F.A.O. Schwarz Discovers Politics Isn’t Child’s Play

Sitting on a park bench behind the federal courthouse in Brooklyn, his long legs stretched out in front of him, Fritz Schwarz seems entirely above the storm he’s provoked at the New York City Campaign Finance Board.

Yes, Mayor Michael Bloomberg is unhappy with Mr. Schwarz’s plan to aid the opponents of self-financed billionaires, but the Mayor’s accusations that he is playing politics are “ludicrous.” The suggestion that his own staff is bridling at his leadership, abundantly confirmed by board insiders, is apparently news to him, widening his clear green eyes. The notion that Frederick A.O. Schwarz Jr.—one of the city’s great legal talents, senior counsel to the Church Commission, former corporation counsel, longtime Cravath, Swaine & Moore partner—has overstepped his bounds as chairman of the city’s voluntary public-financing system is simply unthinkable.

“My job is to be independent and call them as I see them,” he said. “It’s my judgment that the problem of a big-spending candidate ought to be addressed.”

Mayor Michael Bloomberg himself chose Mr. Schwarz, 69, to take over from Father Joseph O’Hare as chairman of the fiercely independent, uniquely powerful Campaign Finance Board last February, predicting that he “will be a superb chair.” Nicole Gordon, the board’s executive director, had lobbied hard for her old boss and longtime ally. “Fritz was her ideal candidate,” said a person who spoke to her at the time. But as Mr. Schwarz has emerged as a freewheeling, cheerfully impolitic player on the city’s political stage, both the man who spent his way to the Mayoralty and the guardian of the city’s political purity have learned to be careful what you wish for, according to people familiar with their opinions. Now Mr. Bloomberg is openly accusing Mr. Schwarz of betraying the board’s tradition, while Ms. Gordon, associates say, is considering leaving the institution after 16 years spent leading it.

“Schwarz got off on a terrible foot,” said Doug Muzzio, a professor at Baruch College who follows the agency closely. “It’s not the crisp, tight, well-respected agency it was, and meanwhile the Mayor and the Speaker are trying to use it for political reasons.”

The Campaign Finance Board stands at the heart of city politics, but stands culturally closer to the Inquisition than to the clubhouse. Created in 1988, it offers candidates for local office a deal: play by strict rules—including limits of $4,950 on individual contributions and limits on overall spending that vary by office—and the board will dip into public coffers to quadruple every contribution up to $250. The board paid out $4.9 million to candidates for City Council in 2003; in 2001, it paid $42.1 million to candidates in the free-for-all of 2001, including $4.5 million to the failed Mayoral campaign of Public Advocate Mark Green alone. Its attitude toward the players in next year’s Mayoral race, and the rules under which they play, could help determine who takes on Mr. Bloomberg next year, and how much money the challenger has to spend.

The board has a love-hate relationship with the politicians who rely on it. Though they’re grateful for the public lucre, many candidates and their lawyers complain bitterly about the rigidity of the board’s staff, who rarely cut a break to the candidate who neglects a form, files late or accepts an improper contribution. To the staff’s critics—who uniformly declined to speak for the record—they’re “zealots” and “prosecutors.”

But to its backers in the reform movement—notably on the editorial desk of The New York Times, which helped create the institution and backs it strongly—the Campaign Finance Board is a model for a national system of voluntary campaign-finance regulation at a time when the existing Federal Election Commission has proven unable to keep about $1 billion out of this year’s Presidential election. That’s certainly how Mr. Schwarz sees it.

“I think we are a good deal tougher than the F.E.C.,” he said. “New York is a good model for a revamped F.E.C.”

Mr. Schwarz spoke to The Observer outside the United States Courthouse for the Eastern District in Brooklyn—where, in another ambitious retirement project, as counsel to the liberal Brennan Center for Justice, he’s among the lawyers arguing that New York State’s judicial-selection system is unconstitutional. Long and lean, with a shock of white hair, Mr. Schwarz combines an easy manner—he travels by subway with his giant, battered leather briefcase wide open—with the absolute self-confidence that’s the hallmark of his firm, Cravath, Swaine & Moore, and that you’d expect from the heir to the F.A.O. Schwarz toy-company fortune.

Mr. Schwarz, whose family is out of the toy business, said he’s unaware of any staff discontent. He calls Ms. Gordon, who declined a request for an interview, “one of the outstanding public servants.” But he’s also unrepentant about one of his moves that put the staff sharply on edge: a direct challenge last December to Mayor Bloomberg’s lavish campaign spending.

That’s when Mr. Schwarz—over, insiders say, staff advice—proposed that a candidate whose rival blows through the limit for participants in the voluntary public system be given an unprecedented “bonus”: a boost in the rate of matching funds from the current quadrupling of privately raised funds to a brand-new level of 8 to 1. The proposal came out of the blue; the board had previously recommended reducing the matching rate for most races. After the proposal was leaked to the press, Mr. Bloomberg took it as a personal affront and accused Mr. Schwarz of trying to aide the Mayoral ambitions of City Council Speaker Gifford Miller—who, it turns out, is a distant cousin of Mr. Schwarz. Mr. Schwarz did contribute $750 to Mr. Miller’s first campaign, in 1996, and has longstanding ties with Mr. Miller’s outside counsel, Eric Lane, who was counsel to the 1989 Charter Revision Commission chaired by Mr. Schwarz.

“The issue here is not whether you agree or disagree; the issue is that it was a backroom deal,” Mr. Bloomberg said at the time, although it later emerged that both City Hall and Mr. Schwarz’s colleagues on the board had been aware of the proposal for months.

Mr. Schwarz has no intention of backing down from his plan, which he says was meant as part of a package aimed at diminishing the advantage of incumbents.

“I had some hope that the Mayor would say, ‘O.K., look, I’ve established my reputation. I am personally unwilling to accept private contributions, but I’d be willing to limit my expenditures,’” he said.

He dismissed the accusations, made by Mr. Bloomberg’s aides, that his distant cousinhood made him partial to Mr. Miller.

“It is utterly ludicrous,” he said, adding that although “one of Gifford Miller’s four great-grandmothers was one of the sisters of one of my grandmothers,” the idea that this “would affect my judgment is definitely not correct.”

The merits of the proposal aside, however, the dispute has deepened a feud between Mr. Bloomberg and the board that began when Ms. Gordon helped kill a proposal for nonpartisan elections which, she said, would have hamstrung the campaign-finance system. And even Mr. Schwarz’s predecessor, Father Joseph O’Hare, said he had his doubts about the plan to boost financing against self-financed candidates.

“It was a very radical and dramatic move and caught a lot of people up by surprise,” said Father O’Hare, who recently retired as the president of Fordham University. “I myself would not endorse that move, but Fritz Schwarz honestly believed this would be a useful way to adapt the program to a new situation, and I think in that sense the board staff got caught in the middle.”

Aides to Mr. Bloomberg said they remain concerned that Mr. Schwarz is trying to play local politics. They point to the speed with which he proposed increasing the match that would apply to Mr. Bloomberg’s rivals, while resisting a City Hall proposal to block candidates from accepting money from the owners of companies that do business with the city.

Mr. Bloomberg’s communications director, Bill Cunningham, speculated on why the board hasn’t embraced the Mayor’s proposal.

“You have to wonder: Is that because it would harm some politician the board is trying to deal with?” he said.

Mr. Schwarz responds that he supports the general idea of limiting contributions from those who do business with the city. “It was my idea, in 1986,” he said. But he added that he thought the city and its agencies—not the board—should enforce the rule, and that the burden should be on city contractors, not on candidates, to follow it.

The board’s ability to push its agenda externally has been hampered by a simmering conflict between Mr. Schwarz and his own staff. Though some gripe about his hands-on style, the heart of the issue is an allegation that he is too willing to support candidates who have broken the rules—a stance that lends credence to critics who say that the program is little more than welfare for politicians and political consultants.

“If you’re going to give away $42 million, and when people can’t be assured that that money is going to be used wisely, you lose credibility very quickly,” said a board insider frustrated with Mr. Schwarz’s style. “He’s sympathetic to every story that comes through the door.”

Under Mr. Schwarz, the board has voted to soften the staff’s recommended penalties for candidates at least a dozen times, the minutes of board meetings show.

Ms. Gordon and her staff were particularly irritated by Mr. Schwarz’s decision to back a City Council member, Letitia James, in her quest to get more than $73,000 in public matching funds despite breaking the spending limits in her 2001 race for City Council.

The board initially denied Ms. James’ appeal, and a state judge ruled against her when she sued the board. Ms. Gordon and the board’s staff, insiders said, would have left it there.

But appearing before a July hearing of the board, Ms. James—a longtime worker in the Brooklyn Democratic Party—portrayed herself as a political innocent.

“It was my first election,” she said, according to a transcript of the meeting. “It was a very grassroots campaign, very unsophisticated.”

Mr. Schwarz and the other board members present reversed themselves.

“She said she didn’t know” her campaign had broken the rules, Mr. Schwarz said. “I believed her.”

Ms. James’ lawyer, Laurence Laufer, praised the move. Mr. Laufer, formerly the board’s top lawyer himself, now represents candidates in front of the agency—a task which, particularly under Father O’Hare, could be a hopeless one.

“O’Hare would look to give his imprimatur to the direction that had already been carved out by the staff,” Mr. Laufer said. “Fritz may have more of a sense of his own direction.”

Mr. Schwarz defended the balance he has struck between the staff’s hard line and the board’s moderating role. But don’t expect him to back down from confrontations. Speaking of campaign-finance reform more broadly, he noted that a bit of conflict isn’t always a bad thing.

“‘Sweet are the uses of adversity,’” Mr. Schwarz said, quoting Shakespeare. “You don’t get reform unless there’s a crisis.”