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Secret IRS Files Show How Trump Tax Cut Greased The Super-Rich

Reprinted with permission from ProPublica

In November 2017, with the administration of President Donald Trump rushing to get a massive tax overhaul through Congress, Sen. Ron Johnson (R-WI) stunned his colleagues by announcing he would vote "no."

Making the rounds on cable TV, the Wisconsin Republican became the first GOP senator to declare his opposition, spooking Senate leaders who were pushing to quickly pass the tax bill with their thin majority. "If they can pass it without me, let them," Johnson declared.

Johnson's demand was simple: In exchange for his vote, the bill must sweeten the tax break for a class of companies that are known as pass-throughs, since profits pass through to their owners. Johnson praised such companies as "engines of innovation." Behind the scenes, the senator pressed top Treasury Department officials on the issue, emails and the officials' calendars show.

Within two weeks, Johnson's ultimatum produced results. Trump personally called the senator to beg for his support, and the bill's authors fattened the tax cut for these businesses. Johnson flipped to a "yes" and claimed credit for the change. The bill passed.

The Trump administration championed the pass-through provision as tax relief for "small businesses."

Confidential tax records, however, reveal that Johnson's last-minute maneuver benefited two families more than almost any others in the country — both worth billions and both among the senator's biggest donors.

Dick and Liz Uihlein of packaging giant Uline, along with roofing magnate Diane Hendricks, together had contributed around $20 million to groups backing Johnson's 2016 reelection campaign.

The expanded tax break Johnson muscled through netted them $215 million in deductions in 2018 alone, drastically reducing the income they owed taxes on. At that rate, the cut could deliver more than half a billion in tax savings for Hendricks and the Uihleins over its eight-year life.

But the tax break did more than just give a lucrative, and legal, perk to Johnson's donors. In the first year after Trump signed the legislation, just 82 ultrawealthy households collectively walked away with more than $1 billion in total savings, an analysis of confidential tax records shows. Republican and Democratic tycoons alike saw their tax bills chopped by tens of millions, among them: media magnate and former Democratic presidential candidate Michael Bloomberg; the Bechtel family, owners of the engineering firm that bears their name; and the heirs of the late Houston pipeline billionaire Dan Duncan.

Usually the scale of the riches doled out by opaque tax legislation — and the beneficiaries — remain shielded from the public. But ProPublica has obtained a trove of IRS records covering thousands of the wealthiest Americans. The records have enabled reporters this year to explore the diverse menu of options the tax code affords the ultra-wealthy to avoid paying taxes.

The drafting of the Trump law offers a unique opportunity to examine how the billionaire class is able to shape the code to its advantage, building in new ways to sidestep taxes.

The Tax Cuts and Jobs Act was the biggest rewrite of the code in decades and arguably the most consequential legislative achievement of the one-term president. Crafted largely in secret by a handful of Trump administration officials and members of Congress, the bill was rushed through the legislative process.

As draft language of the bill made its way through Congress, lawmakers friendly to billionaires and their lobbyists were able to nip and tuck and stretch the bill to accommodate a variety of special groups. The flurry of midnight deals and last-minute insertions of language resulted in a vast redistribution of wealth into the pockets of a select set of families, siphoning away billions in tax revenue from the nation's coffers. This story is based on lobbying and campaign finance disclosures, Treasury Department emails and calendars obtained through a Freedom of Information Act lawsuit, and confidential tax records.

For those who benefited from the bill's modifications, the collective millions spent on campaign donations and lobbying were minuscule compared with locking in years of enormous tax savings.

A spokesperson for the Uihleins declined to comment. Representatives for Hendricks didn't respond to questions. In response to emailed questions, Johnson did not address whether he had discussed the expanded tax break with Hendricks or the Uihleins. Instead, he wrote in a statement that his advocacy was driven by his belief that the tax code "needs to be simplified and rationalized."

"My support for 'pass-through' entities — that represent over 90% of all businesses — was guided by the necessity to keep them competitive with C-corporations and had nothing to do with any donor or discussions with them," he wrote.

Trump Tax Overhaul Showered Millions on Handful of Americans


Source: ProPublica analysis of IRS data

By the summer of 2017, it was clear that Trump's first major legislative initiative, to "repeal and replace" Obamacare, had gone up in flames, taking a marquee campaign promise with it. Looking for a win, the administration turned to tax reform.

"Getting closer and closer on the Tax Cut Bill. Shaping up even better than projected," Trump tweeted. "House and Senate working very hard and smart. End result will be not only important, but SPECIAL!"

At the top of the Republican wishlist was a deep tax cut for corporations. There was little doubt that such a cut would make it into the final legislation. But because of the complexity of the tax code, slashing the corporate tax rate doesn't actually affect most U.S. businesses.

Corporate taxes are paid by what are known in tax lingo as C corporations, which include large publicly traded firms like AT&T or Coca-Cola. Most businesses in the United States aren't C corporations, they're pass-throughs. The name comes from the fact that when one of these businesses makes money, the profits are not subject to corporate taxes. Instead, they "pass through" directly to the owners, who pay taxes on the profits on their personal returns. Unlike major shareholders in companies like Amazon, who can avoid taking income by not selling their stock, owners of successful pass-throughs typically can't avoid it.

Pass-throughs include the full gamut of American business, from small barbershops to law firms to, in the case of Uline, a packaging distributor with thousands of employees.

So alongside the corporate rate cut for the AT&Ts of the world, the Trump tax bill included a separate tax break for pass-through companies. For budgetary reasons, the tax break is not permanent, sunsetting after eight years.

Proponents touted it as boosting "small business" and "Main Street," and it's true that many small businesses got a modest tax break. But a recent study by Treasury economists found that the top one percent of Americans by income have reaped nearly 60% of the billions in tax savings created by the provision. And most of that amount went to the top 0.1%. That's because even though there are many small pass-through businesses, most of the pass-through profits in the country flow to the wealthy owners of a limited group of large companies.

Tax records show that in 2018, Bloomberg, whom Forbes ranks as the 20th wealthiest person in the world, got the largest known deduction from the new provision, slashing his tax bill by nearly $68 million. (When he briefly ran for president in 2020, Bloomberg's tax plan proposed ending the deduction, though his plan was generally friendlier to the wealthy than those of his rivals.) A spokesperson for Bloomberg declined to comment.

Americans With the Highest Income Reaped Most of the Pass-through Tax Break Benefits in 2018


Source: National Bureau of Economic Research study Credit: Lucas Waldron/ProPublica

Johnson's intervention in November 2017 was designed to boost the bill's already generous tax break for pass-through companies. The bill had allowed for business owners to deduct up to 17.4 percent of their profits. Thanks to Johnson holding out, that figure was ultimately boosted to 20 percent.

That might seem like a small increase, but even a few extra percentage points can translate into tens of millions of dollars in extra deductions in one year alone for an ultra-wealthy family.

The mechanics are complicated but, for the rich, it generally means that a business owner gets to keep an extra seven cents on every dollar of profit. To understand the windfall, take the case of the Uihlein family.

Dick, the great-grandson of a beer magnate, and his wife, Liz, own and operate packaging giant Uline. The logo of the Pleasant Prairie, Wisconsin, firm is stamped on the bottom of countless paper bags. Uline produced nearly $1 billion in profits in 2018, according to ProPublica's analysis of tax records. Dick and Liz Uihlein, who own a majority of the company, reported more than $700 million in income that year. But they were able to slash what they owed the IRS with a $118 million deduction generated by the new tax break.

Liz Uihlein, who serves as president of Uline, has criticized high taxes in her company newsletter. The year before the tax overhaul, the couple gave generously to support Trump's 2016 presidential campaign. That same year, when Johnson faced long odds in his reelection bid against former Sen. Russ Feingold, the Uihleins gave more than $8 million to a series of political committees that blanketed the state with pro-Johnson and anti-Feingold ads. That blitz led the Milwaukee Journal Sentinel to dub the Uihleins "the Koch brothers of Wisconsin politics."

Johnson's campaign also got a boost from Hendricks, Wisconsin's richest woman and owner of roofing wholesaler ABC Supply Co. The Beloit-based billionaire has publicly pushed for tax breaks and said she wants to stop the U.S. from becoming "a socialistic ideological nation."

Hendricks has said Johnson won her over after she grilled him at a brunch meeting six years earlier. She gave about $12 million to a pair of political committees, the Reform America Fund and the Freedom Partners Action Fund, that bought ads attacking Feingold.

In the first year of the pass-through tax break, Hendricks got a $97 million deduction on income of $502 million. By reducing the income she owed taxes on, that deduction saved her around $36 million.

Even after Johnson won the expansion of the pass-through break in late 2017, the final text of the tax overhaul wasn't settled. A congressional conference committee had to iron out the differences between the Senate and House versions of the bill.

Sometime during this process, eight words that had been in neither the House nor the Senate bill were inserted: "applied without regard to the words 'engineering, architecture.'"

With that wonky bit of legalese, Congress smiled on the Bechtel clan.

The Bechtels' engineering and construction company is one of the largest and most politically connected private firms in the country. With surgical precision, the new language guaranteed the Bechtels a massive tax cut. In previous versions of the bill, construction would have been given a tax break, but engineering was one of the industries excluded from the pass-through deduction for reasons that remain murky.

When the bill, with its eight added words, took effect in 2018, three great-great-grandchildren of the company's founder, CEO Brendan Bechtel and his siblings Darren and Katherine, together netted deductions of $111 million on $679 million in income, tax records show.

And that's just one generation of Bechtels. The heirs' father, Riley, also holds a piece of the firm, as does a group of nonfamily executives and board members. In all, Bechtel Corporation produced around $2.3 billion of profit in 2018 alone — the vast majority of which appears to be eligible for the 20% deduction.

Who wrote the phrase — and which lawmaker inserted it — has been a much-discussed mystery in the tax policy world. ProPublica found that a lobbyist who worked for both Bechtel and an industry trade group has claimed credit for the alteration.

In the months leading up to the bill's passage in 2017, Bechtel had executed a full-court press in Washington, meeting with Trump administration officials and spending more than $1 million lobbying on tax issues.

Bechtel met with the Treasury's point man on the tax bill, Justin Muzinich, on pass-through issues in July 2017.

Bechtel also retained a top Washington firm to lobby specifically on pass-through business issues in the tax bill.

Bechtel hired another lobbying firm in the same period.

The chief lobbyist was Marc Gerson, a former top tax lawyer on Capitol Hill.

Amid intense industry lobbying pressure, this phrase was inserted into the bill that extended the lucrative tax break to engineering firms.

Gerson, the lobbyist, later took credit in his law firm bio for winning the tax break for engineering companies.

Thanks to the last-minute insertion into the law, Brendan Bechtel, the company CEO, netted $64 million in write-offs from the tax break in 2018 alone. (A Bechtel spokesperson didn't respond to questions.)

Marc Gerson, of the Washington law firm Miller & Chevalier, was paid to lobby on the tax bill by both Bechtel and the American Council of Engineering Companies, of which Bechtel is a member. At a presentation for the trade group's members a few weeks after Trump signed the bill into law, Gerson credited his efforts for the pass-through tax break, calling it a "major legislative victory for the engineering industry." Gerson did not respond to a request for comment.

Bechtel's push was part of a long history of lobbying for tax breaks by the company. Two decades ago, it even hired a former IRS commissioner as part of a successful bid to get "engineering and architectural services" included in one of President George W. Bush's tax cuts.

The company's lobbying on the Trump tax bill, and the tax break it received, highlight a paradox at the core of Bechtel: The family has for years showered money on anti-tax candidates even though, as The New Yorker's Jane Mayer has written, Bechtel "owed almost its entire existence to government patronage." Most famous for being one of the companies that built the Hoover Dam, in recent years it has bid on and won marquee federal projects. Among them: a healthy share of the billions spent by American taxpayers to rebuild Iraq after the war. The firm recently moved its longtime headquarters from San Francisco to Reston, Virginia, a hub for federal contractors just outside the Beltway.

A spokesperson for Bechtel Corporation didn't respond to questions about the company's lobbying. The spokesperson, as well as a representative of the family's investment office, didn't respond to requests to accept questions about the family's tax records.

Brendan Bechtel has emerged this year as a vocal critic of President Joe Biden's proposal to pay for new infrastructure with tax hikes.

"It's unfair to ask business to shoulder or cover all the additional costs of this public infrastructure investment," he said on a recent CNBC appearance.

As the landmark tax overhaul sped through the legislative process, other prosperous groups of business owners worried they would be left out. With the help of lobbyists, and sometimes after direct contact with lawmakers, they, too, were invited into what Trump dubbed his "big, beautiful tax cut."

Among the biggest winners during the final push were real estate developers.

The Senate bill included a formula that restricted the size of the new deduction based on how much a pass-through business paid in wages. Congressional Republicans framed the provision as rewarding businesses that create jobs. In effect, it meant a highly profitable business with few employees — like a real estate developer — wouldn't be able to benefit much from the break.

Developers weren't happy. Several marshaled lobbyists and prodded friendly lawmakers to turn things around.

At least two of them turned to Johnson.

"Dear Ron," Ted Kellner, a Wisconsin developer, and a colleague wrote in a letter to Johnson. "I'm concerned that the goal of a fair, efficient and growth oriented tax overhaul will not be achieved, especially for private real estate pass-through entities."

Johnson forwarded the letter from Kellner, a political donor of his, to top Republicans in the House and Senate: "All, Yesterday, I received this letter from very smart and successful businessmen in Milwaukee," adding that the legislation as it stood gave pass-throughs "widely disparate, grossly unfair" treatment.

House Ways and Means Committee Chairman Kevin Brady, R-Texas, responded with a promise to do more: "Senator — I strongly agree we should continue to improve the pass-through provisions at every step. You are a great champion for this." Congress is not subject to the Freedom of Information Act, but Treasury officials were copied on the email exchange. ProPublica obtained the exchange after suing the Treasury Department.

Kellner got his wish. In the final days of the legislative process, real estate investors were given a side door to access the full deduction. Language was added to the final legislation that allowed them to qualify if they had a large portfolio of buildings, even if they had small payrolls.

With that, some of the richest real estate developers in the country were welcomed into the fold.

The tax records obtained by ProPublica show that one of the top real estate industry winners was Donald Bren, sole owner of the Southern California-based Irvine Company and one of the wealthiest developers in the United States.

In 2018 alone, Bren personally enjoyed a deduction of $22 million because of the tax break. Bren's representatives did not respond to emails and calls from ProPublica.

His company had hired Wes Coulam, a prominent Washington lobbyist with Ernst & Young, to advocate for its interests as the bill was being hammered out. Before Coulam became a lobbyist, he worked on Capitol Hill as a tax policy adviser for Utah Sen. Orrin Hatch.

Hatch, then the Republican chair of the Senate Finance Committee, publicly took credit for the final draft of the new deduction, amid questions about the real estate carveout. Hatch's representatives did not respond to questions from ProPublica about how the carveout was added.

ProPublica's records show that other big real estate winners include Adam Portnoy, head of commercial real estate giant the RMR Group, who got a $14 million deduction in 2018. Donald Sterling, the real estate developer and disgraced former owner of the Los Angeles Clippers, won an $11 million deduction. Representatives for Portnoy and Sterling did not respond to questions from ProPublica.

Another gift to the real estate industry in the bill was a tax deduction of up to 20% on dividends from real estate investment trusts, more commonly known as REITs. These companies are essentially bundles of various real estate assets, which investors can buy chunks of. REITs make money by collecting rent from tenants and interest from loans used to finance real estate deals.

The tax cut for these investment vehicles was pushed by both the Real Estate Roundtable, a trade group for the entire industry, and the National Association of Real Estate Investment Trusts. The latter, a trade group specifically for REITs, spent more than $5 million lobbying in Washington the year the tax bill was drafted, more than it had in any year in its history.

Steven Roth, the founder of Vornado Realty Trust, a prominent REIT, is a regular donor to both groups' political committees.

Roth had close ties to the Trump administration, including advising on infrastructure and doing business with Jared Kushner's family. He became one of the biggest winners from the REIT provision in the Trump tax law.

Roth earned more than $27 million in REIT dividends in the two years after the bill passed, potentially allowing him a tax deduction of about $5 million, tax records show. Roth did not respond to requests for comment, and his representatives did not accept questions from ProPublica on his behalf.

Another carveout benefited investors of publicly traded pipeline businesses. Sen. John Cornyn, a Texas Republican, added an amendment for them to the Senate version of the bill just before it was voted on.

Without his amendment, investors who made under a certain income would have received the deduction anyway, experts told ProPublica. But for higher-income investors, a slate of restrictions kicked in. In order to qualify, they would have needed the businesses they're invested in to pay out significant wages, and these oil and gas businesses, like real estate developers, typically do not.

Cornyn's amendment cleared the way.

The trade group for these companies and one of its top members, Enterprise Products Partners, a Houston-based natural gas and crude oil pipeline company, had both lobbied on the bill. Enterprise was founded by Dan Duncan, who died in 2010.

The Trump tax bill delivered a win to Duncan's heirs. ProPublica's data shows his four children, who own stakes in the company, together claimed more than $150 million in deductions in 2018 alone. The tax provision for "small businesses" had delivered a windfall to the family Forbes ranked as the 11th richest in the country.

In a statement, an Enterprise spokesperson wrote: "The Duncan family abides by all applicable tax laws and will not comment on individual tax returns, which are a private matter." Cornyn's office did not respond to questions about the senator's amendment.

The tax break is due to expire after 2025, and a gulf has opened in Congress about the future of the provision.

In July, Senate Finance Chair Ron Wyden (D-OR)., proposed legislation that would end the tax cut early for the ultra-wealthy. In fact, anyone making over $500,000 per year would no longer get the deduction. But it would be extended to the business owners below that threshold who are currently excluded because of their industry. The bill would "make the policy more fair and less complex for middle-class business owners, while also raising billions for priorities like child care, education, and health care," Wyden said in a statement.

Meanwhile, dozens of trade groups, including the Chamber of Commerce, are pushing to make the pass-through tax cut permanent. This year, a bipartisan bill called the Main Street Tax Certainty Act was introduced in both houses of Congress to do just that.

One of the bill's sponsors, Rep. Henry Cuellar (D-TX) pitched the legislation this way: "I am committed to delivering critical relief for our nation's small businesses and the communities they serve."

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In July 2006, with an aggressive and novel strain of the flu circulating in Asia and the Middle East, New York City Mayor Michael Bloomberg unveiled a sweeping pandemic preparedness plan.

Using computer models to calculate how a disease could spread rapidly through the city's five boroughs, experts concluded New York needed a substantial stockpile of both masks and ventilators. If the city confronted a pandemic on the scale of the 1918 Spanish flu, the experts found, it would face a "projected shortfall of between 2,036 and 9,454 ventilators."

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Even those extra ventilators are long gone, the health department said on Sunday. The lifesaving devices broke down over time and were auctioned off by the city at least five years ago because the agency couldn't afford to maintain them.

Today, 14 years after the pandemic plan was released, the death toll from the novel coronavirus is climbing by the hundreds daily, and the shortage of ventilators threatens to push it higher still. On Friday, Mayor Bill de Blasio said that the city, which entered the crisis with around 3,500 ventilators, would run out of the machines this week. New York Gov. Andrew Cuomo said he was authorizing the state's National Guard to seize ventilators from less overwhelmed hospitals to be used where they are more urgently needed.

Early hopes that the federal government could use its Strategic National Stockpile to adequately supplement New York's supply of ventilators have faded amid revelations that key federal agencies were themselves woefully underprepared for a pandemic. The COVID-19 crisis has exposed the national stockpile as poorly maintained by the Trump administration and far too small to meet the competing demands that have predictably poured in from many states as the pandemic hurtles across the country. Indeed, some of the ventilators in the stockpile suffered from the same problem faced by New York — they fell into disrepair.

On Friday, President Donald Trump faulted New York and said he could not assure the state of more ventilators. "No," he told reporters. "They should've had more ventilators at the time. They should've had more ventilators." (Trump himself has been widely criticized for ignoring early warnings and downplaying the threat of the virus in the face of mounting global evidence of its lethality.)

New York City, with its plan 14 years ago, recognized that the nature of a pandemic — striking in many places in rapid and devastating succession — would mean that the city, in many ways, would be on its own.

"Since the pandemic will be widespread in the United States, the supplies from the federal Strategic National Stockpile may not be available and local caches will need to be relied upon," the 2006 report said.

In a newspaper interview that year, Dr. Isaac Weisfuse, then a deputy commissioner at the health department involved in pandemic planning, said the city could not count on the federal government. "We do understand that New York City will be responsible for New York City in terms of dealing with any pandemic," he said.

The story of New York's ventilators, as with many of the pre-crisis pandemic reports that have come to light at the federal level, is one of grave vulnerabilities that were made plain by experts but never were made budget priorities by policymakers.

The city health commissioner who spearheaded the 2006 pandemic planning effort, Thomas Frieden, left three years later to run the U.S. Centers for Disease Control and Prevention, and key elements of the plan had not been implemented. Frieden, who now leads a public health philanthropy, has emerged as a prominent critic of the country's inadequate preparations, writing in January that "we are living the consequences of being underprepared for the next big global epidemic."

Another prong of the Bloomberg pandemic plan — the mass distribution of masks to the public — has not happened either, even as experts are now reversing earlier guidance and urging everyone in hot spots like New York to cover their faces. Instead, de Blasio last week advised residents to use a scarf, a bandanna — something "real homegrown." The city's hospitals still need over 3 million masks just to safeguard health care workers, he said.

In interviews with ProPublica, other former city health officials said they were also worried about other threats and that there simply wasn't enough money to fully prepare for every possibility.

"It's easy to say in retrospect we should have spent all our money on pandemic influenza, but at the time you just don't know what was going to happen, and there were other threats," said Weisfuse, who worked under Frieden and led the city's disease control division until 2012. "I feel good about what we did, but obviously for this situation it was not enough."

Following the avian influenza scare and the pandemic planning of the mid-2000s, the city faced its first major test when H1N1 swine flu arrived in 2009.

Officials feared it would become a major outbreak. Some schools were closed and there were high-level discussions about shortages of supplies. But the disease abated, with a substantially lower death rate than the coronavirus, and the city turned much of its attention back to the aftermath of the recession that had devastated New York's economy.

"We learned the wrong lesson, I think, from swine flu," Dr. Douglas Ball, former medical director of the city health department's Bureau of Emergency Management, told ProPublica. He compared it to the London Blitz during World War II: "When people got missed by a bomb that hit nearby, they thought they were safe. When really they should have thought, 'Wow, we were so lucky.'"

Years of budget cuts to the city's health department followed, limiting the city's ability to prepare, even as planners still feared a major pandemic.

In 2014, Nicholas Cagliuso, a top emergency management official for the city's public hospitals, told participants in a pandemic training session that cost-cutting had hobbled the hospital system's preparation, in particular its ability to amass a stockpile of emergency equipment.

Instead, the hospitals had taken to holding just enough to meet day-to-day needs. It was a practice that was antithetical to preparing for a pandemic, which requires emergency supplies to be in easy reach, Cagliuso said. "If a resource is not available by foot, it does not exist."

In a statement on Sunday, Michael Lanza, a spokesman for the city's health department, said pandemic preparedness efforts had been undermined by the loss of federal aid.

"These plans depend on ample federal assistance, and Congress has not appropriated enough funding to state and local jurisdictions to adequately prepare for emergencies," he said. "Annual federal public health and health care preparedness funding levels are not sufficient to prepare for an emergency of this scale and scope."

Despite the warnings in the 2006 plan and the initial efforts to build a stockpile, de Blasio spokeswoman Avery Cohen said in a statement on Monday that cities "do not typically stockpile ventilators and that such emergency reserves are the responsibility of state and federal government.

"Despite our best efforts to stretch our resources, there was no foreseeing a crisis of this magnitude."

Michael Bloomberg took office just a few months after the Sept. 11, 2001, terrorist attacks.

The planning-obsessed mayor wanted to be better prepared for the next crisis. "Mayor Bloomberg wanted there to be every plan for every disaster you have: coastal storm, pandemic, terrorist attack — and make sure it was up to date and we were going to drill it," said Edward Skyler, the city's former deputy mayor for operations.

And then, across the globe, lethal strains of the flu began to spread. In 2002, SARS emerged in southern China, and then in 2005, avian influenza swept across several countries in Asia.

Frieden, Bloomberg's first health commissioner, believed the city needed a pandemic plan. A committee of experts was assembled and the 266-page plan was published in July 2006. New York City, Frieden wrote in the introduction, is "uniquely vulnerable to infectious disease threats."

The document's assumptions are prescient: a future pandemic could have a 2 percent fatality rate, a 30 percent citywide infection rate and a delay of many months waiting for a vaccine, which could place an enormous strain on health care workers and supplies.

In 2005, the city's health department had begun to survey nearly all of the public and private hospitals to understand the equipment needs they would face in a pandemic. It found New York's hospitals had roughly 2,700 ventilators, far from what would be needed in a severe outbreak.

Even though the plan stressed that purchasing, storing and maintaining ventilators was a large endeavor, the city began to take steps to form a stockpile. It was vital because in a pandemic, cities and states would be competing for supplies from the Strategic National Stockpile. (Last week, White House adviser Jared Kushner claimed that the stockpile was not for the use of the states at all, contradicting a government website.)

In 2006 and 2007, following the release of the pandemic plan, the city purchased a few hundred "disaster-ready" ventilators. The $1.76 million contract went to a New York-based company called VersaMed.

Jerry Korten, the CEO of VersaMed at the time, recalled city officials understanding that, in case of a major pandemic, the ventilators would not be enough, he told ProPublica.

"New York knew they would need a lot more ventilators," Korten said. "It's a very sad situation that no one invested in what was needed when it was needed. It's just too late now."

By 2009, the city had trained some of its hospitals on how to use the new ventilators, in case they were needed to increase capacity. The training was intended to help the health department evaluate the ventilators, and after the training, the city stored the devices in a warehouse for future use.

"The idea of this warehouse is something that we could send trucks to and load ventilators or other equipment and ship them right to hospitals quickly," said Weisfuse, the former deputy commissioner, who is now an adjunct professor at Cornell University Public Health. "They were on site, and it was just a matter of getting them to the right place."

But after 2009, the effort to create a large ventilator stockpile petered out. "We tried to fill in the gap as best we could," Weisfuse said. "That's where we left it. We also had to spend money to fill the gap for other problems too, like bioterrorism."

VersaMed was acquired by GE Healthcare in 2008 and the company discontinued the line of ventilators New York had bought, Lanza, the city health department spokesman, told ProPublica. "This was beyond our control but had a direct impact on cost and viability of maintaining a stockpile." Annual maintenance costs for the 500 VersaMed ventilators, which includes replacing batteries and degrading parts, ran over $100,000 per year, Lanza said, adding that the ventilators were ultimately auctioned off by the city. It's not clear who bought the devices and for how much. GE did not respond to questions related to the VersaMed ventilators, but a spokesperson said the company "provide[s] maintenance on any equipment that is under a service contract with GE."

Hospitals were also reluctant to spend money to store machines and protective equipment that they did not need for day-to-day operations.

Over the past few decades, cuts in Medicaid reimbursement and other fiscal pressures have reshaped the hospital industry, leaving the city's public and private medical centers with, collectively, thousands fewer beds.

The city's network of 11 public hospitals, which includes Elmhurst Hospital in Queens and Bellevue in Manhattan, regularly operates at a large deficit and in recent years has relied on city funding to fill the gap. The network is a vital provider of health care to many poor New Yorkers. Nearly 70 percent of patients who use the public hospitals are uninsured or on Medicaid.

With federal grant funding, the city had also planned to purchase 1.1 million face masks for use in a pandemic. But after funding was reduced, the city instead bought only 216,000 masks, spending roughly $84,500, a state comptroller audit later found.

Asked about the masks, the department said it "did purchase N95s in quantity but eventually all expired, and it became cost-prohibitive to replace them in any meaningful quantity." The department said that it did, however, acquire over 20 million surgical face masks prior to the coronavirus pandemic, millions of which have been distributed to health care and front-line workers.

Asked about the pandemic plan, Frieden said in a statement that "any health department in the world would be challenged by an outbreak of this severity and scale." He declined to answer specific questions about the fate of the ventilator and mask plans.

After the 2008 financial crisis hit, tax revenues dried up. Over the next five years, the city health department's budget was slashed by about $290 million, or 17 percent, and federal preparedness funding plummeted.

Some health department spending, such as services for developmentally disabled children, was mandated by law and could not be cut. So the agency had to look for other areas to cut, and infectious disease work was vulnerable.

In 2009, swine flu arrived in New York, the first pandemic scare since the Bloomberg plan was published. Hundreds of students became ill at a high school in Queens, and city officials were worried that the disease could overtake the city.

"There was some discussion that if it were as bad as projected we would be short of ventilators at that time," a former top city health official recalled. There was no time to buy the machines during the outbreak, and the disease ultimately receded more quickly than expected.

The health department did not receive any requests for ventilators from its small stockpile, said the former deputy commissioner Weisfuse. The possible shortfall of ventilators during a pandemic, once a key issue, again faded.

In the later Bloomberg years, the health department was focused on planning how to distribute huge volumes of Tamiflu, in case of a flu pandemic, or antibiotics, in case of anthrax, according to the former top health official. "To the extent people were thinking about a ventilator shortage, that was a secondary or tertiary issue," the former official said.

In a statement, Bloomberg spokesman Stu Loeser said: "Our Administration was among the first governments in the country to comprehensively plan for a pandemic health crisis, and key parts of our program were implemented successfully and harnessed in our effective H1N1 virus response in 2009, which itself became a national model for public health emergency planning."

Pandemic planning continued under de Blasio, who took office in 2014.

That year, the New York-New Jersey office of the Federal Emergency Management Agency and a Wall Street trade group sponsored a series of pandemic training sessions online attended by a couple of hundred corporate executives and government officials.

Cagliuso, then the assistant vice president for emergency management for the city's public hospital system, gave a presentation warning of the difficulty obtaining supplies during a crisis.

"Supply chain breaks are a very real issue. Much to the detriment of those of us in emergency management, we have moved to just-in-time supply chains," Cagliuso said at the time, referring to hospitals' practice of limiting stockpiles of medical equipment to save money. "So I had some very spirited discussions with my supply chain leadership. But nonetheless I also realize the business and the way that we are moving."

Cagliuso, who still works for the hospital system, did not respond to a request for comment.

But massive cuts in federal funding hampered the city's ability to act on experts' warnings. At an infectious disease conference in 2012, Dr. Jay Varma, then the city's deputy commissioner for disease control, warned that "the age of austerity" was "hitting infectious disease programs hard."

Three years later, Marisa Raphael, then the deputy commissioner of the office of emergency preparedness and response, repeated this warning while testifying before Congress. "The greatest danger to our progress is the decline in federal emergency preparedness funding," she said. Critical CDC programs had lost over a quarter-billion dollars in funding since 2005, and Raphael said the department had to cut almost half of its public health preparedness workforce.

The supply-chain issue surfaced yet again in 2018 when the public hospital system participated in a pandemic exercise with Johns Hopkins University on the 100th anniversary of the 1918 flu. Cagliuso and several colleagues produced a paper in an academic journal about what they learned.

In short: New York City would likely be on its own in case of a pandemic.

"State and federal stockpiles of medical supplies exist [that] can be rapidly distributed, but a pandemic scenario is likely to complicate resource allocation on local and sub-national levels because of competing areas of similar need, limiting the allocation and deployment of these resources," they wrote.

Their proposed solution was not to beef up the city's stockpiles. Rather, they called for creating a technological fix, a dashboard that would "automate the presentation of data to decision-makers."

A spokesperson for the hospital system did not respond to requests for comment.

In 2015, the state updated its guidelines on ventilator allocation during a possible influenza pandemic and calculated that the state had about 7,250 ventilators available in acute care facilities, including in New York City, with an additional state stockpile of 1,750 machines. The state recognized that if a pandemic swept across multiple regions at the same time, it could not rely on the federal stockpile to fill the gap.

"The State's current approach to stockpiling a limited number of ventilators balances the need to prepare for a potential pandemic against the need to maintain adequate funding for current and ongoing health care expenses," the report stated. In a severe pandemic scenario, "New York will not have sufficient ventilators to meet critical care needs despite its emergency stockpile." The report lays out guidelines on how to decide which patients should be placed on ventilators if hospitals are forced to ration resources, withholding devices from patients with poorer odds of surviving. The report did not specifically address the needs or current resources in New York City.

The roughly 3,500 ventilators in New York City hospitals had going into the coronavirus crisis compares to a total of 2,688 ventilators the health department counted in a 2005 survey — an increase, to be sure, but a fraction of what it expected to need if faced with a serious pandemic.

The mayor has repeatedly said the city will need 15,000 ventilators from the federal government, but the city has so far received only 2,500.

While de Blasio has cautioned that ventilator needs change by the day or hour, he said on Friday that New York City projects it requires at least another 2,500 to make it through this week. "The ventilators to me are one of the clearest examples of life and death," the mayor explained. "If we're going to save every single life we can save, we must have the ventilators we need exactly where we need them, when we need them."

Treasury Inspector General Probes Trump Tax Cut Abuse

Reprinted with permission from ProPublica.

The Treasury Department’s inspector general is looking into the opportunity zone program following stories by ProPublica and The New York Times about how the tax break meant to help the poor had been manipulated by billionaires.

The development, which was first reported by NBC News, comes after three congressional Democrats wrote to Treasury’s inspector general in October asking for the probe and citing the ProPublica and Times stories.

“We are conducting an inquiry, and expect to complete our work and respond to the Congressional requesters in early spring,” Deputy Inspector General Richard Delmar said in a statement.

The opportunity zone program, passed as part of the 2017 Trump tax overhaul, offers tax breaks to investors who put money into specially designated areas. While it was pitched as a way to help struggling neighborhoods, ProPublica and others have documented how the process has appeared to benefit billionaires with investments in areas that should not have qualified. In other cases, governors have granted the tax break to their political donors and, in some cases, themselves or their families.

Sen. Cory Booker, an architect of the program, along with Reps. Emanuel Cleaver and Ron Kind, asked the inspector general to do a “complete review” of areas picked for the opportunity zone tax break to see if they were truly eligible. The October letter also asked the inspector general to collect all correspondence between Treasury, White House officials and outside interests about the process.

The inspector general said that once the inquiry is complete it plans to publicly post its response to the congressional Democrats.

Do you have access to information about opportunity zones that should be public? Email justin@propublica.org. Here’s how to send tips and documents to ProPublica securely.