History Lessons: The 1975 NYC fiscal crisis

Reading about the planned layoffs in NYC state/city gov't & the way they're being used to extract concessions from unionized workers reminded me of NYC's 1975 crisis. There's something to be learned from the history.


The official history:

"In the 60s, the city began to live beyond its means, offering generous wage and benefit packages to unionized workers, and spending too much on welfare and other public services. Its coffers drained, the city by the early 70s had turned to the short-term bond market to cover everyday expenses. Sensing trouble, Wall Street cut the city off... The banker Felix Rohatyn and other civic-minded business leaders stepped to help the city put out the fire now known as the Fiscal Crisis of ’75. ...Rohatyn and company cut social spending and reined in the unions....the city started to get back on its feet."



The rest of the story, from research by Kim Moody, a co-founder of Labor Notes:

"Moody rightly puts New York’s Fiscal Crisis in the context of the ...post-WWII urban crisis, wherein manufacturing cities like New York lost jobs just as black migrants, Puerto Ricans, and others came looking for them. Ghettoes roiling, whites sped off to federally subsidized suburbs...

In the meantime, the city’s business elite was...connecting to...increasingly global circuits of commodity production and exchange. A big part...was a massive build-up of office space in the Central Business District of Manhattan. 66.7 million square feet...most between 1970 and 1972. Ten million came in the form of the World Trade Center towers...this “highly vertical sunk capital,” much of it tax-exempt, made the city vulnerable to global downturns. When such a slump occurred in 1974-75, vacancies shot up, construction slowed, and jobs and tax revenue were lost. Add the fact that New York banks, well before they stopped buying city paper, were overexposed at home and abroad, and one begins to hear the cluck of chickens coming home to roost...

Moody also raises real doubt as to the strain city expenses actually represented. While it’s true that city public employment rose significantly through the 60s, it did so at practically half the nationwide rate...welfare spending growth, while indeed substantial, was relatively slow in the first half of the 70s. Public hospital...& CUNY costs were rising. But in 1975, such costs comprised just 4.6 percent of the city budget. So much for the great sucking sounds of liberal extravagance.

It was the revenue side that really mattered. Industrial flight had caused the city to lose a good chunk of its tax base. An increasingly conservative mood in Washington also meant a significant drop in federal aid....

Moody...details the costs of the city’s commercial tax system, including its emerging program of developer subsidies. By 1976, 40 percent of all real estate was tax-exempt, up from 28 percent in the 1950s.

The property tax levy itself, it seems, actually shrunk as a portion of total tax revenue from the mid 60s to the mid 70s, despite all that office construction. Why? Because big business went to the tax commission every year to get lowered assessments... A “modest increase” in assessments, says Moody, “could have averted the Fiscal Crisis.”

As Moody demonstrates, liberal “profligacy” did not come close, on its own, to “causing” the Fiscal Crisis. But business leaders made it seem so... And the hemming and hawing was not just over budgets...but over the...re-distribution of the city’s wealth from its upper classes to its masses.

On this nettlesome tendency towards social democracy, Moody offers a telling comment by leading CBD booster David Rockefeller. “It’s clear to me,” said Rockefeller in a report issued by his family bank, Chase Manhattan, “that the entire structure of our society is being challenged.”"


So the origins of the 1975 crisis were similar to the origins of our present crisis:

1. Real estate bubble
2. Loss of tax base due to tax breaks & subsidies for the top of the income distribution
3. Leveraged debt bust of financier class


And in both cases, the perps use the crisis to scapegoat the working class & extract concessions from it.


Moody asks:

"What is it that makes New York City truly exceptional these days...Not its leading position in the parade of global cities, but rather its poverty rate, which at 22% is twice that of the nation. In Manhattan, the top 20% of earners make more than 52 times what the bottom 20% makes, more than five times the national rate."

Concentrated wealth increases poverty & economic instability, & the PTB will keep conning us until we stop buying what they're selling.


http://www.brooklynrail.org/2007/06/express/the-greening-of-new-york-city.

I can't believe people still believe that.