Money  /  Antecedent

Stumbling Into Submission: How Real Estate And Finance Capital Conquered New York City

Hudson Yards received a $6 billion cocktail of public subsidies, including tax breaks and infrastructure improvements, to create a billionaires' playground.

Despite its successes, by the mid 1970s, the city had stumbled in its efforts to maintain its social safety net as stagflation and a national recession threatened the city’s financial solvency. Many industries that supported the city’s tax revenues, like office construction, manufacturing, and securities, were particularly impacted by the recession, leaving New York City more vulnerable to default than other municipalities. The final nail in the coffin was the emergence of an anti-urban federal government under president Richard Nixon, which cut community development programs by nearly $16 billion, forcing municipalities like New York to find new, risky forms of revenue to fund operations.

As the city’s coffers had diminished over the previous decade, New York had become reliant on the sale of tax and bond anticipation notes, tradable financial assets sold by the city to access projected tax or bond revenues when these funds are not yet available, to balance its checkbook. As New York became increasingly dependent on these sales, investment banks, the primary market for tax and bond anticipation notes, began to leverage their power to balance the municipal budget to win concessions from the city. Executives at Merrill Lynch, Chase Manhattan, and First National Bank began threatening to withdraw from the tax and bond anticipation note sales if the city did not agree to high interest charges on the notes, deepening the city’s growing debt obligations. Banks also began threatening divestment from the monthly tax and bond anticipation sale if the city did not make major cuts to social safety net programs like public hospitals, despite the fact that Chase Manhattan, one of the city’s two largest banks, had no issues selling two billion dollars of New York City bonds during the mid 1970s.

In February of 1975, the city stumbled into a very different relationship with its financial institutions when a young banker named Charles Sandford pulled Banker’s Trust out of its deal to purchase tax anticipation notes. As a result, the city’s major banks, who were not satisfied by efforts to cut municipal spending, came to a consensus that they, too, would join Banker’s Trust in refusing to purchase anticipation notes. This coordinated refusal to purchase tax anticipation notes resulted in a financier-manufactured fiscal crisis, as New York City was left without the money it needed to meet its debt obligations for the first time. That March, despite bank sales of approximately $2.3 billion in New York City securities between the summer of 1974 and March of 1975, no bank made a bid on the city’s tax and bond anticipation notes. By refusing to bid on tax and bond anticipation notes, New York City financiers intentionally exacerbated the city’s financial crisis, both reducing the city’s immediate access to funds and elevating concerns about the city’s financial outlook.