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Rethinking the Solution to New York’s Fiscal Crisis

We are at the end of an era, as choices made in the 1970s have created a society that seems unable to cope with a crisis such as that posed by the coronavirus.

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?

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.