The Streets Were Paved with Gold (37 page)

Nor do comparisons usually take note of New York’s steeper cost of living or higher number of employees. Thomas Muller, who is preparing a comprehensive comparison of labor costs for the Urban Institute, has found that “an average declining city requires 10 percent more workers to maintain the same number of duty hours as in the average growing jurisdiction.” He also found that in 1973 many larger growing cities performed the same services as declining cities—yet used half the work force. “In 1972–73,” he said, “New York City spent $637 per capita for personnel; declining cities spent $240 or 71 percent more than the growing cities, which spent $141.” Boston averages 8.5 cops and firemen for every 1,000 citizens; Houston, only 3.5. In their formal defense to the SEC, Mayor Beame and Comptroller Goldin’s brief read, “In 1974, New York City had 517.1 employees for each 10,000 population. This compared with 140 employees for Chicago, 162.2 for Los Angeles and 434.1 for Baltimore. New York’s employees statistic was greater
than all the major cities surveyed.” In April 1977, the federal General Accounting Office reported that New York City “has twice as many municipal workers per capita as its surrounding suburbs.…”

In counting employees, like computing pay, comprehensive comparative studies are nonexistent. Those that do exist fail to take into account employees doing city work but paid by some other level of government; they usually also exclude part-timers. In early 1977, for instance, I tried to pin down the number of city employees. According to the Department of Personnel, the number was 232,000. Yet when I went back to the Mayor’s press office in February 1978 for a number, they came up with 296,145. The discrepancy owed to the fact that this time the city counted all mayoral and non-mayoral agencies, all capital budget employees, all city workers paid by the federal government. They did not count parttimers. Counting these, Sidney Schwartz of the Emergency Financial Control Board totaled 332,000.

The perquisites, or “perks,” offered city workers are also astounding—particularly to the majority of citizens, who don’t enjoy them. As we saw with pensions, the trend in public labor negotiations has been to try to hold down salaries and award “hidden” increases. It is true that few public or private workers match the vacation days, chart days off, paid holidays and personal leave days enjoyed by city cops and firemen, though cops in neighboring Nassau and Suffolk counties do. But while New York’s perks are extreme, they are not unique. Members of the United Auto Workers receive up to seven and a half paid weeks off. The presidents of many corporations receive interest-free loans, the use of private jets, free medicine, free life insurance, free travel for their spouses on business trips, free limousines. Rock stars have been known to enjoy free cocaine. All of which encourages me-tooism, whetting everyone’s appetite for more, driving up costs ultimately passed on to the consumer. The answer to unemployment, many labor leaders and others clamor, is shortening the work week and hiring more employees. But since they usually don’t propose to reduce the pay of those who work a shorter week, labor costs would rise as productivity remains about the same. Guess who pays?

Whether New York City’s labor costs are unique or comparable may be the wrong question. Whether New York can afford them is more relevant. Comparability tells us what everyone is doing, not whether it should be done.

New York is not the first city or state to confront bankruptcy. In the 1930’s, 4,000 state and local governments defaulted. Today, like New York, other cities stare at expenditures expanding faster than revenues. A joint study by the National League of Cities and the U.S. Conference of Mayors in 1975 said, “The cost of running cities is now rising at an annual rate of 11 to 14 percent, but the yield of local taxes is up only 8.8 percent.” Sternlieb’s Philadelphia study projected a cumulative local revenue shortfall of over $400 million through 1980. Even after they made “sacrifices,” Detroit budget officials pegged their fiscal 1976 deficit at $44 million, warning it would climb to $207 million by 1980. In recent years the mayors of Cleveland, Boston, St. Louis, Buffalo, Yonkers, Chicago—to name a few—have wrestled with budget deficits. Cleveland, says Sternlieb, “is going out of business.” Like New York, Cleveland and other aging cities have grown more and more dependent on federal aid to balance their budgets, more and more dependent on federal CETA (Comprehensive Employment Training Act) jobs, which now comprise 25 percent of the municipal payroll of many cities. London, Paris and Rome have huge deficits, but these are quickly closed by their national governments. Rome’s annual deficit, for instance, is about $1 billion, which the Italian government closes by guaranteeing bank loans.

The city of Tokyo is also teetering. Like New York, Japan’s capital lurched toward bankruptcy in early 1978. A $979 million deficit was projected. City officials pleaded with the federal government for help. The federal government responded by scolding the city for not getting its own house in order and crying wolf too often. Chastened, Tokyo’s Governor-Mayor, Ryokichi Minobe, a Socialist, slashed city limousines, increased school tuition, abolished some employee pay raises, reduced hiring and sold $221 million worth of city-owned land. “We understand how hard the Tokyo government is trying right now,” a spokesman for the Conservative national government told
The New York Times
, “but it is already two years too late. They should have adjusted their spending policies to their revenue realities a long time ago.”

Figuratively speaking, New York’s budget woes are not unique. Literally speaking, they are. No other major city matches the severity of New York’s fiscal crisis. Tokyo, for example, has 60
percent more people, yet its budget in 1978 ($10.9 billion) was almost 30 percent smaller. Tokyo employs 188,000 municipal workers—almost half New York’s total. And despite New York’s claim that it receives insufficient federal aid, about 22 percent of its budget is tendered by the federal government. Only 10 percent of Tokyo’s budget comes from the central government.

New York’s budget is unusual in another way. It not only assumes costs other local governments escape, but it also
chooses
to provide more variable services. Mayor Beame and Comptroller Goldin’s brief to the SEC, while striving to escape blame, demonstrates the consequences of these broad services: “The per capita cost of functions
common
to all nine cities represented only 18% of the total per capita cost of New York City government in 1972, while common functions consumed 46% of total per capita expenditures in the other nine cities.” Thus: after New York has “performed the ‘normal’ local functions … it has expended only 18% of the total it ultimately must spend. Conversely, when the nation’s nine other largest cities perform these common functions, they spend nearly half of all that they will be required to spend.”

In his 1976 survey, David Stanley found, “Two cities, New York and Yonkers, have been
insolvent
—unable to pay debts as they mature.” This contrasts with the surpluses enjoyed by many cities and forty-four states, whose tax base is more progressive and who thus capture more revenues with rising inflation. The aggregate state and local government surplus in 1977 was $14 billion. That year, tax collections by the six largest cities and counties surrounding Washington, D.C., expanded almost twice as fast as government spending. Senator Proxmire’s state of Wisconsin rolled up a $437 million surplus in fiscal 1978. Michigan, like New York State, has a surplus. Texas, with no income tax, expects a $3 billion surplus in 1978. California, with high taxes, in 1977 collected $2.9 billion more than it spent and in June 1978 had a cumulative surplus of $5 billion. Aside from New York City, one of the few governments projecting a budget deficit in fiscal 1979 was federal government—$60 billion, up from $4.8 billion in 1974.

New York’s fiscal magic show has played in other cities. Mayor Poelker of St. Louis also invented the longer fiscal year. To save $4.1 million, he slipped his final 1976 payroll into fiscal 1977 and squeezed five quarters of federal revenue sharing funds into four city quarters. Buffalo “rolled over” $1.7 million of its 1975 school payroll into 1976. Cleveland played tricks with its capital budget.
In 1974, Mayor Ralph Perk, a conservative Republican, sold the city’s sewers to a new regional authority for $32.2 million, using the proceeds to balance his budget. In a speech that could have been written by Wagner, Lindsay or Beame, Mayor Perk explained, “I realize this is a one-time only receipt and normally should not be used for operating expenditures. However, an examination of the city’s needs currently indicate there is no way we can provide the essential city services without these proceeds.…” Parroting the Citizens Budget Commission, the Greater Cleveland Growth Association—the local Chamber of Commerce—warned: “Such a policy allows the City to increase its expenditures to a level which becomes increasingly difficult, if not impossible, to maintain once the funds have been spent.”

Kafkaesque bookkeeping systems are common in other mismanaged cities. David Stanley describes two Cleveland State University professors who spent a decade deciphering Cleveland’s bookkeeping: “The difficulties facing citizens who seek to understand the City’s finances are substantial. The authors present numerous examples of potential confusion, double counting, inconsistency between financial figures, misinterpretation, as well as confusion between net and gross figures and between capital and current accounts.… Thus, there is no present source from which the individual citizen can secure a comprehensive and coherent picture of the City’s financial position.” Most city and state governments—which account for two-thirds of all government spending and 75 percent of all government employees—operate on a cash rather than accrual accounting basis. This invites budget manipulations since officials account for money only when it is spent, not obligated. Want a surplus? Governor Carey in 1978 slowed down state income tax refunds, giving him an election-year cushion. Want a deficit? Governor Malcolm Wilson pumped extra school aid into the first quarter of the state fiscal year, also an election year, leaving his successor to pay for it. There is a method to this seeming madness, which is why it is so widespread.

And yet New York has been so extreme as to qualify as unique. As Richard P. Nathan and Paul R. Dommel have written, “Most cities—New York is the major exception—have avoided relying extensively on borrowing for operating expenses.” The Congressional Budget Office reached the same conclusion. New York, they said, is “the only major city that has chronically run a large current operating deficit in both good and bad economic years.”

“Is New York the ‘bellwether’ city for America in its financial difficulties?” Terry Nichols Clark and three associates at the University of Chicago asked that question in a paper,
How Many New Yorks?
To find the answer, they monitored the fiscal temperature of fifty-one large cities and counties over eight years. Choosing twenty-nine indicators but relying on four—per capita expenditures for common functions, the ratio of local revenues to local taxable property, per capita long-term debt and per capita short-term debt—they devised what they called a Fiscal Strain Index. Using data from the fiscal 1974 period, they found that New York suffered the greatest fiscal strain. The average (mean) for all cities was 84. New York’s was 165.03. Boston was in second place with a score of 128.82, followed by Newark (105.91) and San Francisco (102.97). By their measure, many older cities were quite healthy, including Chicago (55.33), Pittsburgh (48.35), Schenectady, New York (32.68), Gary, Indiana (21.21). Their answer was obvious: New York was not a bellwether. If anything, New York’s fiscal strain would be worse today than when Clark took the city’s temperature almost two years before the 1975 crisis.

New York’s debt and credit problems are also unique. No other city is shut out of the credit market (though my mid-1978 Cleveland—“the mistake on the lake”—was threatening to join). No other city has received federal loans. No other city has such a massive debt. And no other city was burdened with so much short-term debt—over $6 billion in the spring of 1975, about 30 percent of all the short-term municipal paper sold in the country that year, up from $1.3 billion in 1970. In the spring of 1975, the city’s total debt was $12.3 billion, up from $6.5 billion in 1970. This doubling of the debt contrasts with, say, the 1 percent growth in the city’s debt between 1842 and 1845, when the debt reached $12.7 million. And if you count the unfunded pension liability and public authority debt, the city’s true debt in 1975 was over $20 billion. In 1970, the city’s annual debt service payments were $676 million. Six years later, they nearly quadrupled to $2.3 billion.

Comparing cities in 1974, Thomas Muller discovered that New York’s interest payments on its long-term debt were four times greater than that of the average municipality—averaging $66 per
resident, compared to $15 for all municipalities and $21 for declining cities. When contrasting total debt per person, Muller found declining cities averaged $351—59 percent more than the norm for growing cities. But New York stood alone, averaging $1,031. A federal Bureau of the Census report for 1976 suggests just how unique New York City’s debt portfolio is. New York, with twice Chicago’s population, had a total debt almost twelve times that of the Windy City. The Census shows that New York’s $12.8 billion debt (it is now considerably higher) came to $2,080.60 for every city resident. The next city was Atlanta, averaging $1,326.23—57 percent below New York. Boston was $887.13; Los Angeles, $869.06; Philadelphia, $806.93; Baltimore, $657.91; Newark, $503.84; Chicago, $449.50; New Orleans, $444.71. Peoria, Richard Nixon’s symbol of heartland America, averaged $69.02 per person.

New York’s uniqueness was the reason a Treasury official was at first despondent, in early 1978, about chances of winning Congressional support for city loan guarantees. “The real problem,” he said, “is that New York is the only city that needs it. Cities like Buffalo, Newark, Detroit, Pittsburgh, Youngstown and St. Louis are able to go to the market and borrow. They have truly balanced their budgets. Those cities are selling tax-free bonds at 2 percent less than if they were taxable Treasury notes.” Perhaps New York’s prospects would have then appeared brighter if it called itself the Republic of South Korea or some other pro-Western military dictatorship seeking a loan guarantee. Or Lockheed. But they would have initially appeared brighter if the city had, since 1975, truly balanced its budget. MAC Chairman Felix Rohatyn, Governor Carey and other prophets of doom who warn of the collapse of the bond market and of capitalism itself if New York goes broke, conveniently ignore some facts. Despite their scare rhetoric and New York’s market collapse, in 1977 the municipal bond market experienced its greatest surge in history—up $44 billion in sales, or 30 percent from the year before. And unlike most cities and states, New York’s debt as a percentage of revenues has risen since 1975.