Tax-and-Offend Charlie Rangel

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Charlie Rangel waited more than a decade to ascend to the chairmanship of the powerful House Ways and Means Committee, which shapes our country's tax laws, but in less than two years in that position he's fared poorly in the glare of the national spotlight.

Rangel's woes, ranging from unpaid taxes to undisclosed assets, shouldn't be shocking to anyone who has followed his four decades in office. For much of that time Rangel operated with impunity a powerful patronage machine in Harlem centered around several controversial, government-funded groups which spent millions of dollars with no records to back up the expenditures, failed to pay withholding taxes on some employees, billed government for a host of questionable expenses, and "pumped millions of dollars into New York's underground economy through off-the-books payments," according to investigators.

In a sane world, Rangel's sad history with organizations like the Harlem Urban Development Corp. and the Apollo Theater Foundation would have raised serious questions about whether he should assume so important position as head of the House Ways and Means committee. That it didn't, that the transgressions at these groups were seen as merely a local matter that passed quietly away, exemplify how since the War On Poverty we have tolerated politicians who create or take over community organizations financed by tax dollars and operate them as little more than patronage mills. Sometimes these groups are merely ineffective and waste government money, but at other times they work in blatantly questionable ways, as when HUDC ignored tax laws. Is it any surprise that a politician who maneuvers freely for decades in such an environment would be so slipshod about paying his taxes and filing financial disclosure forms?

The history and evolution of the Harlem development group HUDC illustrates how the good intentions of the War on Poverty were quickly suberted by local pols like Rangel. Created in 1971 as a subsidiary of the New York Urban Development Corp., the HUDC was supposed to help jumpstart the economy of Harlem with government dollars handed over to community leaders, a dubious proposition at best. Rangel joined the board in 1976, several years after being elected to Congress, according to an investigation of the group, and soon thereafter the organization's board asked for the special privilege of operating with more "autonomy" and independence from the state. This unusual request, granted to no other local development group, was racial in nature.

"There was and continues to be a feeling at HUDC that it is necessary to demonstrate to...the white power structure in general that ‘uptown' [that is, HUDC] could do as good a job as ‘downtown' [state officials] in developing large projects," wrote an attorney for the state in a memorandum uncovered by investigators about the special status of HUDC. Under pressure, the state acceded to the group's request for autonomy and eventually allowed the Harlem group to run completely on its own, electing and appointing its own board members and lobbying legislators for its own funding. In 1983, when former computer company executive Bill Stern took over as head of the state's economic development agency under Governor Mario Cuomo, Stern was surprised to learn the HUDC was beyond his purview.

"I met with HUDC executive director Donald Cogsville to find out what his public-benefit corporation was doing," Stern wrote in 1997 in City Journal. "Mr. Cogsville didn't have much patience with me. When I asked him why he had a state car and driver, he asked me if I was a racist."

Stern made some inquiries. "I called Cuomo's chief of staff, Michael DelGiudice. I asked him for the story on HUDC. He said, ‘Bill, HUDC is Charlie'--Charles Rangel, that is, the longtime congressman from Harlem. HUDC was a patronage machine for Rangel's local cronies."

The long, sweet deal came unexpectedly to an end when a little-known Republican state senator, George Pataki, unexpectedly upset Mario Cuomo in the 1994 gubernatorial elections and subsequently decided to challenge Rangel and rein-in HUDC. A 1997 audit found that the agency had received nearly $100 million over its lifetime but had not completed a single new economic project in Harlem-hardly an endorsement of the development prowess of the boys from "uptown." Meant to invest in Harlem, the group's operating budget, which included among other items $1,650 in car washes billed to taxpayers, was three times the size of its investment budget. The group's biggest contribution seemed to be the injection of millions of dollars into the area's "underground economy" via off-the-books payments to employees listed as consultants. The residents of Harlem would have been better off if the HUDC had merely distributed the $100 million directly to them.

Shortly thereafter another Rangel-headed institution came unwound, the Apollo Theater Foundation, a nonprofit group which ran the Harlem theater with a heavy dose of government money. The group's board had given a deal to Inner City Broadcasting, run by former Rangel political ally Percy Sutton, to produce the television series ''It's Showtime at the Apollo'' but collected practically nothing from Sutton in payments over four years for the privilege, in the process straining the theater's budget. As a result, despite some $16 million in public money invested to restore the theater, under the Rangel led-foundation the Apollo had fallen into disrepair and was dark on most nights.

Eventually Rangel agreed to step down from the foundation's board and Time Warner agreed to take over the theater and help Sutton pay back fees he owed for rights to the show. Conveniently for both Rangel and Sutton, the state attorney general who originally pressed the case against them and sought more than $4 million from Sutton, Republican Dennis Vacco, lost his post in the November, 1998 elections to Democrat Eliot Spitzer, who upon assuming office promptly reduced the amount Sutton and Time Warner needed to pay to $1 million and then closed the case.

Rangel and his supporters explained away these affairs by claiming that he was just too kind-hearted and easygoing with those who worked for him. "He trusted others who have not served him well," was how one off-the-record source put it in a largely adulatory 2000 profile of Rangel in the New Yorker, which also noted rather that, "No one has ever thought he lined his own pockets."

Fortunately for Rangel, while all of these investigations were going on in the mid-1990s the Democrats were out of power in the House of Representatives. And so not many people cared when Dan Rostenkowski, the Illinois representative who was the senior Democrat on Ways and Means, retired, putting Rangel next in line for the chairmanship of the powerful committee whenever his party regained control of the House. That took another 11 years, by which time the indiscretions of the mid-1990s seem to have faded away.

But Rangel hasn't been able to leave his past behind so easily, because the HUDC and the Apollo scandals were part of a pattern, it seems. In July of last year the New York Times disclosed that Rangel has been allowed for years by a developer who was a political supporter of his to lease four rent-controlled apartments at far below market rents in a single-building (including one apartment he used for a campaign office), in violation of New York State law, which says that a rent-controlled apartment can only be used as one's primary residence. Three of the rent-controlled apartments are actually adjacent to one another--something that's nearly impossible to find in New York--allowing Rangel to create a super spacious residence with "custom moldings and dramatic archways," Benin Bronze statues and antique carved walnut Italian chairs, according to the book ''Style and Grace: African Americans at Home."

Soon after these disclosures, the New York Post reported that Rangel failed to list rental income from a villa he owned in the Dominican Republic on his tax forms. Then, earlier this year a private watchdog group reported that over the last 30 years Rangel had failed to disclose numerous assets he'd acquired, and Rangel himself later admitted those assets included real estate and a checking account with somewhere between a $250,000 and half a million dollar balance. All of these circumstances are now under investigation by the House's ethics committee.

Although patronage is nothing new in American politics, once upon a time it meant handing out a few jobs to workers at a local political club to cement their loyalty and demanding payoffs from businessmen looking for government contracts. But starting in the 1960s government changed the game when it started funding a wide range of community groups, a process which quickly became politicized. Dysfunctional programs like the Community Development Block Grant--scandal ridden for decades--grew and thrived because so many of the groups that got funding were tied to local politicians who used them as patronage mills operating under the pretense that they were helping their community. The new kind of official patronage turned out to be a great racket which encouraged in some pols a notion that they can run their affairs with impunity because, after all, they are doing good. As part of his presidential agenda, candidate Obama pledged to dramatically increase the size of programs like CDBC because, after all, they do so much good.

Rangel has done so much good for himself and friends that he helped an organization squander almost $100 million in Harlem. He grabbed four rent-controlled apartments for himself that might have gone to families needing housing, and allowed a friend a sweetheart deal that helped result in the decay of a Harlem landmark. Besides all of this, a little bit of unreported income seems like small potatoes, although in the end that's what will probably sink Charlie Rangel. If he had just stuck to the legalized patronage of wasting millions of taxpayer dollars on ineffective groups run by political friends and allies, he wouldn't be in this mess.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

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