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Trump has thrived with government's generosity

By Geraldine Baum, Tom Hamburger and Michael J. Mishak, Los Angeles Times

May 11, 2011

Donald Trump, the developer and would-be presidential candidate, portrays himself as a swashbuckling entrepreneur, shrewder and tougher than any politician, who would use his billionaire's skills to restore discipline to the federal government.

In his disdain of big government, however, Trump glances over an expensive irony: He built his empire in part through government largesse and connections.

From his first high-profile project in New York City in the 1970s to his recent campaigns to reduce taxes on property he owns around the country, Trump has displayed a consistent pattern. He courted public officials, sought their backing for government tax breaks under extraordinarily beneficial terms and fought any resistance to deals he negotiated.

He has boasted of manipulating government agencies, misleading officials in one case into believing he had an exclusive agreement to develop a property and then retroactively changing the development's accounting practices to shrink his tax bill. In New York, Trump was the first developer to receive a public subsidy for commercial projects under programs initially reserved for improving slum neighborhoods. Such incentives have now become the norm in the powerful New York real estate community.

Karen Burstein, a former auditor general of New York City, reviewed a major Trump project in the 1980s and concluded he had "cheated" the city out of nearly $2.9 million. Decades later, Burstein said she was still appalled at the way Trump operated.

"It's extraordinary to me that we elevated someone to this position of public importance who has openly admitted that he has used government's incompetence as a wedge to increase his private fortune," she said in a recent interview.

Rep. Jerrold Nadler (D-N.Y.) fought Trump over hundreds of millions of dollars in federal funding that the developer wanted for a luxury apartment complex in Nadler's district.

"He sought to abuse the taxpayer and stretch the law," Nadler said. "He said he ought to get a massive government subsidy. I said, 'Listen, Mr. Trump, if you think this is a good project, you spend the money.' "

In a phone interview last week, Trump was unapologetic about pressing for government tax breaks, noting that he had used them not only for his own profit but to spur development in foundering parts of the city.

Referring to how he managed to win a 40-year tax abatement for rebuilding a crumbling hotel at Grand Central Station — a deal that in the first decade cost taxpayers $60 million — Trump said, "Someone said, 'How come you got 40 years.' I said, 'Because I didn't ask for 50.' "

He said his success at manipulating city and state governments was itself an argument for his presidential candidacy.

"When I work for myself, I try to make the maximum profit," he said. "If I run [for president] and if I win, I will no longer care about myself. I'll be doing the same kind of things for this country."

It is difficult to assess how much of Trump's complex empire has been built with the help of government munificence, since many of his projects remain shielded from view. But even a limited view demonstrates that government programs have bolstered Trump.

He has also curried favor with elected officials through campaign contributions and lucrative job offers. In the last election cycle, Trump contributed to individual campaigns and wrote large checks to political groups, including $170,000 to the Republican Governors Assn., $50,000 to the GOP-supporting American Crossroads PAC and $116,000 to the Democratic Senatorial Campaign Committee, according to the Center for Responsive Politics, a nonpartisan research organization.

His giving has long been carefully targeted. A 1980s study by Newsday found that Trump had donated more than anyone else to members of the New York City Board of Estimate, which at the time approved all land-use development. A recent study by New York's Public Interest Research Group showed that since 1999, Trump has donated $595,638 to the state's lawmakers.

Trump, 64, was launched into the world of million-dollar deals by his father, Fred C. Trump, who left a $250-million estate based partly on building government-backed housing for middle-income tenants in Brooklyn and Queens. Early in his career, Donald Trump abandoned his father's formula and instead made a name for himself developing luxury hotels and apartments in Manhattan. But like his father, he continued to rely on government incentives.

Trump's first major real estate triumph in Manhattan was to buy and transform the Hotel Commodore, a derelict colossus at Grand Central Station. He was 27 when he persuaded the city and a state development corporation to back him in the makeover and enlisted Hyatt to operate the new hotel, which would be called the Grand Hyatt.

Under pressure from Trump, whose father was a longtime political ally of then-Mayor Abe Beame, the city granted the project the 40-year full property tax abatement.

In his 1987 memoir "Trump: The Art of the Deal," Trump harped on municipal ineptitude, and described tricking the city into thinking he had an exclusive option on the property from the owner. "A city official had requested that I send along a copy of my option agreement with Penn Central," he wrote. "I did — but it was signed only by me, and not the railroad, because I had yet to put down my $250,000."

That revelation came shortly before Trump and his partners shortchanged the public coffers, according to the city audit. Trump asked his accountants in 1987 to retroactively change the Grand Hyatt's accounting policy to lower its tax bill, according to an accountant's letter uncovered in the audit.

When tax receipts from the Grand Hyatt plummeted to $667,000 from $3.7 million the year before, the city budget director asked Auditor General Burstein to review the hotel's financial records. Burstein said the Grand Hyatt, through "aberrant" accounting practices, had understated its profits by $5 million and shorted the city by $2,870,259 in taxes.

"The people who didn't get the foregone taxes were the police, the schools and public hospitals of this city," she said, adding that "Trump leveraged tax forgiveness and clout into a deal where he had essentially no risk at all; there was no downside. Then, having triumphed, he repaid his benefactors by excoriating them as inept, venal and useless."

Although Trump pressured her to kill the audit, Burstein said, she insisted on publishing it. Immediately after it was released, the top city attorney began proceedings to recoup the money from Trump and his partners.

Trump said this week he did not recall Burstein's investigation. "I remember nothing about her reports or her statements," he said, insisting that developing the Grand Hyatt was a "great service to the city" because at the time, the area around Grand Central Station was "absolutely in shambles."

"I really made that area," he said.

Trump offered a similar argument when he sought to build apartments on an abandoned railroad yard along the Hudson River. To make the 5,000-plus-unit development attractive, Trump proposed a riverfront park and asked the federal government to pay $200 million to sink an elevated section of the West Side Highway underground for several blocks. The cost seemed staggering to Congressman Nadler, in part because just three years earlier the highway had undergone a $72-million renovation.

"It's a sin against taxpayers," Nadler said at the time.

But Trump pressed on, urging Congress to appropriate funds for a highway tunnel. When Nadler opposed the request, Trump secured an earmark for the project through another member of Congress, Sue Kelly, a Republican from north of the city who, like Nadler, had received campaign contributions from Trump.

Nadler took the unusual step of urging fellow legislators to turn down millions of dollars in federal funds for a project in his own district. Trump also sought access to a federal program that would have guaranteed a $356-million low-interest loan in exchange for designating a percentage of the units for lower-income families.

"Trump stretched the definition [of the federal program] beyond the breaking point," Nadler recalled. The use of federal loan guarantees to underwrite what were planned as luxury apartments also drew the ire of GOP Sen. John McCain of Arizona.

Though Nadler and McCain forced cuts in much of the federal support sought by Trump, the project had already been blessed with millions in property tax abatements from state officials.

Trump's aggressive tactics have played out in a somewhat different, but no less profitable, way in other parts of the country.

Trump has fought for lower tax bills in Florida, where he won a reduction in the 1980s for Mar-A-Lago, his 118-room mansion, and in Atlantic City, N.J., where he filed 19 separate petitions seeking a lower tax bill for casinos and other properties. He eventually settled for a $34-million reduction, which local officials said cost millions in improperly reduced tax revenue. But a court ruled that the deal could not be withdrawn.

In Las Vegas, Trump's goal was to lower the taxable value of the recently constructed Trump International Hotel and Tower. His team, which included the former chairman of the county Board of Equalization — the agency that decides tax matters — won a reduction last year in the taxable value from $180 million to $8.6 million.

A few other properties owned by Nevada's best-known developers also received substantial reductions, though Trump's 95% drop appeared to be among the largest.

In his appraisal to the board, former Chairman Timothy Morse noted the region's sour economy, and said Trump's glittering 64-story tower, wrapped in 24-karat-gold infused glass, needed more time "to establish itself within a highly competitive market."

But Nevada economist Bill Robinson said the tax breaks provided to Trump and other developers last year seemed out of line, particularly compared with the reductions provided to average citizens. The dramatic reductions also compounded revenue problems for cash-strapped Clark County.

"Homeowners haven't gotten anything like that kind of a break," Robinson said. "It's not in the public interest for the county to be giving people larger-than-normal tax breaks."

geraldine.baum@latimes.com

tom.hamburger@latimes.com

michael.mishak@latimes.com

Baum reported from New York, Hamburger from Washington and Mishak from Las Vegas.