Hearst v. Kelly

(See front cover)

Late one afternoon last week Chicago's Mayor Edward Joseph Kelly started to leave his spacious fifth-floor office at City for home when a newshawk from William Randolph Hearst's Herald & Examiner stepped up to him. "You want to see me?" asked Mayor Kelly. "Yes," replied the Hearstling. "Questions?" "Yes" Mayor Kelly turned on his heel, strode back into his office, shot over his shoulder: "There's no use your waiting around." The reporter departed. Next morning the Herex blazoned this headline across its front page:

MAYOR KELLY IN BIG U.S. INCOME TAX SCANDAL!

50 PCT. FRAUD PENALTY PAID TO GOVERNMENT;

AMOUNT OF 'SETTLEMENT' MORE THAN $105,000

Thus did Publisher Hearst's sudden crusade to oust the Mayor of the No. 2 U.S. city finally come crashing out into the open. For a week the front pages of the Herex and the afternoon American had been smeared with thundering innuendos to the effect that a top-notch Chicago politician had been in an income tax jam with the Federal Government. The constant use of Mayor Kelly's picture left readers in small doubt as to who was meant. All the Mayor would say when questioned was: "Any answer I might make would put me on the spot. I have paid my income tax every year and have nothing to fear on that score." But when the Herex finally broadcast the fact that Ed Kelly had failed to report income of $450,000 in 1926-28 and had settled with the U.S. Treasury in May 1932 for $70,000 in taxes and $35,000 in penalties, it was bigger news for Chicago than the Century of Progress.

Mayor Kelly had to do some quick explaining. Without losing his air of good-natured calm, he informed Chicago: "For several recent years I was fortunate in my business dealings. I had large legitimate transactions. A large number of those ventures were highly profitable and my income tax was in the higher brackets.* In 1926 I was manager of the campaign of George E. Brennan for Senator. At times it became necessary for me to make advances for expenses for which I was subsequently reimbursed. I did not consider when I filed my tax returns that the repayment of those advances could be considered as income. Accordingly I did not include them in my returns. . . . "Subsequently the income tax division checked over my returns and claimed such sums should be treated as income. . . . The government's decision made the added tax some $60,000. With the added penalties and interest the amount of my settlement was approximately $100,000. ... I considered it a simple business transaction, honestly handled and now a closed book." Mayor Kelly's explanation failed to convince many Chicagoans because : 1) money lent and repaid is capital, not income, and therefore the Treasury could not have taxed it; 2) the total official cost of the Brennan campaign in 1926 was $73,584,23 and not $450,000, the amount the Mayor implied he advanced; 3) Ed Kelly was for nearly 40 years a salaried employe of the Chicago Sanitary District-}-and was not known to have had outside "business dealings" which could roll up $450,000 in three years; 4) during this three-year period the Sanitary District passed through a scandalous epoch which resulted in the alleged graft of $5,000,000. When he took office at City Hall, Mayor Kelly broadcast thus: "All I have--what little I have--I got from the good people of Chicago." Fully aware that politicians are not in the game for their health, the "good people of Chicago" last week wondered about their own generosity. Publisher Hearst's deepest motive in trying to tag Mayor Kelly as a tax-dodger was perfectly apparent. When Mayor Anton Joseph Cermak died from an assassin's bullet in Miami last spring, Mr. Hearst sat down at his San Simeon estate in California and dispatched a lordly front-page editorial to the Herex to the effect that Chicago citizens should elect their own successor. The political bosses roundly snubbed Hearst by having the City Council, under special authorization of the Legislature, select Ed Kelly as World's Fair Mayor. That was Item No. 1 in the Hearst grudge fight. Item No. 2 was the fact that Mayor Kelly had long been a protege of Colonel Robert Rutherford McCormick and his Chicago Tribune. As president of the Sanitary District in its early days and its good friend ever since, Colonel McCormick gave Engineer Kelly his first big boost up to political importance. But the real casus belli was the Chicago School Board's determined campaign to defrill the Chicago school system, eliminate junior high schools and special departments, thereby save some $4,000,000 per year (TIME, July 24; July 31). The Herex inaugurated a "Save Our Schools" drive, pounded the issue day after day on its front page and at mass meetings, ran its circulation up some 25,000, but failed completely to swing Mayor Kelly against the Board. Thereupon the Herex switched its attack, went after the Mayor hammer & tongs on the income tax issue in an attempt to smoke him out of office. The Mayor of New York by common consent holds the third most important elective office in the U.S.-- If he is able and ambitious he may be chosen Governor of the State, from which office it is but one long step to the White House. He greets more distinguished foreigners, delivers more speeches, lays more cornerstones, makes more important news than any other U.S. mayor. The Mayor of the nation's second city-- hustling, bustling, brawling, sprawling Chicago--should by rights rank next to the Mayor of New York in national prestige and power. But he does not. He governs the most thoroughly American city in the land, a polyglot metropolis that began as a cast-off of the East as the East began as a cast-off of Europe. Chicago's chuffing, puffing yards constitute the railroad centre of the U.S. It holds the U.S. grain trade in its pits. Its stockyards are unmatched. In its grimy lap are a multitude of noisy industries (steel, cement, farm machinery, railroad supplies, foundry products, band instruments). Its mail order business reaches into the tiniest towns. In its convention halls more U.S. Presidents have been nominated than in any other city in the land. Its Negro population exceeds that of Kentucky. Above its enormous immigrant foundation is a socialite crust that knows wealth, culture, good living. It has opera, music, art, museums to offset its physical crudities. It is strong, lusty, loud and ambitious. Many a Chicagoan confidently predicts that his city will soon surpass New York in size and importance, become "The Paris of the West." Yet in the matter of mayors, Chicago has not kept pace with its other manifestations of greatness. Irish son of an Irish policeman, Edward Joseph Kelly was born 57 May Days ago on Chicago's West 38th Street. At 17 he got a job as axman with the Sanitary District then building the Drainage Canal near his home. Later he was toughened in the rough frontier town of Lemont, Ill. where Negro workmen, when killed on the job, were dumped on the rock pile and covered up with canal excavations. By industry and intelligence Kelly became a good practical engineer, a good practical politician with the Sanitary District. His first wife died in 1918. Four years later he married a woman 15 years his junior. In 1925 his 14-year-old son, an only child, died after a mastoid operation at Culver Military Academy, whereupon the Kellys adopted three youngsters. For summers they bought a big, airy place on a lake near Eagle River, Wis., spent their winters in a remodeled colonial brick home on Ellis Avenue. In 1922 Ed Kelly, in addition to his job as the Sanitary District's chief engineer, was appointed to the South Park Board, soon became its president. Under him Grant Park and the outer highway system were developed, the Stadium completed, the old Fine Arts building in Jackson Park restored for the Rosenwald Museum of Science & Industry. If George Brennan had lived, that shrewd old Democratic boss might well have run his good friend Kelly for an important municipal job. As it was, Engineer Kelly lived well, played golf, enjoyed his friends, kept out of the limelight until-- May 30, 1930 was a black day for Ed Kelly. Along with the other trustees of the Sanitary District he was indicted for bribery and conspiracy to defraud taxpayers out of $5,000,000. A year later his indictment was mysteriously quashed. The prosecutor sought a fresh batch of indictments, got them against all but Engineer Kelly. Four trustees, headed by Timothy Crowe, were convicted after a trial which brought out amazing tales of corrupt extravagance. After 1927 the Sanitary District's expenditures had jumped from 38 to 55 million per year. Its payroll was padded double with nonworkers. It spent $1,000,000 on a useless bridle path along McCormick Boulevard ("From Nowhere to Nowhere") which should have cost less than $300,000. It set up dummy concerns to buy and sell building materials at outrageous prices. With his indictment quashed, Engineer Kelly was technically outside this Chicago scandal. But its shadow was enough to bar him from serious consideration as a candidate for high elective office. In 1931 "Tony" Cermak was overwhelmingly nominated for Mayor. At Cermak's death old Boss Pat Nash who succeeded him as Democratic National Committeeman wanted to be Mayor. Young, aggressive State's Attorney Thomas Courtney backed Corporation Counsel William H. Sexton, chief Cermak adviser, for the job. They compromised on Ed Kelly. As soon as the new Mayor was installed in City Hall, the old Sanitary District scandal was raked up and rehashed. One of the chief rakers and re-hashers was a South Side apartment house builder and real estate reformer named John Joseph Mangan. He urged householders not to pay their taxes until the city government was purged. Cried he: "Kelly goes around with a prayer book in one hand, an empty bushel basket in the other." Mr. Mangan put out a tiny blue pamphlet called "Sanitary Kelly." Excerpts: "They call the new Mayor 'Sanitary Kelly' because he's so pure, clean and wholesome. He goes to church on Sunday. . . . BUT he was chief engineer of the infamous $1,000,000 bridle path . . . was never brought to trial so he didn't have to go to jail. . . . 'Sanitary Kelly' will never finish his term as mayor." The Chicago police, on orders from City Hall, ferreted out all available copies of the Mangan pamphlet, destroyed them while Chicago sniggered. Last week's tax disclosures did not help Mayor Kelly's already poor standing with President Roosevelt who as Governor of New York ousted Sheriff Thomas ("Tin Box'') Farley because he could not adequately explain his large income. Governor Roosevelt laid down this rule: "Where a public official is under inquiry and it appears that his scale of living or the total of his bank deposits far exceeds his public salary, he owes a positive public duty to the community to give a reasonable or credible explanation of the sources of the deposits or the source which enables him to maintain the scale of living beyond the amount of his salary." The Federal administration to date has given the Kelly administration little or no patronage. Carter Harrison, longtime Mayor, son of the 1893 World's Fair Mayor, was made a Collector of Internal Revenue over the Cermak-Kelly candidate for that job. Ed Kelly will probably be remembered principally as the World's Fair Mayor of 1933. In that difficult job he has handled himself with grace and dignity, made a good host to millions of visitors.*** When nudity on the Fair's midway became a public issue Mayor Kelly inspected the gay midnight shows, ordered dancing girls to cover their nakedness. On a second visit he found the Fair audiences applauding the change. Said he: "After all, the general public is pretty decent." Public decency was now being put to another test as the coverings were stripped off Mayor Kelly's private finances. Even his friends found it hard to get away from the fact that his official income never exceeded $18,000 per year, which was exempt from Federal taxation; that his tax settlement on $450,000 for three years coincided with the Sanitary District's "whoopee era." After the Sanitary District scandal began to fade most people were ready to forgive and forget whatever part friendly, genial Ed Kelly might have had in it. But since then things have changed. The U.S. had jailed Gangster Al Capone for eleven years for dodging his income tax. Many a good Chicagoan agreed with President Roosevelt in principle that he had a right to know how the Mayor became so rich while in public service. Ed Kelly was beginning last week to hear one of the most unpleasant sounds in public life, boos among the cheers at his public appearances.

*Later Mayor Kelly gave out a statement showing his assets and net income from 1919 to 1929. He had bought & sold $1,417,011 in securities and $243,351 in real estate, at a total profit of $361,445. To this was added $362,923 from salary, dividends, rents and interest, making a net income of $724,368. TA corporate body which controls all canals, waterworks, sewage and drainage systems in Cook County. Neither fish nor fowl, it is responsible to no other local government, raises its own money by taxation. Authority is vested in nine trustees.

**A onetime New York mayor whose income tax was under investigation last week by the U.S. was James John ("Jimmy") Walker, still in happy exile in Europe. Before the Federal Grand Jury in Manhattan appeared Russell T. Sherwood, Walker's financial Man Friday who fled investigation by the Legislature's inquisitor, Samuel Seabury. Sherwood balked at many a Question on the ground that the answer might tend to degrade and incriminate him, was upheld by a Federal judge.

***Last week the Fair was half over. It had taken in $13,211,214 from 10,000,000 cash customers. To break even this autumn its total receipts must more than double that figure. As a popular attraction it has fallen far below the estimates of enthusiasts who boasted that 50,000,000 persons would attend. "The Streets of Paris" continued to lead all concessions in popularity.

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