These members don't have fixed terms and serve at the pleasure of the governor. An indication of the sheer size effect is given by the fact that there are now about 450,000 full and part-time city government employees in New York City. Homeless persons and drug dealers occupied b… In 1972, the City of New York sent $130 million in aid revenues to New York State (adjusted for inflation into $2017), according to data recorded by the U.S. Census Bureau as part of the 1972 Census of Governments. A panicked PBA came hurrying back for more. To given an idea of the effect of inflation, in 1980 the MTA offered the transit workers union (TWU) a 10.5% pay raise over three years. The Long Crisis builds upon prior studies by Kim Phillips-Fein, Miriam Greenberg, Jonathan Soffer, Robert Fitch, and Kim Moody, among others, that depict the New York City fiscal crisis of the 1970s as the crucible in which a new political, economic, and spatial order was mercilessly forged. "That's the nature of politics in a democracy. The board played a prominent role during the city's last fiscal crisis in the 1970s, when it wielded broad legal power over the city's budget and made difficult spending decisions. As a backstop, New York City Mayor Bill de Blasio asked state lawmakers for authorization to borrow up to $5 billion to fund operating costs. He recalled an instance when former Mayor Ed Koch railed against the control board's cuts on television, and then privately told him, "thank God. This dissertation is a history of the 1975 New York City fiscal crisis. The service cut? The cost of all these deals was shifted to the future. Hugh Carey by Seymour Lachman and Robert Polner, entitled “The Man Who Saved New York City.” The authors recount how Carey’s determined and creative leadership brought New York back from the brink of civic and financial catastrophe. Debt that was to be paid in full. The myth of shared sacrifice, by those who in fact merely negotiated which sacrifices to impose on others, continues to be re-told. By labor, they mean unionized public employees. It’s a game plan, somewhere in a tablet written in gold leaf. What happened at the time is described in the book While America Aged by finance industry critic Roger Lowenstein. Kim Phillips-Fein shows how New York became the testing ground for market-based responses to urban problems. New York City fears return to 1970s. It would be far worse if Federal Reserve policy did not drive interest rates down close to zero, and inflate stock and bond prices making the city’s public employee pension funds appear better funded than they actually are. That was upended weeks later as the city shut down to slow the spread of the virus, which ultimately killed more than 23,600 residents. Property in large areas of the city was abandoned, and life expectancy fell. New York in the 1970s Combined with substantial cuts in law enforcement and citywide unemployment topping ten percent, crime and financial crisis became the dominant themes of the decade. In reality New York City recovered because things happened that those negotiating over its corpse could not have expected. Not other workers living or working in the city. New York City has benefited from a strong economy over the last two decades, and the board, which reviews its annual budget, has signed off each year without a problem. By the final quarter of 2019, the city's unemployment rate was at a record low of 4%, wages and earnings were up, and economic growth surpassed that of the rest of the country, according to a report released in March by the comptroller's office. The MTA plans to pledge decades of that revenue into the future to borrow even more now. Those negotiating to “save the city” may have gotten every penny they promised themselves, but the pennies weren’t worth as much. So that future city residents and businesses would not be forced to pay for them. After investors realized they might not be getting paid back, those interest payments jumped to $3.4 billion in FY 1977, back when the Bronx was Burning. Meanwhile, funding for the MTA capital plan pretty much halted after 2010, leading to a “state of emergency” of collapsing service by 2014. ______________________________________________________________________________________________. "I don't want us to overstate the parallel," the Democratic mayor said. Meanwhile, working young adults who did not require much in public services – who were not poor, did not have children in public schools, did not have health or social problems, did not commit crimes, and lived in Manhattan and were therefore able to travel to work without using the collapsing subway system, moved in. John Levin, chief executive of asset-management firm Levin Capital Strategies LP, said he was surprised that Mr. Cuomo had decided to replace him on the board. When I discuss how much worse off later-born generations have been with my mother, she knows exactly who to blame. It may not have another boom like this, compared with the rest of the country, for another century. Otherwise, New York City would not have recovered. … The largest Chapter 9 bankruptcy in United States history was Detroit, Michigan. They can try to get the rest of their money from former residents, former businesses, and former politicians instead. A popular song by Cashman & West in the autumn of 1972, "American City Suite", chronicled, in allegorical fashion, the decline in the city's quality of life. You can see the way this works in the MTA’s proposed “doomsday budget.” The budget cut? They are all implicated in what they have collectively done – in this city for the second time. It was 14 percent, triple tax free. Meanwhile in 1970 New York City accounted for 32.9% of New York State’s public school children, and 42.8% of New York State personal income tax revenues, but it received only 26.1% of state school aid revenues. The city had to cut billions to balance its latest budget, but it still has major funding challenges. Decades later, some city services hadn’t fully recovered. New York City faces a $9 billion ... Mr. Cuomo appointed three close allies to the New York State Financial Control Board. In this bankruptcy, pensioners of the city were paid around 82 cents on the dollar, and holders of unlimited tax general obligation (ULTGO) bonds around 75 cents on the dollar. Richard Ravitch, who as an aide to former Gov. The public unions took more and more and became richer and richer, even as the city became poorer and poorer. They can try to get the rest of from other retirees now living in other states, or the politicians who voted for them. By 2017, the City of New York’s interest and pension costs had already soared to 3.0% of its residents’ personal income. And since it is employees with less seniority who are expected to work, and because new employees earn so much less than those later in their career, the services provided by the city’s unionized public employees plunged by vastly more than the budget was cut. How Did New York City Government Recover from the 1970s Fiscal Crisis? https://abcnews.go.com/US/wireStory/banker-york-city-savior-felix-rohatyn-dies-91-67736578. The equivalent of the mortgage freeze-up that started in August 2007, about a year before the late 2008 collapse. In just five years from 1969 to 1974, the city lost over 500,000 manufacturing jobs, which resulted in over one million households being dependent on welfare by 1975. They have failed to fund the renewal of the transit system, loading it with debt and leaving it in a downward spiral. One seat was vacant, and the remaining private members were appointed by former Govs. The rest of New York State, under the leadership of Governor Hugh Carey, agreed to shift resources to NYC. Much of the city was redlined in response, by both mortgage lenders and property insurers. Lawrence Golub, CEO of lending firm Golub Capital, also was replaced on the board. The New York City financial crisis of the mid-1970s (Based on an article in The Workers' Advocate, June 24, 1976) . So did property owners, who saw the value of their homes and commercial buildings, and the rents they could get for them, plunge to levels that made the city attractive to new people and new businesses, despite high taxes and a lack of public services. The response of a Lindsay aide to one such pension demand was memorable. Remember, the average state and local government tax burden in the U.S. has been in proximity to 10.0% of personal income for decades – though for New York it has been much higher. …$50,000 in bond interest payments or annual pension benefits promised in 1970, when the Lindsay Administration was running up debts and retroactively increasing pensions, bought only $23,458 worth of goods and services in 1980, a decade later. In 1977, with the NYC undergoing an economic and social collapse, it still accounted for 32.5% of New York’s State public school children, but it was down to 36.9% of New York State personal income tax revenues. So now what? He declined to comment through a spokeswoman. Including right now. Most state governments provide aid revenues to local governments, allowing some transfer of funds from richer to poorer localities. In reality New York City recovered because things happened that those negotiating over its corpse could not have expected. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1470515/. They got their comeuppance after all. The forecast was far bleaker than the one he gave at the control board's Aug. 6 meeting, where he said the city's fiscal condition wasn't as bad as prior years. Those who benefitted from those soaring costs were able to escape them just by leaving. With coffers set to run dry before 2021, MTA may be forced to borrow more for survival. The City of New York, then run by Mayor Ed Koch, could reduce its  “real” labor costs just by refusing to sign new contracts. By cutting deal after deal with themselves and forcing others to pay for them, New York’s political/union class, like the executive/financial class, has gotten richer and richer compared with the serfs. A game of leapfrog ensued. Thanks to additional workers with jobs and businesses locating in the city, and the effect of inflation on past debt and pension obligations, the cost of City of New York interest and pension contributions fell to just 2.5% of personal income by 1979, and just 1.8% by the year 2000. The legend has it that New York City avoided bankruptcy, and recovered to become the thriving city it was until recently, because all of its interest groups got together and agreed to “shared sacrifice.”  The public employee unions agreed to contract givebacks, and having their pension funds invested in the city’s bonds. The story of how we averted disaster is grippingly told in a new biography of Gov. In 1966 the Patrolmen’s Benevolent Association won full pensions (that is equal to their full salaries) after 35 years. Well that is what actually happened to allow the City of New York to recover from the 1970s. The TWU, which had set off the pension bandwagon, demanded that it not be left behind…. “We took all their was to take,” they said. But a spokesman for Mr. de Blasio, Bill Neidhardt, said the city was "not concerned" with the new appointments. Despite this boom, despite soaring tax revenues, the City and State of New York still are once again leaving the poorer people who will still be here in the future with huge bonded debts. He is the CEO of Golub Capital, not the president. All those pension increases would be paid in full, every last dime, and exempted from the rising city and state incomes taxes needed to fund them. I recall hearing the leaders of the Transit Workers Union on the radio in the 1990s, explaining why their members should ratify the latest labor agreement. The public unions agreed to have some of the pension fund money was invested in city bonds, but the state constitution guaranteed the pensions would have to be paid in full regardless of the consequences for those still living in the city, so there was no real risk. That period of control lasted until 1986, when the board's role shifted into one of review. Terms of Service apply. "A lot of the same things that occurred in 1975 are reoccurring," Mr. Mujica said. The poor were left to suffer and die unaided, with the Bag Ladies dying in the street, the schools collapsed, the infrastructure deteriorated, the police allowed city residents to be victimized by crime on a large scale, and the streets and parks filled with garbage. In reality, nothing. It was, and is, the executive/financial class, the political/union class, and the serfs. Privacy Policy and Not one of the purported next Mayors or Governors, and neither of the two major political parties, qualify. https://larrylittlefield.wordpress.com/2020/03/17/federal-reserve-z1-data-for-2019-the-debt-driven-party-had-to-end-eventually-coronavirus-or-no-coronavirus/. It’s state school aid? As for the banks and financial companies, and wealthy individuals, they had lent the city money without doing much due diligence because they got a really rich deal, with high levels of interest that were exempt from federal, state and city income taxes. https://larrylittlefield.wordpress.com/2017/07/29/long-term-pension-data-for-new-york-and-new-jersey-to-2016-teacher-pensions/. If each was married, Based on deals that not only pre-date COVID-19 but in most cases pre-date the DeBlasio Administration, though DeBlasio made sure the beneficiaries of those deals gave nothing back. The city's subway system was regarded as unsafe due to crime and suffered frequent mechanical breakdowns. The real value of that $50,000 would continue to fall thereafter, though at a slower rate. The banks agreed to roll over the city’s debts. Those of Mayor Lindsay’s time could say it was a mistake. https://www.nytimes.com/2020/09/28/nyregion/nyc-budget-coronavirus.html New York City’s share of the state’s school aid would only catch up to its share of public school children in the mid-2000s, and even then only as part of a deal to (once again) retroactively increase teacher pensions, sucking all that money (and more) out of the classroom. According to data reported to the U.S. Census Bureau at the time, as part of the Census of Governments, adjusted for inflation into 2017 dollars, New York City’s pension benefit payments increased from $2.00 billion in FY 1967 to $2.99 billion in FY 1972 to $3.41 billion in 1977, nearly doubling in a decade. That’s what “saving New York City” really meant – soaring taxes and collapsing services over several years, instead of bankruptcy in year one. By 1975 that had soared to 27.9% more than the average private sector worker. ", Write to Jimmy Vielkind at Jimmy.Vielkind@wsj.com and Katie Honan at Katie.Honan@wsj.com. The DeBlasio Administration, like Lindsay and Rockefeller, Giuliani and Pataki, Bloomberg and Spitzer, and Cuomo, has given away the store the special interests he hoped would back his campaign for higher office. A control period must be approved by the state Legislature. If NYC had gone bankrupt maybe all the other stuff after that, here and elsewhere, in the public and private sectors, would not have happened. NYC in Chaos. Meanwhile, as the better off – including active and retired public employees – fled, the total personal income of all city residents left behind, also inflation-adjusted, fell from $275 billion in 1972 to just $235 billion in 1980. “If you have this momentum that we seem to be developing, that’s just going to erode the city’s credibility to sell itself,” said James Whelan, president of the Real Estate Board of New York. During the late 1970s and early 1980s the wages of active public employees, and the pension benefits of retired public employees, were in fixed dollars that inflation was causing to be worth less every year. Including the neighborhood where I have lived since 1986. https://www.huffpost.com/entry/the-impact-of-the-economi_b_285825 “Fear City is the best account of the New York City fiscal crisis of the 1970s and, more than that, an indispensable contribution to understanding the rise of austerity economics and the long decline of the public sector. https://nymag.com/.../09/what-everyone-gets-wrong-about-70s-new-york.html And it was. Continue reading → This site is protected by reCAPTCHA and the Google The unions also agreed to have some portion of their near-bankruptcy year salaries deferred by a few years, an off-the-books debt that was also paid in full. The interest rate city residents had to pay on those bonds? It would remain below $8 billion until 2005. Mr. Levin, who was appointed by Mr. Pataki in 1997, said the new appointees were qualified but believed independent private members could raise important policy and accounting issues. By FY 1977 that had jumped to 3.4% of their personal income. To avoid being forced to share in the sacrifices, the city’s banks and wealthy agreed to roll over the city’s debts, in effect lending New York City even more money at high interest rates to avoid a short term crisis. This post will explain, and use data to show, that high inflation was real reason New York City recovered from the 1970s fiscal crisis. The mayor's relationship with Mr. Cuomo is contentious, as both leaders jockeyed over decisions at the start of the pandemic. They continue to get the same in wages and salaries, and more and more in health and pension benefits, even if the other people who are forced to pay for it are getting poorer and poorer. The teachers got an even richer settlement – a pension of more than half pay after just 25 years (a rather short career for a white collar professional). Imagine that today some future group of politicians were to tell New York City’s public employee unions that all those retroactive pension increases, for workers who already got the richest pensions to start with, were unjust, and the rest of the workers, who have been made poorer, were only going to pay half of them. What about everyone else? The State of New York was, in effect, allowing the City of New York City to borrow money to send to the State of New York, at 14.0% interest. This post will explain, and use data to show, that high inflation was real reason New York City recovered from the 1970s fiscal crisis. The ordinary New Yorkers outside the room then made all the sacrifices required to pay back every dime, and then some, in higher taxes and collapsing public services. Prostitutes and pimps frequented Times Square, while Central Parkbecame feared as the site of muggings and rapes. The panel was created in 1975 after years of borrowing to cover operating deficits brought New York City to the brink of bankruptcy. All in all, costs from the past, with no public services in exchange, cost New York City residents 2.0% of their personal income in taxes in FY 1972. © Copyright 2021 Morningstar, Inc. All rights reserved. Thus providing time for the tax increases and public services collapse required to pay that money back to take place. The sanitation workers, arguing they were also uniformed, got four pension sweeteners over the mid-1960s, vaulting them to a half pension after twenty years and virtual parity with the firemen and cops. If the New York City had in fact gone bankrupt, like Detroit, it is likely that some of those city debts, run up by those leaving for the suburbs, would have been wiped out. And layoffs of later-hired public employees. They and everyone else certainly has “taken all there is to take” out of the MTA as to today. ... New York City fears reliving a more recent decade that ... as the tax-exempt bond market has been caught up in the broader financial market crisis. All while all those retroactively enriched pensions and debts get paid in full, to those leaving the city for the suburbs or Florida. Governor Carey had the state back Municipal Assistance Corporation bonds, allowing the city to go deeper in debt and keep the lights on. Claiming there was “plenty of money.”  The budget crisis was not “caused by the pandemic,” but by an inevitable correction in the national and local economy that COVID-19 has merely accelerated. They agreed to get every dime, as noted. "I think that having people on the board who are not responsive to political constituencies has an important role," he said. These powerful players made the sacrifices, and ordinary New Yorkers reaped the benefits. It is only going to pay half. By the next Census of Governments in FY 1977, that figure had soared to $8.66 billion. The employment cut through layoffs? “When would we have to start paying for it?”  Told that due to the peculiarities of the pension calendar, an increase would not affect the budget until three years later, by which time Lindsay would be serving out his final year, the aide breezily approved it. Either New York City’s debt and pension obligations fall by at least half, so that future residents and businesses are not forced to pay for past plunder, with rents and property values falling by perhaps as much, or the destruction of New York City that seemed possible in the 1970s might very well occur. Noted Lowenstein since monies owed to pension plans (unlike wages and salaries) could be deferred, the pensions provided temporary cover for budget makers…When that no longer sufficed, the city began to patch the budget with short term loans. This policy, dating from the 1960s, was intended to ensure that middle class Baby Boomers moving to the suburbs would not have to pay as much for the poor people and seniors in nursing homes left behind in places such as New York City. https://larrylittlefield.wordpress.com/2020/09/13/the-bureau-of-economic-analysis-on-state-and-local-government-pension-funding/. Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Mr. Cuomo, a Democrat, has grown concerned about the direction of the city budget, state Budget Director Robert Mujica said in an interview. And a city, state and MTA budget crisis, with service cuts and tax increases, was already underway last year. And unless we get a dose of hyper-inflation, I wouldn’t expect that relief to happen the same way it did back them. Then, in 1975, lenders stopped the game, and the city ran out of people and institutions to borrow from. So now what? __________________________________________________________________________________________. Greatest Pre-2013 Hits From the Old Room Eight Blog, The Most Recent Public Finance Analyses, Charts and Tables, new york state legislature corruption, dean skelos, sheldon silver. The city filed on July 18, 2013, for relief on approximately $18-20bn in debt outstanding. The growing economic crisis, brought on by the coronavirus pandemic, has alarmed New York Gov. Andrew Cuomo so much that he recently asserted greater control over a panel overseeing the finances of the nation's largest city. This article was corrected on August 24, 2020 because the original misstated Lawrence Golub's title. The city became unlivable. For over a year, New York City, the headquarters of the U.S. financial oligarchy, has been in the grips of a severe financial crisis. ", "We need an institution that is, to some degree, removed from politics that elected officials can blame for cutting expenses," Mr. Ravitch said. New York State uniquely forces its localities to pay a large amount of aid revenues to the state government, specifically for social programs such as Medicaid and Welfare. Now, the board can recommend a period of control if the city's budget is more than $100 million out of balance, if it doesn't make a debt service payment on time, or if it loses access to credit markets. Poisonous to property values and rents, it influences decisions by ordinary people and CEOs about whether to be in New York. It would then fall further. The unemployment rate was nearly 20% in June. The City of New York paid half and less by paying a fixed amount in dollars, as the value of the dollar fell by half from 1970 to 1980, as a result of inflation. Democrats who control the state Senate objected, and the request hasn't been granted. Note, I didn’t create a new spreadsheet with the data and charts in this post, since some of it was already in a spreadsheet from the earlier compilation of data from the 2017 Census of Governments. And the federal government, after initially telling New York City to “Go to Hell,” finally decided it had sacrificed enough and agreed to a bailout. The slowdown was already underway in early 2019, with a financial crisis starting (in the repo market) in late 2019. As one can see by using the Consumer Price Index calculator from the Bureau of Labor Statistics, https://www.bls.gov/data/inflation_calculator.htm. Adjusted for inflation into 2017 dollars, the city’s pension contributions and the interest on its debts totaled $5.47 billion in FY 1972, as Mayor Lindsay was running for President with the hoped-for support of retired NYC public employees living in Florida, and their unions. Not by the people in the room agreeing to get less than they had promised themselves. "And if that's the case, and the city's going to be in a level of fiscal distress, we want to know early.". The bondholders and pensioners of 1980 found that the big tax-exempt score they had made in 1960s and early 1970s had been cut in half. Then, however, the burden itself began to be diminished by soaring inflation. Imagine that today some future group of politicians were to tell the rich that since the New York City residents of today didn’t benefit from all those debts run up previously, the city of New York isn’t going to pay them. Not by formally going bankrupt the way Detroit did. New York City in the late 1970s was plagued by severe economic and political troubles unlike any the city's inhabitants had experienced before. As for the federal government, it didn’t provide New York City and New York State with any additional cash either. Local officials have called on Congress to approve a relief package for the city, but talks about a bill are ongoing. The State of New York was, in effect, allowing the City of New York City to borrow money to send to the State of New York, at 14.0% interest. They got a much higher tax burden, and lost some or all of their public services. And now the MTA Board, having done the bidding of a generation and its politicians, is celebrating is success. The public unions also agreed to stand by as thousands of city workers were laid off, but those ex-workers were no longer in the public unions. https://www.theguardian.com/world/2008/nov/23/new-york-crime-rates 'See the Joint Economic Committee Report, New York City's Financial Crisis, November 3, 1975, p. 30 ff. Shared sacrifice. ”, https: //www.municipalbonds.com/bond-insurance/what-happens-bonds-when-municipality-goes-bankrupt/ little, but gave back nothing want us to overstate the,! 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