Who Rules the Nation Magazine? Part II

[Michael Givel]

Part II

After resigning from the firm he founded, Carter continued to
prosper
so
much during the politically repressive and economically depressed 1970s
and
early 1980s in New York City that by the time he attended the Wall
Street
celebration for Sandy Weill in May 1985, "by his own estimate, Carter's
prosaic utilities and real estate business had made him worth $130
million,
some of which he had used to pursue special outside interests, which
included the newspaper he had started in Connecticu and taking over the
long-established, controversial left-liberal magazine, The Nation," The
New
Crowd reported.

After selling his stock in Carter, Berlind & Weill for a few million
dollars, Carter formed the Carter Group in 1969. During the '70s,
according
to a 1987 New York Times profile, Carter "bought a wide variety of
manufacturing companies (sheet-metal companies, stamping companies),
water
utilities and shopping centers, held them for awhile and then sold
them."
As a result of this kind of financial speculation activity, Carter's
personal fortune grew from $2 milliion in 1969 to between $130 million
and
$200 million in the early '80s. The July 13, 1987 New York Magazine
article, "Now, The New York Observer," estimated that Nation publisher
Carter had "amassed perhaps $150 million through a network of holding
companeis and leveraged buy-outs engineered in the 1970s."

Among the business moves made by Carter's Carter Group girm which
enabled him to raise the capital required to buy The Nation were the
following:

1. In March 1969, the Carter Group bought all the Utilities &
Industries
Corporation stock owned by R.L. Rosenthal and his family in order to
gain
control of that company, and in December 1973 the Carter Group merged
with
its Utilities & Industries Corporation subsidiary. By 1979, the net
annual
income of the Utilities & Industries Corporation division of the Carter
Group exceeded $1.2 million, much of which was derived from its New York
Water Service Corporation subsidiary selling water for a profit to small
homeowners on Long Island. In July of 1973, for instance, Carter's New
York
Water Service "public utility" company sought to serve "the public" by
requesting a 43 percent increase in water rates for its Nassau County
customers. In August 1973, New York State's "Public" Service Commission
(PSC) granted $259,531 in water rate increases to Carter's Utilities &
Industries Corporation subsidiary.

2. In January 1971, Carter joined the board of directors of a company
called Elgin National.

3. In October 1989, the Carter Group purchased 5.6 percent of United
Realty
Investors' shares for $2.4 million.

4. In 1975, the Carter Group formed the Unimax Corp. and in 1976 Nation
publisher Carter became the chairman of the board of Unimax.

Under Nation publisher Carter's ownership, the New York Water
Service
subsidiary of Shepaugh Corporation/Utilities & Industries Corporation
has
been frequently criticized by its Nassau County consumers and Nassau
County
public officials in the '70s, '80s and '90s. After Nation publisher
Carter's New York Water "public utility" filed for a 1988 rate increase,
for
instance, Richard M. Kessel, executive director of the New York State
Consumer Protection Board, New York State Senator Norman Levy, and New
York
Assemblymen Fred Parola and Phil Healey issued the following joint
statement
at a PSC water rate hearing on the proposed rate increase:

"On July 1, 1988, barely one year after receiving a $2.2 million (17
percent) rate increase, New York Water Company filed for a new increase
of
$4.2 million (28.85 percent). The new filing is an insult to
ratepayers.
A
28.8 percent increase coming on the heels of 17 percent increase one
year
earlier, is truly outrageous. This utility is obviouslyu more concerned
about increasing its rates and profits than holding down its costs and
serving the public.

"Although the cost of money has decreased over the past four years,
you
would never know it by looking at New York Water's rate filing. In this
case, New York Water is asking for a 13.8 percent return on equity--that
is,
the utility watns a 13.8 percent profit."

At the 1988 water rate increase hearing, Carter's water utility
company
was even more strongly criticized by Nassau County residents who weren't
public officials.

John Miller of Massapequa urged a public takeover of Carter's
private
water company because he felt that Shepaug Corporation/Utilities &
Industries skimemd revenues from its New York Water Service subsidiary,
without regard to consumers.

Garrick Williams of East Massa pequa charged Carter's water company
with
carelessness because it never checked its hydrants or flushed out the
sediments in its mass lines and he argued that, because Carter's company
had
a local monopoly, East Massapequa ratepayers were hostages of New York
Water
and unable to block its repetitive, excessive rate increases.

The environmental director of the Nassau Shore Civic Association,
Richard Weltz, told the 1988 PSC water rate hearing official that the
water
supplied by Carter's company was "brown, contains sand, sediment, lucite
and
asbestos, and runs through cast iron pipes" and, therefore, produces
high
safety and environmental risks to consumers, despite the utility
company's
high rates. Another environmentalist, Evelyn Hannon of the Merrick
Environmental Committee, criticized Carter's water company for charging
excessive rates for water that contains a high chlorine content.

Another speaker at the hearing, Thomas McGann of Wantagh, observed
that
documents and information on New York Observer publisher Carter's New
York
Water Service aren't easily available. (A librarian that Downtown spoke
with also noted that water utility companies like Carter's are generally
"secretive" about their activities when it comes to providing public
information about their "public utility" to members of the public. When
Downtown telephoned New York Water Service Corporation's 54 East 64th
St.
offices in Manhattan--located in the same Carter-owned townhouse which
houses The New York Observer's "alternative newspaper" editorial
offices--it
was told that the public utility had no public relations officer.
Downtown
was referred, however, to the New York Water Service Cojrporation's
vice-president--who would not be returning to his "public utility"
office
for another two days. His receptionist, however, stated that the name
of
the Utilities & Industries Corporation parent company of the New York
Water
Service Corporation had just recently been changed to the Shepaug
Corporation).

Arthur Amos of Massapequa also claimed that local water rates
charged
by
Carter's public utility in nassau County are higher than the local water
rates charged in the desert area of Arizona.

In 1989, Nation publisher Carter's New York Water Service physical
property in Nassau County was valued at $5.2 million and its assets were
valued at $60 million. In 1966, it drew its water through wells from
deeply
underground and provided water-for-a-profit to 39,200 residential
customers
in Merric, Wantagh, Bellmore, Massapequa and Seaford in Nassau County.
By
1978, Carter's water utility had 42,000 customers in Nassau County.

According to the June 8, 1987 issue of New York Newsday:

"Private companies serve 40 percent of the Nassau popoulation. With
yearly bills averaging more than $200,000, they generally charge more
than
their public counterparts because they must pay property taxes and
generate
profits."

In 1975, the PSC had granted Carter's "public utility" a $842,484
water
rate increase. But $630,000 of the water rate increase was to be added
to
an escrow account for immediate use to pay New York Water Service's
increased taxes. A March 1978 report by the PSC, however, claimed,
according to the May 4, 1978 issue of Newsday, that Carter's water
company
"violated the 1975 PSC order" by using this money to pay federal taxes
owed
by its parent company, Utilities and Industries Corporation, for 1963 to
1967. The PSC staff report also suggested that New York Water Service
refund $2.4 million to its Nassau company customers. In 1972, New York
Water Service had received a 12.9 percent rate increase, in 1974,
another
$1.5 million in water rate increases had been approved by the PSC.

As recently as January 15, 1991, Carter's New York Water Service
Corporation was being criticized for putting too much caustic soda into
its
Nassau County water supply.

Reached by telephone, New York Observer Editor John Sicher declined
to
comment about whether any other relationship existed between the
Observer
and the New York Water Service Corporation--other than their sharing the
same address--and said that "You'd have to ask Mr. Carter about that."

Asked by Downtown if the Observer might feel reluctant to do much
reporting on utility companies owned by its publisher, Sicher replied:
"As
I understand it, Mr. Carter's utility companies operate outside of the
New
York City area we cover."

As he apprached the age of 50, Carter decided he wanted to leave the
money-grubbing world of Wall Street for the more intellectual and
glamorous
world of newspaper journalism. But instead of seeking an entry-level
newspaper job like other would-be journalists, Carter decided to use
some
of
his Wall Street millions, water utility company dividends and real
estate
profits to enter the world of journalism from the top. And, according
to
New York Magazine's "Now, The New York Observer" 1987 article, "When
Carter
began thinking about newspapers, he approached the idea of ownership in
an
assets-conscious way." Since Carter felt that the daily newspapers that
were for sale were either overpriced or too far from New York City, he
decided to start his own weekly newspaper in suburban Connecticut. So
in
November 1981, Carter started The Litchfield County Times to report on
the
same area in which he owned his 1,400 acre dairy farm. Its initial
circulation was 13,000 copies per week.

Although Carter poured $5 million of his New York City Wall Street
fortune into New Milford, CT's Litchfield County Times, the newspaper
was
still losing $200,000 per year in 1986 and only turned into another
profitable Carter asset and investment in 1987. But, despite Carter
pouring
$3 million more into his Litchfield County Times asset between 1987 and
1991, its weekly circulation is still only 15,000 today.

Although both Nation magazine and The New York Observer like to pose
as
journalistic alternatives to the New York Times, Carter's close friend
and
legal adviser, James Goodale, was the New York Times company's
vice-chairman
of the board before Carter hired him to be the "alternative" New York
Observer's secretary.

Observer Secretary Goodale was born in Cambridge, Mass. and secured
his
B.A. from Yale University in 1955 and his law degree from the University
of
Chicago in 1958. In 1963, the 30-year-old Goodale was hired by The New
York
Times to be its general attorney and in 1967 he was named by the Times
to
be
its general counsel. In 1972, he was named senior vice-president fo the
New
York Times Company and then, in 1973, the 40-year-old Goodale became the
executive vice-president of The New York Times, serving in that capacity
until he became the vice-chairman of The New York Times in 1979.
Carter's
close friend and business associate also sat on the board of directors
of
The New York Times Foundation, The New York Times Company and The New
York
Times' Neediest Cases Fund in the '70s.

In 1980, Goodale left the Times after 17 years to become a partner
in
the Wall Street corporat law firm of Debevoise & Plimpton. During the
'80s,
New York Observer Secretary Goodale also began to work more closely with
Carter.

Goodale has also received a salary from Fordham Law School since
1986,
for moonlighting as a college professor, and has been president of the
Midtown Skating Corporation since 1981. He was also a member of the
Democratic Party National Convention's rules committee in 1988. Besides
serving as secretary of Carter's New York Observer, Goodale is also a
member
of the board of editors of the Media Law Reporter, which he co-founded,
and
the National Law Journal. The former New York Times Company
vice-chairman
is currently also the vice-chairman of the New York legal
Establishment's
New York State Judicial Commission on Minorities. Yet on January 13,
1989,
the Wall Street Journal reported that the New York Times Company was
being
sued by the NAACP, the Open Housing Center and four African-American New
York residents for "violations of civil rights laws and the U.S.
Constitution" because for the last 20 years the Times "has published
pictorial real estate ads that depict whites almost exclusively as
potential
residents."

The Nation magazine had been started in 1865 by a British
abolitionist
named E.L. Godkin and in the early 20th Century it was owned by Oswald
Garrison Villard, a descendent of U.S. abolitionist William Lloyd
Garrison.
It was later owned by Freda Kirchwey, but by the early '40s it was an
increasingly large money-loser and in danger of folding because of its
financial difficulties. So in early 1943, Kirchwey decided on a
reorganization plan to keep The Nation publishing. She divested herself
of
her individual ownership and created a new, nonprofit organization,
Nation
Associates, which would own The Nation on a nonprofit basis, although
Kirchwey would still determine the magazine's editorial direction by
serving
as its publisher. In 1955, Kirchwey retired and a health insurance
industry
executive named George C. Kirstein became the magazine publisher and the
principal financial backer of the nonprofit Nation Associates which
continued to own the magazine.

In the '70s, The Nation was on the verge of bankruptcy again,
despite
its nonprofit Nation Associates ownership, until a group of investors
led
by
Hamilton Fish III purchased ownership of The Nation. Under the Fish
investor group's ownership, however, The Nation continued to lose money
until Carter decided to use his Wall Street wealth to take over the
left-liberal magazine in the mid-80s.

In 1987, Carter's legal adviser and close friend, former New York
Times
Compoany Vice-Chairman Goodale, told New York Magazine that in 1985
Carter
put together an "essentially leveraged buy-out of The Nation." Carter
gained 80 percent control of The Nation by assuming $2 million in debts
and
by agreeing to invest an additional $2 million in the magazine over the
next
few years. The Nation's editor, Victor Navasky, was allowed to retain
10
percent of The Nation Company's stock, as was Nation publihser Hamilton
Fish
III. When Fish left to run for political office in 1987, Carter took
over
both Fish's slot as The Nation publisher and the 10 percent of the
Nation
Company stock which Fish had been allowed to retain under Carter's 1985
leveraged buy-out of The Nation. After assuming his post as Nation
publisher, Carter became more active in supervising The Nation's daily
business operations.

In explaining why a Wall Streeter like Carter decided to put
together
his leveraged buy-out of the supposedly anti-Establishment Nation,
former
New York Times Company Vice-chairman Goodale gave the following
explanation
to New York Magazine in 1987:

"In the 1970s, Carter would make his move when no one else was
interested in buying certain companies...The same with his `investment'
in
liberal journalism: It reached bottom and has nowhere to go but up."

The [then] 96,000-circulation Nation still loses $400,000 per year,
though (despite paying its freelance writers only $75 per page at the
same
time) Carter has poured $4 million in venture capital funds since 1985
into
his Nation Company Inc. enterprise. Although "he confesses discomfort
with
some of the magazine's positions, notably its antagonism toward Israel,"
according to the April 29, 1991 issue of The New York Times, Carter
continues to subsidize the publication of the Establishment's
"anti-Establishment" asset. And though The Nation is quickly critical
of
the Establishment, it has not been very quick to print any exposes of
either
Carter's role in the developoment of Shearson Lehman Brothers or in the
local private water utility industry, or print any list of the New York
real
estate which its Establishment publisher owns.

In a telephone interview, Downtown asked The Nation's executive
editor,
Richard Lingeman, how he would respond to the criticism that some
conflicts
of interest seem to exist in having The Nation owned by Carter.
Lingeman
felt that no conflict-of-interest problem existed.

Asked by Downtown if Carter plays a role in The Nation's editorial
decisions, Lingeman replied:

"There's no interference. It was carefully structured in the legal
agreement when he became the owner that there would be editorial
independence. He doesn't impose his views on us. Personally, he feels
sympathetic to the magazine."

Downtown then asked Lingeman why The Nation only pays $75 a page if
Carter has spent $4 million on The Nation since 1985. "His money is
used
to
make up our deficit," Lingeman replied...

One thing that Nation/New York Observer publisher Carter has in
common
with Village Voice[now-LA Weekly] Owner Leonard Stern--in addition to
combining the ownership of "anti-Establishment" publishing enterprises
with
the ownership of New York commercial real estate--is that both men have
had
NYU buildings in the West Village named after them and both Carter and
Stern
are trustees of the Lower East Side's neighborhood university: NYU..

Just around the corner from "Stern Hall" at 10 Washington Place, is
the
NYU building that is named after the "anti-Establishment" Nation
magazine
publisher: Arthur Carter Hall. It was financed by a tax-deductible
donation the Nation publisher made to NYU and "oopened for business"
around
the same time Carter started publishing The New York Observer...

NYU's board of trustees also includes a few other powerful
Establishment
figures in the media world: NYU Chairman of the Board of Trustees
Laurence
Tisch is also CBS' chariman of the Board; NYU Trustee Thomas urphy was
the
Capital Cities Communications/ABC Chairman of the Board until very
recently.
NYU Trustee Mort Zuckerman owns both U.S. News & World Report and The
Atlantic Magazine...

Nation publisher Carter is today [as of 1991] the chief executive
officer and president of the Shepaug Corporation (his recently re-named
Utilities & Industries Corporation) which employs 568 people; owns
commercial real estate and is the parent company for the following
subsidiary divisions:
The New York Observer
New York Water Service Corporation
Hudson Resources
Unimax Holding Corporation
Utilities & Industries Management Corporation
Ward Electric Company
Unimax Cojrporation.

At least $60 million a year is brought in by the annual operations
of
Carter's Shepaug Corporation/Utilities & Industries and its various
subsidiaries. Grey Advertising INc. Director Mark Kaplan also sits on
the
board of directors of Carter's Unimax Corporation. Exactly which
commercial
real estate is owned by Carter is very difficult to discover since an
annual
report of Carter's Shepaug Corp./Utilities & Industries Corp. is very
difficult to locate in the liberary and the "anti-Establishment" Nation
magazine has not been very eager to publish a list of its owner's
commercial
real estate holdings in recent years.

Today [in 1991], according to the June 3, 1991 issue of Newsday,
"Arthur Carter's game plan is to expand his small, struggling publishing
empire."