Behind the Fiscal Curtain: Forgotten Lessons from the 1970s NYC Fiscal Crisis

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

Another week, another study confirming what everyone already
knows: New York City is a playground for the rich, and a
hellscape for the poor. It's a stubborn fact, so self-evident
that it seems almost beyond the scope of basic questioning:
Where did this inequality come from, who stands to benefit from
maintaining it, and what, if anything, can be done to change
this citywide predicament?

A new book from historian Kim Phillips-Fein argues that the key
to understanding our increasingly stratified metropolis can be
found in the backroom dealings of 1975, as the city was on the
brink of bankruptcy. In Fear City: New York's Fiscal Crisis And
The Rise Of Austerity Politics, Phillips-Fein offers a vivid—and
often exasperating—account of how New York's investment bankers
and political opportunists used the crisis to shape the city in
their own image, gutting necessary social services along the
way, and permanently shrinking the fortunes of the working class.

We spoke with Phillips-Fein about the resurgence of austerity
politics, the challenges of expanding the city's political
imagination, and the Donald Trump-initiated real estate deal
that forever altered New York's relationship to private
development.


042117ford.jpg
via Wikipedia
When most people think about New York in the 1970s, it's the
famous Daily News headline and maybe the images of burnt out
buildings in the South Bronx. As someone who's studied this
period extensively, what pops into your head when you think of
New York in 1975?

What I was struck by working on the period was the really
intense political struggle that is taking place over the future
of the city, which I think both shapes the way that people
understand the disinvestment and abandonment and also serves as
a backdrop for the cultural resurgence. I think there was a
really strong sense in New York in this moment of old ways of
thinking about the city, old expectations and the order of how
things had operated, that that was under attack and collapsing,
and something new was going to come into existence.

There's a sharp struggle amid different groups in the city about
what that would be. And that kind of comes to a head in the
fiscal crisis, but it's happening even before. When people think
of the rubble-strewn lots of the South Bronx, they don't think
about the takeover of Lincoln Hospital by the Young Lords. They
don't think about the protest at Welfare Offices. They don't
think about the protests at City College that expanded access to
CUNY for non-white New Yorkers. And then they also don't think
about the response among elite groups in the city who were, I
think, frightened and upset about the demands that were being
made on the city government.

How would you describe the people who were in charge of laying
this foundational change in the city?

Well, there's a kind of generational conflict that takes places
during the fiscal crisis, and a lot of the people who are
empowered during the crisis are much younger. They are kind of a
generation of professional and well-educated people, many of
whom come from the city's financial and business circles. Felix
Rohatyn [the Lazard investment banker who helped broker deals to
keep the city out of bankruptcy] is probably the most famous of
this group, but it's really a whole contingent of people.

One of the dynamics of the fiscal crisis is that the city's
elected government lost a lot of power that was kind of placed
in these small agencies, which were staffed with people who were
appointed by the governor and included representatives of the
private sector. And more deeply, there's a growing sense in the
city that the city government should be oriented toward finding
ways to subsidize and support economic development as much as it
can. And that it should improve basic urban services and turn it
toward the private sector.

This position comes to be associated with people around the
Manhattan Institute, and people who you might describe as
members of the rising conservative movement, but I think it's
also held widely among liberals who kind of feel like their
backs are against the wall and the only way to save the public
sector is by expanding the aid that is offered to private
development, and that's what they need to do to expand revenue
overall.

There's a quote from Felix Rohatyn in the book warning that the
city would need to undergo "the most brutal kind of financial
and fiscal exercise any community in the country will ever have
to face." Is it fair to say that the people who are championing
these policies are not the ones who will be impacted by them.

Definitely. Another remarkable aspect of the crisis is that
during the cutbacks, you find a lot of people talking about and
relishing how deep they are and how extensive they're going to
be, but not trying to grapple seriously with the impact that
they'll have on the people who would be most affected by them.

You also note in the book that “the crisis provided a way to
change the politics of the city in profound ways without ever
talking about race or class explicitly,” and that the effect was
“a group of almost universally white elites remak[ing] life in a
city that was becoming increasingly black and brown.” How
intentional was this?

I don't think the decision-makers set out to hurt New York's
poor or minorities communities, but I also think there was a
certain level of implicit blame on those communities. There's a
sense that their demands were fueling the city's fiscal
problems, and also a willingness to disregard the reaction of
poor and nonwhite New Yorkers. And yet, what is so powerful and
difficult about the fiscal crisis is that it provides a way of
talking about the public sector and public services that is
totally divorced from a sense of who needs services, who has a
right to them, and whose voices matter. It kind of removes all
of those political demands and turns it into a language of
technocratic, neutral questions about responsibility and the
inevitability of the need for retrenchment in the condition of
scarce resources.

What are some examples of crisis-era policies that we're living
with today?

There are particular things, like the tuition at CUNY—nobody has
really talked about making CUNY free since then, Cuomo's stuff
aside. The idea of a tuition-free city university hasn't come
back. It's hard to imagine this but all the PTA fundraising that
pays for the art and music parts of education, that whole system
was not in play in the same way in the pre-fiscal crisis. It
developed afterward. There's the shrinking of the public
hospitals systems, which some public health scholars have argued
slowed the response to AIDS and also made it difficult to
respond to Tuberculosis in the 80s. Homelessness—again it's not
directly caused by the fiscal crisis—but when Koch took office I
think there were maybe 1,000 people or so in shelters. [Editor's
note: Current estimates put that number at 60,000 on any given
night.] People don't remember that, that this is a recent
problem.

So you can point to these particular ways in which the regime
that existed before the crisis is different than what it is now.
But the biggest shift really is in terms of what people think is
possible for city government, or government more broadly, to
accomplish. And there's a sense today that everything depends on
finding ways to work with the very wealthy, or direct
development, and there might be spin-off benefits for the middle
class or poor people, but that's not what's driving things. And
that's what all social policy at the city level needs to be
geared toward.

You mention that there were some people, such as Donald Trump,
who really benefited from this changing political imagination.
Can you elaborate on the claim that the “fiscal crisis of 1975
made possible the rise of Donald Trump”?

Well, in a literal sense I think that it's true in that Trump's
first big deal in Manhattan was the Commodore Hotel. So the
Commodore Hotel was located near Grand Central Terminal and it
had been owned by the Penn Central Railroad, which went bankrupt
in 1970. The hotel, which had been around since 1919 or so, had
become decrepit and was going to be closed down. It kind of
created this specter of the collapse, on that corner there, near
the library, near Grand Central Station. It just created this
image of the whole area falling into disrepair. So what Trump
wanted to do was to work with the Hyatt Regency and to basically
buy the hotel, sell it back, and then lease it. Thus delaying
paying property taxes on it and effectively getting a subsidy
that since that time has been worth more than $350 million.

This story has been told at different points, and it's often
told in terms of Trump's own willingness to strike a hard
bargain, or his dependency on the public sector and on public
subsidies, all of which is true. But the other thing that is
kind of striking about it is that the city, it's not as though
the city complained about this or was even sheepish about it.
The city government actually trumpets this arrangement—the
Economic Development Administrator describes it as signaling to
the business community that there has been a change. It's meant
to usher in a whole new way of doing business by offering deals
and breaks and subsidies to companies who will develop here.

There's a much broader expansion of different kinds of property
tax incentives for new developers or tax breaks for converting
industrial properties to residential. Or upgrading properties,
like the single room occupancy hotel. So it's part of a whole
wave of using property tax breaks to stimulate development, and
Trump is able to use that to catapult himself onto the Manhattan
real estate scene, and onward and upward from there.

I think the crisis also shaped a lot of Trump's ideas about
cities and about the role that business people should play in
political life in general. The idea that what you really need is
tough executives to come in and clean things up, that sense was
widely embraced during the fiscal crisis. And in some ways the
willingness of business people to ignore democratic protest was
exactly why they were thought to be the right leaders for the
city. So I think you can see some of those ideas playing out for
Trump today, too. But even just his own business career really
hinged on coming in and getting favorable terms from the city as
part of a broader program of economic development.

There has been a lot of talk of what would happen if New York
was to lose federal funding. Do you think we could see a similar
reaction from the city to what happened in the 1970s?

I think the situation would be really different with losing that
money. For one thing, New York gets a lot less money from the
federal government than it did in the mid-1970s. At this point
the federal funds make up 8 to 10 percent of the budget, whereas
in the '70s it was more like 17 to 20 percent. In the mid-'70s,
New York was funding really only about half or slightly more
than half of its own budget. The rest is federal or state
government. New York is actually a lot less reliant on the
federal government than it was then, and that's partially the
product of a shift in federal policy and the move away from the
Great Society/War on Poverty years. Also, the city's budget
office is infinitely better organized than it was in the '70s.
Part of what happened in the fiscal crisis is that people at
really high levels did not understand how much trouble the city
was in. That is not going to happen again in the same way.

But, I do think the loss of the federal funds would be a serious
problem for New York. I think that a lot of that money, the
programs that it's funding are ones that affect poor people most
directly—although a lot of it is going to security too. But
there’s public housing money, the money for Temporary Assistance
for Needy Family, that would be threatened. So yeah it could be
similar, and it doesn't appear that the de Blasio administration
exactly has a solution to this problem. They've said they're
going to tap into reserve, but how they would really respond if
that happened, it's just not clear.

The real challenge to it, politically, is a kind of commitment
to finding alternative ways to fund those services rather than
simply to cut them out altogether. While also challenging the
punitive decision to strip federal funds in that way. I'm not
sure another fiscal crisis would emerge in the same way, but we
could see a social crisis that was similar to what we saw in the
1970s.

<https://gothamist.com/arts-entertainment/how-bankers-
technocrats-used-the-1975-fiscal-crisis-to-permanently-reshape-
nyc>

Joe Biden has turned the United States of America into the New
York City of 1975.

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

Another week, another study confirming what everyone already
knows: New York City is a playground for the rich, and a
hellscape for the poor. It's a stubborn fact, so self-evident
that it seems almost beyond the scope of basic questioning:
Where did this inequality come from, who stands to benefit from
maintaining it, and what, if anything, can be done to change
this citywide predicament?

A new book from historian Kim Phillips-Fein argues that the key
to understanding our increasingly stratified metropolis can be
found in the backroom dealings of 1975, as the city was on the
brink of bankruptcy. In Fear City: New York's Fiscal Crisis And
The Rise Of Austerity Politics, Phillips-Fein offers a vivid—and
often exasperating—account of how New York's investment bankers
and political opportunists used the crisis to shape the city in
their own image, gutting necessary social services along the
way, and permanently shrinking the fortunes of the working class.

We spoke with Phillips-Fein about the resurgence of austerity
politics, the challenges of expanding the city's political
imagination, and the Donald Trump-initiated real estate deal
that forever altered New York's relationship to private
development.


042117ford.jpg
via Wikipedia
When most people think about New York in the 1970s, it's the
famous Daily News headline and maybe the images of burnt out
buildings in the South Bronx. As someone who's studied this
period extensively, what pops into your head when you think of
New York in 1975?

What I was struck by working on the period was the really
intense political struggle that is taking place over the future
of the city, which I think both shapes the way that people
understand the disinvestment and abandonment and also serves as
a backdrop for the cultural resurgence. I think there was a
really strong sense in New York in this moment of old ways of
thinking about the city, old expectations and the order of how
things had operated, that that was under attack and collapsing,
and something new was going to come into existence.

There's a sharp struggle amid different groups in the city about
what that would be. And that kind of comes to a head in the
fiscal crisis, but it's happening even before. When people think
of the rubble-strewn lots of the South Bronx, they don't think
about the takeover of Lincoln Hospital by the Young Lords. They
don't think about the protest at Welfare Offices. They don't
think about the protests at City College that expanded access to
CUNY for non-white New Yorkers. And then they also don't think
about the response among elite groups in the city who were, I
think, frightened and upset about the demands that were being
made on the city government.

How would you describe the people who were in charge of laying
this foundational change in the city?

Well, there's a kind of generational conflict that takes places
during the fiscal crisis, and a lot of the people who are
empowered during the crisis are much younger. They are kind of a
generation of professional and well-educated people, many of
whom come from the city's financial and business circles. Felix
Rohatyn [the Lazard investment banker who helped broker deals to
keep the city out of bankruptcy] is probably the most famous of
this group, but it's really a whole contingent of people.

One of the dynamics of the fiscal crisis is that the city's
elected government lost a lot of power that was kind of placed
in these small agencies, which were staffed with people who were
appointed by the governor and included representatives of the
private sector. And more deeply, there's a growing sense in the
city that the city government should be oriented toward finding
ways to subsidize and support economic development as much as it
can. And that it should improve basic urban services and turn it
toward the private sector.

This position comes to be associated with people around the
Manhattan Institute, and people who you might describe as
members of the rising conservative movement, but I think it's
also held widely among liberals who kind of feel like their
backs are against the wall and the only way to save the public
sector is by expanding the aid that is offered to private
development, and that's what they need to do to expand revenue
overall.

There's a quote from Felix Rohatyn in the book warning that the
city would need to undergo "the most brutal kind of financial
and fiscal exercise any community in the country will ever have
to face." Is it fair to say that the people who are championing
these policies are not the ones who will be impacted by them.

Definitely. Another remarkable aspect of the crisis is that
during the cutbacks, you find a lot of people talking about and
relishing how deep they are and how extensive they're going to
be, but not trying to grapple seriously with the impact that
they'll have on the people who would be most affected by them.

You also note in the book that “the crisis provided a way to
change the politics of the city in profound ways without ever
talking about race or class explicitly,” and that the effect was
“a group of almost universally white elites remak[ing] life in a
city that was becoming increasingly black and brown.” How
intentional was this?

I don't think the decision-makers set out to hurt New York's
poor or minorities communities, but I also think there was a
certain level of implicit blame on those communities. There's a
sense that their demands were fueling the city's fiscal
problems, and also a willingness to disregard the reaction of
poor and nonwhite New Yorkers. And yet, what is so powerful and
difficult about the fiscal crisis is that it provides a way of
talking about the public sector and public services that is
totally divorced from a sense of who needs services, who has a
right to them, and whose voices matter. It kind of removes all
of those political demands and turns it into a language of
technocratic, neutral questions about responsibility and the
inevitability of the need for retrenchment in the condition of
scarce resources.

What are some examples of crisis-era policies that we're living
with today?

There are particular things, like the tuition at CUNY—nobody has
really talked about making CUNY free since then, Cuomo's stuff
aside. The idea of a tuition-free city university hasn't come
back. It's hard to imagine this but all the PTA fundraising that
pays for the art and music parts of education, that whole system
was not in play in the same way in the pre-fiscal crisis. It
developed afterward. There's the shrinking of the public
hospitals systems, which some public health scholars have argued
slowed the response to AIDS and also made it difficult to
respond to Tuberculosis in the 80s. Homelessness—again it's not
directly caused by the fiscal crisis—but when Koch took office I
think there were maybe 1,000 people or so in shelters. [Editor's
note: Current estimates put that number at 60,000 on any given
night.] People don't remember that, that this is a recent
problem.

So you can point to these particular ways in which the regime
that existed before the crisis is different than what it is now.
But the biggest shift really is in terms of what people think is
possible for city government, or government more broadly, to
accomplish. And there's a sense today that everything depends on
finding ways to work with the very wealthy, or direct
development, and there might be spin-off benefits for the middle
class or poor people, but that's not what's driving things. And
that's what all social policy at the city level needs to be
geared toward.

You mention that there were some people, such as Donald Trump,
who really benefited from this changing political imagination.
Can you elaborate on the claim that the “fiscal crisis of 1975
made possible the rise of Donald Trump”?

Well, in a literal sense I think that it's true in that Trump's
first big deal in Manhattan was the Commodore Hotel. So the
Commodore Hotel was located near Grand Central Terminal and it
had been owned by the Penn Central Railroad, which went bankrupt
in 1970. The hotel, which had been around since 1919 or so, had
become decrepit and was going to be closed down. It kind of
created this specter of the collapse, on that corner there, near
the library, near Grand Central Station. It just created this
image of the whole area falling into disrepair. So what Trump
wanted to do was to work with the Hyatt Regency and to basically
buy the hotel, sell it back, and then lease it. Thus delaying
paying property taxes on it and effectively getting a subsidy
that since that time has been worth more than $350 million.

This story has been told at different points, and it's often
told in terms of Trump's own willingness to strike a hard
bargain, or his dependency on the public sector and on public
subsidies, all of which is true. But the other thing that is
kind of striking about it is that the city, it's not as though
the city complained about this or was even sheepish about it.
The city government actually trumpets this arrangement—the
Economic Development Administrator describes it as signaling to
the business community that there has been a change. It's meant
to usher in a whole new way of doing business by offering deals
and breaks and subsidies to companies who will develop here.

There's a much broader expansion of different kinds of property
tax incentives for new developers or tax breaks for converting
industrial properties to residential. Or upgrading properties,
like the single room occupancy hotel. So it's part of a whole
wave of using property tax breaks to stimulate development, and
Trump is able to use that to catapult himself onto the Manhattan
real estate scene, and onward and upward from there.

I think the crisis also shaped a lot of Trump's ideas about
cities and about the role that business people should play in
political life in general. The idea that what you really need is
tough executives to come in and clean things up, that sense was
widely embraced during the fiscal crisis. And in some ways the
willingness of business people to ignore democratic protest was
exactly why they were thought to be the right leaders for the
city. So I think you can see some of those ideas playing out for
Trump today, too. But even just his own business career really
hinged on coming in and getting favorable terms from the city as
part of a broader program of economic development.

There has been a lot of talk of what would happen if New York
was to lose federal funding. Do you think we could see a similar
reaction from the city to what happened in the 1970s?

I think the situation would be really different with losing that
money. For one thing, New York gets a lot less money from the
federal government than it did in the mid-1970s. At this point
the federal funds make up 8 to 10 percent of the budget, whereas
in the '70s it was more like 17 to 20 percent. In the mid-'70s,
New York was funding really only about half or slightly more
than half of its own budget. The rest is federal or state
government. New York is actually a lot less reliant on the
federal government than it was then, and that's partially the
product of a shift in federal policy and the move away from the
Great Society/War on Poverty years. Also, the city's budget
office is infinitely better organized than it was in the '70s.
Part of what happened in the fiscal crisis is that people at
really high levels did not understand how much trouble the city
was in. That is not going to happen again in the same way.

But, I do think the loss of the federal funds would be a serious
problem for New York. I think that a lot of that money, the
programs that it's funding are ones that affect poor people most
directly—although a lot of it is going to security too. But
there’s public housing money, the money for Temporary Assistance
for Needy Family, that would be threatened. So yeah it could be
similar, and it doesn't appear that the de Blasio administration
exactly has a solution to this problem. They've said they're
going to tap into reserve, but how they would really respond if
that happened, it's just not clear.

The real challenge to it, politically, is a kind of commitment
to finding alternative ways to fund those services rather than
simply to cut them out altogether. While also challenging the
punitive decision to strip federal funds in that way. I'm not
sure another fiscal crisis would emerge in the same way, but we
could see a social crisis that was similar to what we saw in the
1970s.

<https://gothamist.com/arts-entertainment/how-bankers-
technocrats-used-the-1975-fiscal-crisis-to-permanently-reshape-
nyc>

Joe Biden has turned the United States of America into the New
York City of 1975.

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

By Robert Megna and Laura Schultz
New York State has reached an inflection point. The COVID-19
public health crisis and associated economic fallout has
illuminated structural challenges in the state. At the same
time, the state’s governor and the mayor of New York City have
been in their leadership roles for, collectively, less than a
year. These new leaders will oversee the rebuilding and
reimagining of public infrastructure and economic systems in the
state with the goal of preserving the long term fiscal health of
the State.

To get a better sense of the challenges the state and its
leadership face, we revisited how New York City and the State
addressed the Fiscal Crisis of 1975. In late September 2021, we
invited leaders who navigated the crisis to discuss the
immediate response to the crisis, the longer-term impacts of the
decisions made at the time, and the characteristics effective
leaders demonstrate when managing a crisis.

Moderators:

Marc Shaw, chair of the Advisory Board and senior advisor at the
CUNY Institute for State and Local Governance
Carol Kellerman, former president of the Citizens Budget
Commission
Panelists (roles listed below were those at the time of the
fiscal crisis):

Peter Goldmark, New York State budget director
Dall Forsythe, budget expert on the Emergency Financial Control
Board
Richard Ravitch, chairman of the New York State Urban
Development Corporation
The 1975 Fiscal Crisis

Starting in 1961, New York City was running annual current
account deficits; the City’s revenues could not fund their
current expenditures and debt payments. By 1974, in the midst of
the second recession of the decade, the annual deficit had reach
$487 million. The City maintained spending and services by
borrowing to cover these operating expenditures. In 1974, New
York City borrowed $2.2 billion to offset deficits and finance
other capital projects. In the same year, the City’s outstanding
debt has reached $13.5 billion.

In 1975, the banks reviewed the City’s revenue projections and
decided they would no longer underwrite the notes and bonds of
New York City. The City could no longer borrow money to operate
and by April of 1975, New York City ran out of money. City
leaders turned to the federal government and the State looking
for the funds required to avoid bankruptcy. Eventually, Governor
Hugh Carey agreed to advance the City funds from the State in
exchange for the City turning financial oversight to the State.
The outcome was the creation of the Municipal Assistance
Corporation (MAC). The MAC was authorized to sell bonds to meet
the City’s borrowing needs.

Good Governance Lessons Learned: Transparency and Fiscal
Planning Practices

One of the key contributors to New York City’s fiscal crisis was
inadequate oversight of the City’s finances. In addition to the
creation of the MAC, the New York State Legislature enacted the
Financial Emergency Act (the Act) in the fall of 1975. The Act
implemented several measures to prevent future fiscal problems.
The City was required to budget in accordance with generally
accepted accounting principles. As part of the annual budgeting
process the City was required to submit a budget and a four-year
financial plan. The plans include forecasts of revenues and
expenditures and regular comparisons between actual and
forecasted values. As Dall Forsythe noted, “these good practices
help alleviate the financial risks that cities face. Such
planning practices are critical for dealing with economic
realities such as the ups and downs of the business cycle and
their impact on economically sensitive revenues. The City has a
lot of economically sensitive revenues—now much more than it did
before the fiscal crisis.”

I think the most significant thing that the MAC statute
contained was the provision that the City had to budget in
accordance with Generally Accepted Accounting Principles (GAAP
Accounting).

— Richard Ravitch
The plans are submitted annually to the New York State Financial
Control Board (FCB). Financial statements are audited by outside
public accountants and published. The FCB was responsible for
reviewing and providing oversight of New York’s financial
management, and, initially, all plans, modifications, and
lending were subject to FCB approval.

The crisis necessitated cuts in the programs and services
offered by the city government. Peter Goldmark recalled the
process of making those difficult decisions, however, Carol
Kellermen did note that the FCB, having authority over the
City’s spending, took political pressure off of mayoral
administrations when popular programs needed to be downsized.

The goal was to make sure the necessary cuts did not fall on
individual users or people, but fell on the institutions. As
long as agencies met the macro cuts, they had the flexibility to
decide exactly how to work it out on the ground level. This
minimized the number of people who were fired. The measures
implemented in 1975 held off bankruptcy. The City achieved a
balanced budget in three years (rather than the four required)
and capital markets reopened to the City to finance capital
projects.

The FCB’s role transitioned from approval to review in 1986. Now
the FCB reviews the financial plan quarterly and must be
notified in the event of a change in the plan. The FCB and the
Financial Information Services Agency now play a critical role
in enabling transparency surrounding the City’s fiscal health.

Looking back at it, I think New York City did really a very good
job of working its way out of the problems that it was in and
rebuilding its capacity for financial management.

— Dall Forsythe
Current Fiscal Crisis: MTA

‘Existential’ has been used to describe the fiscal crisis facing
the Metropolitan Transit Authority (MTA). In its July Financial
Plan, the MTA forecasted cash deficits through 2025 totaling
$16.3 billion. The $10.5 billion in federal aid expected will
close the bulk of the deficit with the remainder expected to be
offset through fare and toll increases, deficit financing, and
service reductions.

The MTA finds itself in a precarious position. A year-and-a-half
after the start of the pandemic, ridership has not recovered.
Weekday subway ridership is 47 percent below where it was pre-
pandemic; bus ridership is down 38 percent and commuter rail
lines are down 51 percent. Bridge and tunnel traffic was down an
average of 3 percent on a week day. There is still great
uncertainty about when and if usage will ever reach pre-pandemic
levels.

Even before the pandemic, there were concerns about declines in
MTA service. In June 2017, after years of complaints about
unreliable trains, malfunctions, and a train derailment,
Governor Cuomo declared a State of Emergency and pledged $1
billion in improvements.

While the federal aid is providing a bit of a runway in the
coming months, now is the time to ask, “Do we have the right
system for what we need moving forward?” In January 2020, the
MTA approved a $54.8 billion capital plan that would invest in
the New York City metro region’s subways, buses, railroads,
bridges and tunnels. With new leadership at the state and city
levels and new usage patterns in the post-COVID era, it is
reasonable to ask if all elements of the extensive plan are
still appropriate or if alternative investments would put the
MTA in a better fiscal position in the future. It is also
important to reconsider how public transit is funded in New York
with a transition toward congestion pricing.

Challenges Facing City and State Leadership

The fiscal health of New York State and City are linked, and the
new governor and mayor will have to work together to address
significant challenges. Currently, two thirds of the City’s
budget is dedicated to health, education, and social services,
all of which are regulated by the State. Three challenges the
panelists identified as facing the City and State are: location
decisions, federal tax structures, and decarbonization.

All of these talks and restructuring are going to happen with a
new governor and a new mayor. They are going to have to make
sure that they keep an open mind towards understanding and
working towards the other.

— Peter Goldmark
Overnight, COVID-19 reshaped our major cities as the locational
ties between employment and residence were frayed or severed and
remote work became the norm for many professionals. In the
immediate aftermath, cities saw drops in sales, hotel occupancy,
and business tax revenues. While some of the workforce has
returned to downtowns, others have made a permanent shift to
remote work. It will be years before we understand the long-term
effects of these changes, but many cities are rethinking the
value propositions they offer to residents and businesses.

Shifts in federal, state, and city tax structures may also
contribute to New York’s ability to attract residents. Prior to
COVID-19, over 17 percent (2019) of New York’s personal income
tax revenues were generated by residents of other states who
commuted into the city for work. Given the dramatic changes in
the remote work landscape, the taxability of this income is
being challenged in several court cases and the legal landscape
may change. In addition, the tax structures in New York State
increased the top income tax rate for New York City’s highest
income residents to 10.9 percent. This shift was exacerbated by
the implementation of the State and Local Tax cap by the federal
government in 2018 which limited the deductibility of local
taxes. These changes in recent years, paired with new found
mobility, may result in outmigration of New York City’s
wealthiest residents.

New York City has set a net-zero carbon target for 2050.
Achieving this goal will require significant investments in
renewable energy sources to shift the energy supply to clean
sources. Simultaneously, there must be investments in building
and transportation sectors that lead to more efficient energy
usage. This will include building an infrastructure for electric
vehicles in the city, and the electrification of the city’s
almost one million buildings.

The panelists encouraged both the incoming mayor and governor to
engage with the state’s public authorities to address these
challenges. The public authorities are corporations that were
created to develop and operate New York’s critical
infrastructure. They oversee and invest in local government
infrastructure such as water and sewer, energy, and economic
development. Public authorities are authorized to issue bonds to
fund infrastructure and could be critical tools for making the
investments New York City and State will need to maintain their
long-term fiscal health.

The complete conversation can be found here.

ABOUT THE AUTHORS

Robert Megna is president of the Rockefeller Institute of
Government
Laura Schultz is executive director of research at the
Rockefeller Institute of Government

https://rockinst.org/blog/behind-the-fiscal-curtain-forgotten-
lessons-from-the-1970s-nyc-fiscal-crisis/

Joe Biden has turned the United States of America into the New
York City of 1975.

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

By Robert Megna and Laura Schultz
New York State has reached an inflection point. The COVID-19
public health crisis and associated economic fallout has
illuminated structural challenges in the state. At the same
time, the state’s governor and the mayor of New York City have
been in their leadership roles for, collectively, less than a
year. These new leaders will oversee the rebuilding and
reimagining of public infrastructure and economic systems in the
state with the goal of preserving the long term fiscal health of
the State.

To get a better sense of the challenges the state and its
leadership face, we revisited how New York City and the State
addressed the Fiscal Crisis of 1975. In late September 2021, we
invited leaders who navigated the crisis to discuss the
immediate response to the crisis, the longer-term impacts of the
decisions made at the time, and the characteristics effective
leaders demonstrate when managing a crisis.

Moderators:

Marc Shaw, chair of the Advisory Board and senior advisor at the
CUNY Institute for State and Local Governance
Carol Kellerman, former president of the Citizens Budget
Commission
Panelists (roles listed below were those at the time of the
fiscal crisis):

Peter Goldmark, New York State budget director
Dall Forsythe, budget expert on the Emergency Financial Control
Board
Richard Ravitch, chairman of the New York State Urban
Development Corporation
The 1975 Fiscal Crisis

Starting in 1961, New York City was running annual current
account deficits; the City’s revenues could not fund their
current expenditures and debt payments. By 1974, in the midst of
the second recession of the decade, the annual deficit had reach
$487 million. The City maintained spending and services by
borrowing to cover these operating expenditures. In 1974, New
York City borrowed $2.2 billion to offset deficits and finance
other capital projects. In the same year, the City’s outstanding
debt has reached $13.5 billion.

In 1975, the banks reviewed the City’s revenue projections and
decided they would no longer underwrite the notes and bonds of
New York City. The City could no longer borrow money to operate
and by April of 1975, New York City ran out of money. City
leaders turned to the federal government and the State looking
for the funds required to avoid bankruptcy. Eventually, Governor
Hugh Carey agreed to advance the City funds from the State in
exchange for the City turning financial oversight to the State.
The outcome was the creation of the Municipal Assistance
Corporation (MAC). The MAC was authorized to sell bonds to meet
the City’s borrowing needs.

Good Governance Lessons Learned: Transparency and Fiscal
Planning Practices

One of the key contributors to New York City’s fiscal crisis was
inadequate oversight of the City’s finances. In addition to the
creation of the MAC, the New York State Legislature enacted the
Financial Emergency Act (the Act) in the fall of 1975. The Act
implemented several measures to prevent future fiscal problems.
The City was required to budget in accordance with generally
accepted accounting principles. As part of the annual budgeting
process the City was required to submit a budget and a four-year
financial plan. The plans include forecasts of revenues and
expenditures and regular comparisons between actual and
forecasted values. As Dall Forsythe noted, “these good practices
help alleviate the financial risks that cities face. Such
planning practices are critical for dealing with economic
realities such as the ups and downs of the business cycle and
their impact on economically sensitive revenues. The City has a
lot of economically sensitive revenues—now much more than it did
before the fiscal crisis.”

I think the most significant thing that the MAC statute
contained was the provision that the City had to budget in
accordance with Generally Accepted Accounting Principles (GAAP
Accounting).

— Richard Ravitch
The plans are submitted annually to the New York State Financial
Control Board (FCB). Financial statements are audited by outside
public accountants and published. The FCB was responsible for
reviewing and providing oversight of New York’s financial
management, and, initially, all plans, modifications, and
lending were subject to FCB approval.

The crisis necessitated cuts in the programs and services
offered by the city government. Peter Goldmark recalled the
process of making those difficult decisions, however, Carol
Kellermen did note that the FCB, having authority over the
City’s spending, took political pressure off of mayoral
administrations when popular programs needed to be downsized.

The goal was to make sure the necessary cuts did not fall on
individual users or people, but fell on the institutions. As
long as agencies met the macro cuts, they had the flexibility to
decide exactly how to work it out on the ground level. This
minimized the number of people who were fired. The measures
implemented in 1975 held off bankruptcy. The City achieved a
balanced budget in three years (rather than the four required)
and capital markets reopened to the City to finance capital
projects.

The FCB’s role transitioned from approval to review in 1986. Now
the FCB reviews the financial plan quarterly and must be
notified in the event of a change in the plan. The FCB and the
Financial Information Services Agency now play a critical role
in enabling transparency surrounding the City’s fiscal health.

Looking back at it, I think New York City did really a very good
job of working its way out of the problems that it was in and
rebuilding its capacity for financial management.

— Dall Forsythe
Current Fiscal Crisis: MTA

‘Existential’ has been used to describe the fiscal crisis facing
the Metropolitan Transit Authority (MTA). In its July Financial
Plan, the MTA forecasted cash deficits through 2025 totaling
$16.3 billion. The $10.5 billion in federal aid expected will
close the bulk of the deficit with the remainder expected to be
offset through fare and toll increases, deficit financing, and
service reductions.

The MTA finds itself in a precarious position. A year-and-a-half
after the start of the pandemic, ridership has not recovered.
Weekday subway ridership is 47 percent below where it was pre-
pandemic; bus ridership is down 38 percent and commuter rail
lines are down 51 percent. Bridge and tunnel traffic was down an
average of 3 percent on a week day. There is still great
uncertainty about when and if usage will ever reach pre-pandemic
levels.

Even before the pandemic, there were concerns about declines in
MTA service. In June 2017, after years of complaints about
unreliable trains, malfunctions, and a train derailment,
Governor Cuomo declared a State of Emergency and pledged $1
billion in improvements.

While the federal aid is providing a bit of a runway in the
coming months, now is the time to ask, “Do we have the right
system for what we need moving forward?” In January 2020, the
MTA approved a $54.8 billion capital plan that would invest in
the New York City metro region’s subways, buses, railroads,
bridges and tunnels. With new leadership at the state and city
levels and new usage patterns in the post-COVID era, it is
reasonable to ask if all elements of the extensive plan are
still appropriate or if alternative investments would put the
MTA in a better fiscal position in the future. It is also
important to reconsider how public transit is funded in New York
with a transition toward congestion pricing.

Challenges Facing City and State Leadership

The fiscal health of New York State and City are linked, and the
new governor and mayor will have to work together to address
significant challenges. Currently, two thirds of the City’s
budget is dedicated to health, education, and social services,
all of which are regulated by the State. Three challenges the
panelists identified as facing the City and State are: location
decisions, federal tax structures, and decarbonization.

All of these talks and restructuring are going to happen with a
new governor and a new mayor. They are going to have to make
sure that they keep an open mind towards understanding and
working towards the other.

— Peter Goldmark
Overnight, COVID-19 reshaped our major cities as the locational
ties between employment and residence were frayed or severed and
remote work became the norm for many professionals. In the
immediate aftermath, cities saw drops in sales, hotel occupancy,
and business tax revenues. While some of the workforce has
returned to downtowns, others have made a permanent shift to
remote work. It will be years before we understand the long-term
effects of these changes, but many cities are rethinking the
value propositions they offer to residents and businesses.

Shifts in federal, state, and city tax structures may also
contribute to New York’s ability to attract residents. Prior to
COVID-19, over 17 percent (2019) of New York’s personal income
tax revenues were generated by residents of other states who
commuted into the city for work. Given the dramatic changes in
the remote work landscape, the taxability of this income is
being challenged in several court cases and the legal landscape
may change. In addition, the tax structures in New York State
increased the top income tax rate for New York City’s highest
income residents to 10.9 percent. This shift was exacerbated by
the implementation of the State and Local Tax cap by the federal
government in 2018 which limited the deductibility of local
taxes. These changes in recent years, paired with new found
mobility, may result in outmigration of New York City’s
wealthiest residents.

New York City has set a net-zero carbon target for 2050.
Achieving this goal will require significant investments in
renewable energy sources to shift the energy supply to clean
sources. Simultaneously, there must be investments in building
and transportation sectors that lead to more efficient energy
usage. This will include building an infrastructure for electric
vehicles in the city, and the electrification of the city’s
almost one million buildings.

The panelists encouraged both the incoming mayor and governor to
engage with the state’s public authorities to address these
challenges. The public authorities are corporations that were
created to develop and operate New York’s critical
infrastructure. They oversee and invest in local government
infrastructure such as water and sewer, energy, and economic
development. Public authorities are authorized to issue bonds to
fund infrastructure and could be critical tools for making the
investments New York City and State will need to maintain their
long-term fiscal health.

The complete conversation can be found here.

ABOUT THE AUTHORS

Robert Megna is president of the Rockefeller Institute of
Government
Laura Schultz is executive director of research at the
Rockefeller Institute of Government

https://rockinst.org/blog/behind-the-fiscal-curtain-forgotten-
lessons-from-the-1970s-nyc-fiscal-crisis/

Joe Biden has turned the United States of America into the New
York City of 1975.

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

Edward M. Gramlich
The American Economic Review
Vol. 66, No. 2, Papers and Proceedings of the Eighty-eighth
Annual Meeting of the American Economic Association (May, 1976),
pp. 415-429 (15 pages)
Published By: American Economic Association

https://www.jstor.org/stable/1817255

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

By Robert Megna and Laura Schultz
New York State has reached an inflection point. The COVID-19
public health crisis and associated economic fallout has
illuminated structural challenges in the state. At the same
time, the state’s governor and the mayor of New York City have
been in their leadership roles for, collectively, less than a
year. These new leaders will oversee the rebuilding and
reimagining of public infrastructure and economic systems in the
state with the goal of preserving the long term fiscal health of
the State.

To get a better sense of the challenges the state and its
leadership face, we revisited how New York City and the State
addressed the Fiscal Crisis of 1975. In late September 2021, we
invited leaders who navigated the crisis to discuss the
immediate response to the crisis, the longer-term impacts of the
decisions made at the time, and the characteristics effective
leaders demonstrate when managing a crisis.

Moderators:

Marc Shaw, chair of the Advisory Board and senior advisor at the
CUNY Institute for State and Local Governance
Carol Kellerman, former president of the Citizens Budget
Commission
Panelists (roles listed below were those at the time of the
fiscal crisis):

Peter Goldmark, New York State budget director
Dall Forsythe, budget expert on the Emergency Financial Control
Board
Richard Ravitch, chairman of the New York State Urban
Development Corporation
The 1975 Fiscal Crisis

Starting in 1961, New York City was running annual current
account deficits; the City’s revenues could not fund their
current expenditures and debt payments. By 1974, in the midst of
the second recession of the decade, the annual deficit had reach
$487 million. The City maintained spending and services by
borrowing to cover these operating expenditures. In 1974, New
York City borrowed $2.2 billion to offset deficits and finance
other capital projects. In the same year, the City’s outstanding
debt has reached $13.5 billion.

In 1975, the banks reviewed the City’s revenue projections and
decided they would no longer underwrite the notes and bonds of
New York City. The City could no longer borrow money to operate
and by April of 1975, New York City ran out of money. City
leaders turned to the federal government and the State looking
for the funds required to avoid bankruptcy. Eventually, Governor
Hugh Carey agreed to advance the City funds from the State in
exchange for the City turning financial oversight to the State.
The outcome was the creation of the Municipal Assistance
Corporation (MAC). The MAC was authorized to sell bonds to meet
the City’s borrowing needs.

Good Governance Lessons Learned: Transparency and Fiscal
Planning Practices

One of the key contributors to New York City’s fiscal crisis was
inadequate oversight of the City’s finances. In addition to the
creation of the MAC, the New York State Legislature enacted the
Financial Emergency Act (the Act) in the fall of 1975. The Act
implemented several measures to prevent future fiscal problems.
The City was required to budget in accordance with generally
accepted accounting principles. As part of the annual budgeting
process the City was required to submit a budget and a four-year
financial plan. The plans include forecasts of revenues and
expenditures and regular comparisons between actual and
forecasted values. As Dall Forsythe noted, “these good practices
help alleviate the financial risks that cities face. Such
planning practices are critical for dealing with economic
realities such as the ups and downs of the business cycle and
their impact on economically sensitive revenues. The City has a
lot of economically sensitive revenues—now much more than it did
before the fiscal crisis.”

I think the most significant thing that the MAC statute
contained was the provision that the City had to budget in
accordance with Generally Accepted Accounting Principles (GAAP
Accounting).

— Richard Ravitch
The plans are submitted annually to the New York State Financial
Control Board (FCB). Financial statements are audited by outside
public accountants and published. The FCB was responsible for
reviewing and providing oversight of New York’s financial
management, and, initially, all plans, modifications, and
lending were subject to FCB approval.

The crisis necessitated cuts in the programs and services
offered by the city government. Peter Goldmark recalled the
process of making those difficult decisions, however, Carol
Kellermen did note that the FCB, having authority over the
City’s spending, took political pressure off of mayoral
administrations when popular programs needed to be downsized.

The goal was to make sure the necessary cuts did not fall on
individual users or people, but fell on the institutions. As
long as agencies met the macro cuts, they had the flexibility to
decide exactly how to work it out on the ground level. This
minimized the number of people who were fired. The measures
implemented in 1975 held off bankruptcy. The City achieved a
balanced budget in three years (rather than the four required)
and capital markets reopened to the City to finance capital
projects.

The FCB’s role transitioned from approval to review in 1986. Now
the FCB reviews the financial plan quarterly and must be
notified in the event of a change in the plan. The FCB and the
Financial Information Services Agency now play a critical role
in enabling transparency surrounding the City’s fiscal health.

Looking back at it, I think New York City did really a very good
job of working its way out of the problems that it was in and
rebuilding its capacity for financial management.

— Dall Forsythe
Current Fiscal Crisis: MTA

‘Existential’ has been used to describe the fiscal crisis facing
the Metropolitan Transit Authority (MTA). In its July Financial
Plan, the MTA forecasted cash deficits through 2025 totaling
$16.3 billion. The $10.5 billion in federal aid expected will
close the bulk of the deficit with the remainder expected to be
offset through fare and toll increases, deficit financing, and
service reductions.

The MTA finds itself in a precarious position. A year-and-a-half
after the start of the pandemic, ridership has not recovered.
Weekday subway ridership is 47 percent below where it was pre-
pandemic; bus ridership is down 38 percent and commuter rail
lines are down 51 percent. Bridge and tunnel traffic was down an
average of 3 percent on a week day. There is still great
uncertainty about when and if usage will ever reach pre-pandemic
levels.

Even before the pandemic, there were concerns about declines in
MTA service. In June 2017, after years of complaints about
unreliable trains, malfunctions, and a train derailment,
Governor Cuomo declared a State of Emergency and pledged $1
billion in improvements.

While the federal aid is providing a bit of a runway in the
coming months, now is the time to ask, “Do we have the right
system for what we need moving forward?” In January 2020, the
MTA approved a $54.8 billion capital plan that would invest in
the New York City metro region’s subways, buses, railroads,
bridges and tunnels. With new leadership at the state and city
levels and new usage patterns in the post-COVID era, it is
reasonable to ask if all elements of the extensive plan are
still appropriate or if alternative investments would put the
MTA in a better fiscal position in the future. It is also
important to reconsider how public transit is funded in New York
with a transition toward congestion pricing.

Challenges Facing City and State Leadership

The fiscal health of New York State and City are linked, and the
new governor and mayor will have to work together to address
significant challenges. Currently, two thirds of the City’s
budget is dedicated to health, education, and social services,
all of which are regulated by the State. Three challenges the
panelists identified as facing the City and State are: location
decisions, federal tax structures, and decarbonization.

All of these talks and restructuring are going to happen with a
new governor and a new mayor. They are going to have to make
sure that they keep an open mind towards understanding and
working towards the other.

— Peter Goldmark
Overnight, COVID-19 reshaped our major cities as the locational
ties between employment and residence were frayed or severed and
remote work became the norm for many professionals. In the
immediate aftermath, cities saw drops in sales, hotel occupancy,
and business tax revenues. While some of the workforce has
returned to downtowns, others have made a permanent shift to
remote work. It will be years before we understand the long-term
effects of these changes, but many cities are rethinking the
value propositions they offer to residents and businesses.

Shifts in federal, state, and city tax structures may also
contribute to New York’s ability to attract residents. Prior to
COVID-19, over 17 percent (2019) of New York’s personal income
tax revenues were generated by residents of other states who
commuted into the city for work. Given the dramatic changes in
the remote work landscape, the taxability of this income is
being challenged in several court cases and the legal landscape
may change. In addition, the tax structures in New York State
increased the top income tax rate for New York City’s highest
income residents to 10.9 percent. This shift was exacerbated by
the implementation of the State and Local Tax cap by the federal
government in 2018 which limited the deductibility of local
taxes. These changes in recent years, paired with new found
mobility, may result in outmigration of New York City’s
wealthiest residents.

New York City has set a net-zero carbon target for 2050.
Achieving this goal will require significant investments in
renewable energy sources to shift the energy supply to clean
sources. Simultaneously, there must be investments in building
and transportation sectors that lead to more efficient energy
usage. This will include building an infrastructure for electric
vehicles in the city, and the electrification of the city’s
almost one million buildings.

The panelists encouraged both the incoming mayor and governor to
engage with the state’s public authorities to address these
challenges. The public authorities are corporations that were
created to develop and operate New York’s critical
infrastructure. They oversee and invest in local government
infrastructure such as water and sewer, energy, and economic
development. Public authorities are authorized to issue bonds to
fund infrastructure and could be critical tools for making the
investments New York City and State will need to maintain their
long-term fiscal health.

The complete conversation can be found here.

ABOUT THE AUTHORS

Robert Megna is president of the Rockefeller Institute of
Government
Laura Schultz is executive director of research at the
Rockefeller Institute of Government

https://rockinst.org/blog/behind-the-fiscal-curtain-forgotten-
lessons-from-the-1970s-nyc-fiscal-crisis/

Joe Biden has turned the United States of America into the New
York City of 1975.

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

Edward M. Gramlich
The American Economic Review
Vol. 66, No. 2, Papers and Proceedings of the Eighty-eighth
Annual Meeting of the American Economic Association (May, 1976),
pp. 415-429 (15 pages)
Published By: American Economic Association

https://www.jstor.org/stable/1817255

[v***@at.BioStrategist.dot.dot.com]

ca 2002 Frank Macchiarola made me read Sayre & Kaufman Governing New York,
written two years before I was born. In it I noticed a generational cycle
where Wall Street crashes, the adventurous move out, the unions demand their
givebacks back, and the elites decide police and infrastructure are
irrelevant compared to social spending, then the property collapses so the
property firms roll up properties real cheap and begin rebulding with
depressed labor, the low prices bring in a new flock of adventurous, who
elect moderate politicians, leading to a boom, just in time for the rebuild
to be sold at astronomically high prices. After living through this cycle a
THIRD time, I begin to believe the property firms at least encourage if not
deliberately design the wide cyclical swings (and their political currents)
to their advantage. Now, go to Schiller's property cycle charts at Yale and
see that property collapsed by a third during the last pandemic only to
revive in 1923 (2025?).

[Socialist Blue Cities]

Socialists are the Democrat fed termites of every decent society.

Another week, another study confirming what everyone already
knows: New York City is a playground for the rich, and a
hellscape for the poor. It's a stubborn fact, so self-evident
that it seems almost beyond the scope of basic questioning:
Where did this inequality come from, who stands to benefit from
maintaining it, and what, if anything, can be done to change
this citywide predicament?

A new book from historian Kim Phillips-Fein argues that the key
to understanding our increasingly stratified metropolis can be
found in the backroom dealings of 1975, as the city was on the
brink of bankruptcy. In Fear City: New York's Fiscal Crisis And
The Rise Of Austerity Politics, Phillips-Fein offers a vivid—and
often exasperating—account of how New York's investment bankers
and political opportunists used the crisis to shape the city in
their own image, gutting necessary social services along the
way, and permanently shrinking the fortunes of the working class.

We spoke with Phillips-Fein about the resurgence of austerity
politics, the challenges of expanding the city's political
imagination, and the Donald Trump-initiated real estate deal
that forever altered New York's relationship to private
development.


042117ford.jpg
via Wikipedia
When most people think about New York in the 1970s, it's the
famous Daily News headline and maybe the images of burnt out
buildings in the South Bronx. As someone who's studied this
period extensively, what pops into your head when you think of
New York in 1975?

What I was struck by working on the period was the really
intense political struggle that is taking place over the future
of the city, which I think both shapes the way that people
understand the disinvestment and abandonment and also serves as
a backdrop for the cultural resurgence. I think there was a
really strong sense in New York in this moment of old ways of
thinking about the city, old expectations and the order of how
things had operated, that that was under attack and collapsing,
and something new was going to come into existence.

There's a sharp struggle amid different groups in the city about
what that would be. And that kind of comes to a head in the
fiscal crisis, but it's happening even before. When people think
of the rubble-strewn lots of the South Bronx, they don't think
about the takeover of Lincoln Hospital by the Young Lords. They
don't think about the protest at Welfare Offices. They don't
think about the protests at City College that expanded access to
CUNY for non-white New Yorkers. And then they also don't think
about the response among elite groups in the city who were, I
think, frightened and upset about the demands that were being
made on the city government.

How would you describe the people who were in charge of laying
this foundational change in the city?

Well, there's a kind of generational conflict that takes places
during the fiscal crisis, and a lot of the people who are
empowered during the crisis are much younger. They are kind of a
generation of professional and well-educated people, many of
whom come from the city's financial and business circles. Felix
Rohatyn [the Lazard investment banker who helped broker deals to
keep the city out of bankruptcy] is probably the most famous of
this group, but it's really a whole contingent of people.

One of the dynamics of the fiscal crisis is that the city's
elected government lost a lot of power that was kind of placed
in these small agencies, which were staffed with people who were
appointed by the governor and included representatives of the
private sector. And more deeply, there's a growing sense in the
city that the city government should be oriented toward finding
ways to subsidize and support economic development as much as it
can. And that it should improve basic urban services and turn it
toward the private sector.

This position comes to be associated with people around the
Manhattan Institute, and people who you might describe as
members of the rising conservative movement, but I think it's
also held widely among liberals who kind of feel like their
backs are against the wall and the only way to save the public
sector is by expanding the aid that is offered to private
development, and that's what they need to do to expand revenue
overall.

There's a quote from Felix Rohatyn in the book warning that the
city would need to undergo "the most brutal kind of financial
and fiscal exercise any community in the country will ever have
to face." Is it fair to say that the people who are championing
these policies are not the ones who will be impacted by them.

Definitely. Another remarkable aspect of the crisis is that
during the cutbacks, you find a lot of people talking about and
relishing how deep they are and how extensive they're going to
be, but not trying to grapple seriously with the impact that
they'll have on the people who would be most affected by them.

You also note in the book that “the crisis provided a way to
change the politics of the city in profound ways without ever
talking about race or class explicitly,” and that the effect was
“a group of almost universally white elites remak[ing] life in a
city that was becoming increasingly black and brown.” How
intentional was this?

I don't think the decision-makers set out to hurt New York's
poor or minorities communities, but I also think there was a
certain level of implicit blame on those communities. There's a
sense that their demands were fueling the city's fiscal
problems, and also a willingness to disregard the reaction of
poor and nonwhite New Yorkers. And yet, what is so powerful and
difficult about the fiscal crisis is that it provides a way of
talking about the public sector and public services that is
totally divorced from a sense of who needs services, who has a
right to them, and whose voices matter. It kind of removes all
of those political demands and turns it into a language of
technocratic, neutral questions about responsibility and the
inevitability of the need for retrenchment in the condition of
scarce resources.

What are some examples of crisis-era policies that we're living
with today?

There are particular things, like the tuition at CUNY—nobody has
really talked about making CUNY free since then, Cuomo's stuff
aside. The idea of a tuition-free city university hasn't come
back. It's hard to imagine this but all the PTA fundraising that
pays for the art and music parts of education, that whole system
was not in play in the same way in the pre-fiscal crisis. It
developed afterward. There's the shrinking of the public
hospitals systems, which some public health scholars have argued
slowed the response to AIDS and also made it difficult to
respond to Tuberculosis in the 80s. Homelessness—again it's not
directly caused by the fiscal crisis—but when Koch took office I
think there were maybe 1,000 people or so in shelters. [Editor's
note: Current estimates put that number at 60,000 on any given
night.] People don't remember that, that this is a recent
problem.

So you can point to these particular ways in which the regime
that existed before the crisis is different than what it is now.
But the biggest shift really is in terms of what people think is
possible for city government, or government more broadly, to
accomplish. And there's a sense today that everything depends on
finding ways to work with the very wealthy, or direct
development, and there might be spin-off benefits for the middle
class or poor people, but that's not what's driving things. And
that's what all social policy at the city level needs to be
geared toward.

You mention that there were some people, such as Donald Trump,
who really benefited from this changing political imagination.
Can you elaborate on the claim that the “fiscal crisis of 1975
made possible the rise of Donald Trump”?

Well, in a literal sense I think that it's true in that Trump's
first big deal in Manhattan was the Commodore Hotel. So the
Commodore Hotel was located near Grand Central Terminal and it
had been owned by the Penn Central Railroad, which went bankrupt
in 1970. The hotel, which had been around since 1919 or so, had
become decrepit and was going to be closed down. It kind of
created this specter of the collapse, on that corner there, near
the library, near Grand Central Station. It just created this
image of the whole area falling into disrepair. So what Trump
wanted to do was to work with the Hyatt Regency and to basically
buy the hotel, sell it back, and then lease it. Thus delaying
paying property taxes on it and effectively getting a subsidy
that since that time has been worth more than $350 million.

This story has been told at different points, and it's often
told in terms of Trump's own willingness to strike a hard
bargain, or his dependency on the public sector and on public
subsidies, all of which is true. But the other thing that is
kind of striking about it is that the city, it's not as though
the city complained about this or was even sheepish about it.
The city government actually trumpets this arrangement—the
Economic Development Administrator describes it as signaling to
the business community that there has been a change. It's meant
to usher in a whole new way of doing business by offering deals
and breaks and subsidies to companies who will develop here.

There's a much broader expansion of different kinds of property
tax incentives for new developers or tax breaks for converting
industrial properties to residential. Or upgrading properties,
like the single room occupancy hotel. So it's part of a whole
wave of using property tax breaks to stimulate development, and
Trump is able to use that to catapult himself onto the Manhattan
real estate scene, and onward and upward from there.

I think the crisis also shaped a lot of Trump's ideas about
cities and about the role that business people should play in
political life in general. The idea that what you really need is
tough executives to come in and clean things up, that sense was
widely embraced during the fiscal crisis. And in some ways the
willingness of business people to ignore democratic protest was
exactly why they were thought to be the right leaders for the
city. So I think you can see some of those ideas playing out for
Trump today, too. But even just his own business career really
hinged on coming in and getting favorable terms from the city as
part of a broader program of economic development.

There has been a lot of talk of what would happen if New York
was to lose federal funding. Do you think we could see a similar
reaction from the city to what happened in the 1970s?

I think the situation would be really different with losing that
money. For one thing, New York gets a lot less money from the
federal government than it did in the mid-1970s. At this point
the federal funds make up 8 to 10 percent of the budget, whereas
in the '70s it was more like 17 to 20 percent. In the mid-'70s,
New York was funding really only about half or slightly more
than half of its own budget. The rest is federal or state
government. New York is actually a lot less reliant on the
federal government than it was then, and that's partially the
product of a shift in federal policy and the move away from the
Great Society/War on Poverty years. Also, the city's budget
office is infinitely better organized than it was in the '70s.
Part of what happened in the fiscal crisis is that people at
really high levels did not understand how much trouble the city
was in. That is not going to happen again in the same way.

But, I do think the loss of the federal funds would be a serious
problem for New York. I think that a lot of that money, the
programs that it's funding are ones that affect poor people most
directly—although a lot of it is going to security too. But
there’s public housing money, the money for Temporary Assistance
for Needy Family, that would be threatened. So yeah it could be
similar, and it doesn't appear that the de Blasio administration
exactly has a solution to this problem. They've said they're
going to tap into reserve, but how they would really respond if
that happened, it's just not clear.

The real challenge to it, politically, is a kind of commitment
to finding alternative ways to fund those services rather than
simply to cut them out altogether. While also challenging the
punitive decision to strip federal funds in that way. I'm not
sure another fiscal crisis would emerge in the same way, but we
could see a social crisis that was similar to what we saw in the
1970s.

<https://gothamist.com/arts-entertainment/how-bankers-
technocrats-used-the-1975-fiscal-crisis-to-permanently-reshape-
nyc>

Joe Biden has turned the United States of America into the New
York City of 1975.