is this adequate protection for the public when dealing with a mayor who had already demonstrated disobedience? Maybe not, but it was expected that it would sound good to the public:

“The proposed arrangement will not conflict with the proper discharge of his official duties, and it avoids the appearance of conflict to the public,” the board said.
It Ain’t Something for Nothing

One should always beware when something is offered for nothing.

Once upon a time, the idea was that we were going to have a mayor so wealthy that he was not interested in the acquisition of further wealth, a mayor so wealthy that he was motivated by pure generosity. Bloomberg was supposed to represent “a new paradigm,” “a businessman and a technophile, a man focused on communication and transparency,” a “technocrat-mayor” who didn’t personalize conflict. We were even relieved of contributing to the political campaign he willingly paid for himself! (See: The New Paradigm, Has Bloomberg changed the mayoral model forever? By Edward-Isaac Dovere.) But that was always just public relations preamble to the facts. The facts now deserve another look.

The Conflicts of Interest Board’s 2007 opinion is specifically about accommodating the mayor in the continuing acquisition of more wealth. Results speaking for themselves, that is something he had already done very well throughout his administration. Rather than generously giving money away, Bloomberg “donates” money to acquire more personal power and perhaps to acquire still more money as well. It even turns out he is driving up public expenditures on mayoral campaigns! Whereas once upon a time we were told we were going to have a mayor who was so angelically generous that we didn’t have to worry about anything, we now find that we have a mayor so financially omnipresent and capable of corrupting charity that we need to worry about everything. It is almost like a real life version of the jokey chestnut episode of the Twilight Zone, To Serve Man.

An Enormous Problem in Context

Given Bloomberg’s omnipresence, getting far enough away from him to avoid conflicts of interest is a daunting proposition. It is increasingly hard since Bloomberg has gone in a decade from just one of the wealthy (# 56 on Forbes list in 1998, # 42 in 2001) to the wealthiest New Yorker (# 8 richest American on Forbes list for 2008).

The Times had a paragraph that framed the enormity of the problem nicely:

The opinion is the latest ruling to try to address ethical questions created by Mr. Bloomberg’s public and private roles. The mayor not only runs a city that is one of the world’s financial capitals and retains a majority ownership of Bloomberg L.P., a media and financial information giant whose customers include many of the city’s biggest banking firms. He is also a philanthropist whose private giving often involves nonprofit agencies active in civic and neighborhood affairs.
Increase of Bloomberg Wealth at Taxpayer Expense?

Setting aside conflict-of-interest abuse of charities to enhance personal power, there is also simply the question of Bloomberg’s possible conflict-of-interest abuse to enhance his wealth at taxpayer expense. It should not be disregarded.

Our Capability to Know

How might Bloomberg make money at taxpayer expense? And how much do we know about how he might be doing so? Don’t expect information about what Bloomberg is actually doing to accomplish the phenomenal increase in his wealth to be readily available:

Releasing details of Mr. Bloomberg's tax returns could reveal too much to his company's corporate rivals, said his director of communications, William T. Cunningham.
(For Bloomberg, 'Rich' Is Just Too Weak an Adjective, by Leslie Eaton, July 3, 2004)

Long Live Bloombergian Competition?

“Corporate rivals?” Apparently it is acceptable to acknowledge that Bloomberg IS competing for wealth when it is convenient to withhold information about what that entails, even if that may be inconsistent with the original public relations spiel that Bloomberg was a man who was beyond that self-centered phase of his life.

Education in His Finances: Bloomberg Tax Return 2002

Early in his administration the Conflicts of Interest Board ruled that Bloomberg had to sell all of his individual stocks. (Note that does not preclude all the ways that Bloomberg might benefit from changes in stock market. Note also the later, more relaxed, permissions of the COIB’s 2007 ruling.) The sell-off of the stocks involved occurred in the 2002 tax year. The Times reported that he had losses associated with selling stocks that year: “at least $1 million of his personal fortune” which was at the time, given conflicting information, $4 billion? $5 billion? Forbes had it going up from $4 billion to $4.8 billion from 2001 to 2002. According to the Times (emphasis supplied):

Only the mayor knows whether his stock market loss was close to $1 million or far more because the mayor disclosed only three numbers yesterday in making available for review heavily edited portions of his income tax returns.
(In 2002, Bloomberg Lost a Bit (for Him) and Gave a Lot, by David (Cay) Johnston, June 14, 2003.)

In the article, the mayor's communications director pointed out that Bloomberg was paying taxes at the maximum rates and despite the heavy editing of the tax returns his “charitable” giving was sufficiently evident so as to become a good portion of the Times story. All the mayor’s income was income from investment:

The two taxes the mayor escaped were Social Security and Medicare taxes because his only salary is a dollar a year from the city. Those two taxes do not apply to investment income.
Is this to say that Bloomberg was not actually working to increase his private sector wealth? (Remember his later-revealed contacts coordinating affairs with senior Bloomberg L.P. executives.)

What do we really know? (Emphasis supplied)

While the mayor's 2001 tax return was a rich sea of G's, this year a number of E's, C's, A's and a few blanks -- meaning less than $1,000 -- showed up on the heavily edited documents that reporters were allowed to examine at Geller & Company accountants in Manhattan.

Asked if the mayor would sign legislation that added new categories, say for laddered categories of amounts up to $500 million, Mr. Cunningham said he did not want to discuss policy issues.
Hot Stocks: Hot Tips?

It may readily be envisioned that the Conflicts of Interest Board required the sale of Bloomberg’ individual stocks because of the possibility that he could benefit from special information and relationships. The concern is not necessarily insider trading, per se, which would be illegal, but akin to it. In that regard, what do we know about what kind of stock investor Bloomberg actually is?

The limited documentation showed that the mayor's competing teams of investment managers sought quick gains, often investing heavily in hot stocks, and that the mayor was not a buy-and-hold investor.
With the relaxed 2007 Conflicts of Interest Board ruling this kind of stock investment (and hedge fund) activity can resume.

Released From the Stocks: Terminal Interest

But are the stocks in which a wealthy Bloomberg invests the main concern? Bloomberg’s business is founded sale of the Bloomberg terminals to the financial community. That is core to the question of where he takes in most of his profit.

The possibility that Bloomberg’s terminal business could involve conflict-of-interest problems got some attention in a January 2002 New York Times article (before the Conflicts of Interest Board ruling) which is almost laughable in the way that it fails to identify the greatest possibilities for conflict-of-interest concern.

Once Again Charity IS the Bad News

Once again, Bloomberg’s ostensibly charitable nature is the grist used in a PR feint: The Times article reports about how Bloomberg, L.P. is “donating” 35 Bloomberg terminals to the city for use by members of the mayor's staff together with “seven other terminals that were previously being leased by the city's financial departments” in order to pay “heed to conflict of interest laws that forbid elected officials to sell goods and services to the city.” (See: Mayor Brings His Gadgets, And Thorny Conflict Issues, by Edward Wyatt, January 6, 2002.)

The article almost puffs over the nonviolation of conflict of interest rules:

Mr. Bloomberg and his company will receive no direct financial advantage from the city's use of the terminals -- and as a donation, the terminals violate no conflict of interest rules
and

''The reason for the donation was to alleviate the potential conflict of interest,''
For `balance’ the article fusses over the “reputational capital,” that might be created by the “the commanding presence that the Bloomberg terminals will have at City Hall” . . . “an asset that has value even if it does not show up on a balance sheet” according to "Kevin T. Jackson, an associate professor of business ethics at Fordham University."

In fact, by the article’s fourth paragraph, it is still talking about how the appearance of the Bloomberg terminal “at City Hall put the Bloomberg, with its sleek monitors and acres of flat-screen space, on the public stage as an object of desire” is a “a product placement that would make any marketing director salivate.”

Putting the Object of Desire on the Public Stage: Ominous Message?

Albeit that product placement and reputational capital idea is a valid concern, what goes unstated in the article is the slightest thought that placing the terminals on “the public stage as an object of desire” can also send a clear message about how easy it could be to deliver benefits equivalent to a kick-back.

This is why it is a critical concern that the Times reported, as noted above, that for years thereafter (emphasis supplied):

the mayor talked regularly to senior officials at the company about topics ranging from new data terminal sales . . . .
Sales of Bloomberg terminals were shooting up in the years just before running for mayor when Bloomberg’s billionaire fortune essentially doubled, according to data available for 1997, 1998 and 1999. (See: The Company He Keeps (for Now), by Timothy L. O'brien, March 20, 2005.) But increased sales do not correspond in arithmetic proportion to increases in profit. The industry is somewhat of a diminishing marginal cost business; after a point, most costs have been paid for, so sale of each additional terminal beyond that point is essentially gravy.

If you analyze it, all it takes for New York financial firms to deliver quid-pro-quo benefit to the mayor in a virtually undetectable fashion is for them to order more Bloomberg terminals than they otherwise want or need. And, as noted, each additional terminal is almost pure gravy, pure cash to Bloomberg. For the years that the mayor has been in office, Wall Street has been far and away that largest sector of the city’s economy and, as the Times asserts, Bloomberg does business with“virtually every major financial institution in the city.”

Comfortable With the Bloomberg Terminal?

The Times article on the “donated” terminals said that the terminals had been given in part because of Bloomberg’s own comfort with the system:

The donations are not an attempt to further market the Bloomberg name, his aides said. ''It was just the fastest way to get the office set up with computers,'' said William T. Cunningham, the mayor's communications director, who added that the system is the one that Mr. Bloomberg is most comfortable with.

The new hardware lets users get e-mail messages, do word processing, make spreadsheets, surf the Internet, as well as gain access to the news services and financial market data typically offered to Bloomberg customers, all without the bother of flipping between windows on a single screen.
But the system Bloomberg was switching everybody at City Hall over to was not necessarily designed for everybody else’s comfort, as reported in the later 2005 Times article about Bloomberg’s terminal business:

Early Bloomberg users needed to pick their way around the terminals using arcane commands and interfaces, many of which persist today. Mr. Bloomberg believed that once people were trained in how to use a Bloomberg terminal, no matter how confusing, it would make them less inclined to switch to other systems. He also insisted that every new service or data point be bundled inside the Bloomberg and never sold separately, increasing the value of the machine and allowing the company to charge a premium to use one.
Skepticism? Bloomberg, Wall Street City’s Financial Leadership?

Given the lack of separation between Bloomberg business interests and Wall Street, we must inevitably speculate skeptically about poor financial leadership of the Bloomberg administration. (See: Saturday, October 25, 2008, More Discredit of Bloomberg as Qualified Financial Crisis Leader.)

Sufficient Separation?

We started this Part II asking whether we should feel confident of sufficient separation between the worlds of big mega-deal city administration-assisted real estate development and the Bloomberg private wealth businesses that are growing so fast. The answer is no, given the troubling conflicts we see at the highest level of the Bloomberg’s administration and business involving Daniel Doctoroff, Patricia Harris and Michael Bloomberg himself.

Charitable “Giving” Bad News: No Light at the End of the Tunnel

That now brings us back to where we started with Part I of this article, that more “charitable giving” by Bloomberg is bad news.

The worse news is that there is no light at the end of the tunnel.

Don’t expect the flow of Bloombergian “philanthropic” money to abate. Even though more than a billion dollars have been distributed since Bloomberg became mayor, we may have seen nothing compared to what is yet to come. Bloomberg has a hands-on attitude about distributing his money. He says he wants to do it all himself when he is alive, joking about the desirability of having the “check to the undertaker” bounce. (See: Bloomberg’s Gifts to Charity Exceeded $165 Million in 2006, by Diane Cardwell, September 17, 2007) That means we can project a huge flow of money, much more than we have seen to date. Born February 14, 1942, Bloomberg is about to be 67 years old. Assuming that he lives to a ripe old age and “gives” away all his money over another 30 years (even without his current wealth increasing still further), that would mean, dividing equally over those years, distributions of $666 million each and every one of those future years!

Bloomberg has disclosed political ambitions sufficient to keep him on the scene through a considerable portion of all his "philanthropic" years: running for governor or even a second run at the presidency. He wants to be mayor for another five of these future years. Five more years . . . unless he has another term limits extension surprise in store for us. Would that be unachievable?

As the New York Times commented about the public promise that First Deputy Mayor Harris will, in future years, even after leaving her current public office, be coordinating dispersal of Bloomberg's $20 billion:

That endows . . . formidable power beyond his term, . .


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