Rethinking the Solution to New York’s Fiscal Crisis

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Commuters waiting for the train as New York City begins its first phase of reopening, Times Square, Manhattan, June 8, 2020
Ever since 1975 New York City has been haunted by the fiscal crisis that beset it beginning that year. Images of battered, graffiti-decked subways and the Daily News cover photo of President Gerald Ford, appearing to tell the Big Apple to “drop dead,” are familiar parts of its political iconography. After Andrew Cuomo was first elected governor in 2010, he gave out copies of a biography of Hugh Carey (New York’s governor at the time of the crisis) to his staffers and labor leaders—as though to signal his willingness to stand up to the interest groups often blamed for the near-bankruptcy.

But when the New York City Council voted to approve a budget of more than $88 billion on Tuesday, June 30, it did so under the shadow of a new crisis. The city has lost 900,000 jobs over the past few months; unemployment hovers around 20 percent. Even as restaurants reopen tentatively—in some cases with planters and seating gamely set up in the streets themselves—they are hardly operating at capacity. “Sheltering in place” has entailed staying home and buying little. Tourism has largely vanished. All this has meant about a billion dollars less in sales-tax receipts over the past few months and will likely mean lower income tax revenues as well. As a result, the city faces an estimated shortfall of about $9 billion.

The latest budget was passed as hundreds of protesters camped out in City Hall Park, demanding cuts to the police department budget of at least $1 billion in order to free up more funds for social services. What the city council approved did include cuts to that portion of the budget (including canceling the hiring of more than 1,100 new officers) and the partial restoration of some programs originally slated for closure, like summer jobs for youth. But the reductions were also achieved by moving some funding around; for example, the Department of Education will now pay for police in the schools.

This kind of shift does not allow for the expanded social services the city badly needs—a more effective Covid-19 testing and tracing regime; support for people unemployed because of the health emergency; the massive resources that public schools will require to reopen without becoming virus hot spots; free meals for New Yorkers who suddenly find themselves food-insecure. Instead, a variety of city services will be cut back. Parks funding will be cut and park workers laid off; most city pools will not open this summer (which adequate staffing perhaps could have made possible, though safety concerns might still be present); the composting program will be halted; there will be fewer trash pickups; overnight ferry service to and from Staten Island will be reduced; subsidies for low-income transit users will be lowered; CUNY will see its budget reduced.

None of this, however, will be enough to fill the gap. Mayor de Blasio is pleading with the state to allow the city to borrow up to $5 to $7 billion to cover its operating expenses if, as expected, the federal government fails to come through with emergency aid. Absent such borrowing, the alternative will involve cutting at least 22,000 city jobs.

It appears highly unlikely that the governor and the State Senate will vote in favor of allowing the city to accumulate new debt. Both Cuomo and the editorial page of The New York Times wasted little time in warning of the dangers of this approach, reminding the mayor of the fate of the city in the 1970s. The use of short-term debt to cover operating costs brought the city to the edge of insolvency then; might it not do the same today?

Although the eerie emptiness of city streets during the lockdown may have called to mind the vacant buildings of four decades past, the parallel between the two periods is not, in fact, so straightforward. Back then, the budget shortfall grew out of longstanding political tensions in the city and in the country as a whole. New York embodied an ambitious if imperfect effort to use city government to redress racial and economic inequalities—through such programs as a network of public hospitals and clinics and free tuition at the city university. When the city became snared in recession, the longstanding ambivalence of its elites toward this political vision came together with the outright hostility of a rising national conservative movement.

As is the case today, in the 1970s the city’s economic problems were not solely of its own making: they had their roots in federal policies that favored suburbia and made it easy for manufacturers to relocate. The funding structure of Great Society programs such as Medicaid placed a heavy burden on New York’s government. And as the financial sector was deregulated in the 1970s, banks became less inclined to hold municipal bonds. These were the background conditions that spurred the 1975 fiscal crisis, but the reason it became so charged was that under the pressures of default, the city had to reverse longstanding commitments the city had made to poor and working-class New Yorkers.

By contrast, today one might make the case that the coronavirus represents a simple external shock to the city’s economy. New York bears little responsibility for a natural disaster that has reshaped the entire world. The implicit argument of the mayor’s proposal to take on new debt to cover operating costs is that borrowing is a short-term expedient to tide the city over a crisis soon to dissipate. New York enhanced its borrowing capacity after September 11, 2001; this is the same kind of sudden, unexpected, and disastrous event. Borrowing to cover expenses would  be less economically and socially destructive than cutting public-sector jobs and services, which could only exacerbate the city’s problems in myriad ways. And given the longstanding feud between Cuomo and de Blasio, the governor would seem to have little interest in expanding the authority, power, and funds available to the mayor—even as New York State has expanded its own borrowing authority and granted this power to the MTA.

But even if there are ample reasons to be skeptical of the hostility to new city debt, this argument likely understates the sustained damage the virus will do. No one knows how long the public health emergency will endure or what its effects will be. A quick resolution seems like a fantastically rosy prospect. And the notion that a change in Washington in November’s election will mean more aid for the city is also overly optimistic. Under these circumstances, can borrowing—and weighing future New Yorkers down with debt service, while expanding the power of creditors over the city’s future—really be a salutary solution?
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A News Building guard reading the Daily News headline, New York City, October 29, 1975
There is another, larger resemblance between today and the crisis of the 1970s. Then, as now, New York finds itself at a political crossroads, one that will be evident in the budget but which reflects a larger set of questions about the right way forward. The pandemic itself has called into question the intellectual and political priorities for the city that rose after the 1970s, the New York oriented toward luxury housing, fancy hotels, high finance, and cultural experiences too expensive for most who live here. The major lesson that a generation of New Yorkers took from the fiscal crisis of the 1970s was that appealing to the private sector was the only way to build the city: without rich people paying taxes, there would be no way to help the poor. From “broken windows” and stop-and-frisk policing to tax breaks for Donald Trump and Hudson Yards to the various vehicles (park conservancies, business improvement districts, parent-teacher associations) that allow affluent New Yorkers to raise money for the parks and schools that benefit their own neighborhoods and their own children, all manner of city policy has been crafted to make New York safe, comfortable, and accessible to economic elites—a set of policies that at times have been rationalized with the suggestion that doing so would create a city where the wealth trickled down to all.

This whole understanding has been upended by the events of the past few months. (The highly unequal city that this thinking helped to create has been generating discontent for longer, as evidenced by Alexandria Ocasio-Cortez’s election to Congress and de Blasio’s first mayoral bid—even though in office he has fallen far short of promises to challenge the police department and real estate developers.) The well-documented departure of so many well-heeled New Yorkers as the virus spiked this spring has raised the question: Will they return? What if they entirely relocate to their second homes and don’t come back to a city that might well see a second surge of the coronavirus in the fall or winter? New York lost about 800,000 residents over the 1970s, most of them white, middle-class people—could there be a similar flight today?

At the same time, the pandemic has laid bare many of the inequities that have structured the city over the decades since the 1970s: the extent to which it is segregated between rich and poor, between white New Yorkers and people of color, between those who can shelter in place (often, in a residence outside the city limits) and those who must keep going to work. The very inequalities of the city—its jails, its homeless shelters, its neighborhoods with substandard or overcrowded housing—help to create the spaces where the virus can thrive. As the chant “Black Lives Matter” has echoed through city streets the past month and a half, it has been hard not to hear it as a cry of rage about the pandemic as well as police violence. Whose lives really matter in today’s New York?

The threat of fiscal crisis points to these deeper divisions. As in the 1970s, the real problem with taking on new debt to cover operating costs is that it attempts to avoid by postponing political conversations about the distribution of income and taxes, how to create an equitable public sector, and the racial integration of schools and housing. Meanwhile, it would grant greater power to the city’s creditors, which—as eventually happened in the fiscal crisis of 1975—they  might one day use to force a restructuring on their terms.

In fact, the entire framing of the budget debate today—in which cuts become the solution to one of the largest health and social crises the city has ever confronted—seems in itself an evasion. Take the public schools as just one example. At the precise moment when they might be thinking about how to reopen safely in the fall if this is possible—by finding new space, by hiring new teachers, by making capital improvements to improve ventilation in old buildings—instead the only answer the city has for a million children and their families is part-time schooling, leaving each family alone to navigate the fallout. The underlying problem, then, is not just how to avoid new debt but how to conceive what city government can mean in a public health disaster. The calls to “defund the NYPD” point to the extent to which the problem is one of priorities, not just cuts. What do we mean by “public safety” anyway: Is it better represented by police helicopters buzzing overhead day and night, or by nurses in public schools?

As the city’s leaders revisit the question of what expenditures really matter most, they need to keep thinking about ways to tax the extraordinary wealth of the richest New Yorkers. These are people who have benefited vastly from the city’s policies over the past forty years; they have an obligation to give back now. This would be the moment for the pied-à-terre tax that Albany has long resisted, for a stock transfer tax, for higher taxes on billionaires and ultra-millionaires—taxes that might help shift the economic balance of the city, and which reflect the nature of the emergency we are in now. Often, the counterargument to such measures is that they will speed the flight of upper-income taxpayers—an idea that underestimates the multiple reasons people have always been drawn to live in this complicated, beautiful metropolis, as well as the necessity of public investment in the cultural and social infrastructure that makes the city work for all.

Finally, the problems of New York are ones with national import. There is no way to deal with them entirely within the city’s limits. New York’s elected representatives should continue to press the federal government for funds and emergency support, resisting attempts to foist austerity on a city that has lost more than 22,000 people so far to a devastating illness. If New York’s choices must face new scrutiny, national priorities are even more desperately in need of reform.

The fiscal crisis of the 1970s was a turning point for New York City, one that would help to launch a decades-long ascendancy of free-market ideas in government, and it became one for the country as a whole. We may find ourselves now at the end of that era, as the choices made then—to starve the public sector, embrace extreme individualism, place all our trust in the profit motive—have created a society that seems unable to cope with a crisis such as that posed by the coronavirus. The real problem today is not simply how to avoid debt, or how to balance the budget. It is how the city can respond to a social crisis of this magnitude—and redefine what our collective responsibilities ought to be in a time of desolation.

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