Saying No to New York

"We 're going to sell New York to the Shah of Iran. It's a hell of an investment."

--Treasury Secretary William Simon

"All Abe Beame need do is adopt the Khmer solution. That is, order every man, woman and child out of the city."

--Barron 's

The financial plight of Mayor Abraham Beame's New York City is so grim that even far-out jokes have a certain plausibility. Somehow, before the end of the fiscal year on June 30, the city must raise a staggering $1 billion to meet its payroll and operating expenses and pay off its notes and bonds. Yet so shaky is its credit that it may not be able to raise the money--with the prospect of skipping payday for city employees or even defaulting on its obligations. The one fleeting hope for a painless solution came crashing down last week when President Ford, after due expression of sympathy, rejected the city's request for emergency federal assistance.

New York's Democratic Governor Hugh Carey exploded in wrath, largely because the state government now faces enormous pressure to bail out the impecunious city. He wildly criticized the President for displaying a "level of arrogance and disregard for New York that rivals the worst days of Richard Nixon and his gang of cutthroats." Varying the analogy, he added: "We didn't even get 30 pieces of silver." But Ford argued persuasively that he was acting in the best interests of New York. In his "Dear Abe" letter of rejection, the President wrote that lending money to the city or guaranteeing a New York note offering would "merely postpone coming to grips with the problem." Backing him up was Vice President Nelson Rockefeller, whose nearly 15 years in the Albany statehouse convinced him that Beame had not done enough to slash spending.

Providing More. Still, Ford stressed that nobody blames poor Beame for the mess. The mayor faces an estimated budget deficit of $120 million for this fiscal year, when total spending will reach $11.8 billion, and a walloping deficit of $641 million for 1975-76. But the red ink was years in the making; it flowed especially during the profligate, sometimes inept administration of John Lindsay, who accelerated the practice of borrowing heavily to meet current expenses.

Today, New York accounts for one-quarter of the short-term indebtedness of U.S. cities. In the past decade, the number of public employees has risen 38%, to 340,000; their salaries and benefits have jumped an average of 10% a year, but people do not feel that the city is getting value for its money. The ratio of police to the rest of the population is higher than in the past, yet the crime rate soars. The city spends more on education per capita than almost any other major municipality in the country, but reading scores scarcely rise. The Board of Education is notoriously overloaded with employees who do not teach. More than a third of the 107,458 people who work for the board are classified as "non-pedagogical."

The large, tough public employee unions have managed to win salaries and benefits that on the average exceed those of any other city in the U.S. Almost all city employees can now retire at half pay after 20 to 25 years. This year the city had to raise $900 million just to fund these extravagant pensions.

New York tries to provide its citizenry with more services than any other U.S. city. It runs one of the nation's largest university systems, which charges no tuition to undergraduates who are New York City residents, and pays its full professors from $24,000 to $38,000 a year--more than some of the most prestigious private colleges. Its policy of open admissions, allowing any high school graduate to enroll regardless of qualifications, has increased the student body to 266,000. While Chicago, for example, maintains one municipal hospital, New York provides 19. The city also contributes close to $1 billion a year to municipal welfare programs, and 1 million of the 7.9 million residents collect benefits. Outside auditors have estimated that as much as 14.2% of the money goes to people who do not qualify for it. By enrolling in a drug program, narcotics addicts have been able to qualify for welfare payments. Since many of them continued to take drugs, the payments have subsidized their habit.

Buying Paper. While the city was spending as if there were no limits, revenues were not keeping up. The percentage of blacks and Hispanic Americans climbed to almost one-third of the city's population, and more and more middle-income whites fled to the suburbs. Taxes per capita in New York City are higher than anywhere else in the nation; besides paying 8% sales tax and heavy state income taxes, a family of four with a $15,000 income is hit for $179 a year in city income taxes. Additional increases would be sure to drive out still more businesses and residents. Nonetheless, Beame has in desperation proposed further corporate tax hikes on stock transfers, businesses and banks and a 10% increase in the realty tax. But the once stern accountant is doing little more than dreaming. Some $200 million in realty taxes has gone uncollected this year. Rather than pay more taxes on top of soaring fuel costs, landlords are abandoning residential buildings at a frightening rate.

With his options fast disappearing, Beame has considered selling city bonds to the municipal pension system, a move that would force the system to sell at a loss the securities it now holds. Controller Harrison Goldin, who had to cancel the sale of $280 million in notes last week because of the possibility of receiving no bids, has been trying to interest foreign investors in buying New York City paper. A more likely outcome is a loan from the state government, which would have to market its own bonds to raise the cash. This was a suggestion made by the White House. Treasury Secretary Simon urged the city to charge tuition at the city university, reduce professors' salaries, hold down wage increases of city employees to 5% a year and require them to contribute more to their pension funds. He also suggested that bus and subway fares be raised from 35-c- to at least 50-c-. Last week Beame took a step toward austerity by sending the first dismissal notices to some of the 3,067 employees who will be laid off by July 1. His belated but sensible action promises to be the beginning of a painful process of retrenchment for the near-bankrupt Empire City.

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