Twice Saved at the Brink

New Yorkers got some good news for a change last week as crises on two fronts were at least temporarily cooled, if not finally resolved. On the brink of default, New York City, with some help from the state and major banks, found a device to cover $792 million in short-term notes that were due. And thousands of city and state doctors ended a nine-day slowdown protesting the runaway cost of malpractice insurance.

THE FINANCIAL FIX. For almost a month, city and state officials and a handful of private citizens chosen by Governor Hugh Carey had wrestled with New York's deepening financial dilemma (TIME, June 16). The city's profligate borrowing had wiped out the national market for its securities: no more notes could be issued until the city started putting its finances in order. That meant the kind of retrenchment that Mayor Abe Beame and other city Democrats find painful to contemplate. For a while, they and the Republicans controlling the state senate could not seem to face up to the crisis. The businessmen had to persuade the politicians that default was a genuine possibility, with disastrous consequences for the city's ability to raise money in the future. Said Felix Rohatyn, a New York investment banker who was a key participant in the negotiations: "In a business deal, everyone is usually talking the same language. But here the political process didn't always permit the parties to interrelate with each other in a sensible way." Even after the outlines of the solution were clear, the politicians, to Rohatyn's consternation, insisted on wrangling down to the wire. "Politics requires a crisis to go all the way to the brink," he observed. "But you don't know where the brink is sometimes."

Brinkmanship finally produced a compromise that all sides felt they could live with. A new agency, the Municipal Assistance Corporation ("Big Mac"), was created to restore the city's credit and to monitor its budget and borrowing practices. Because five of its voting members are appointed by the Governor and four by the mayor, the corporation will inject the state government into city affairs. Big Mac will receive regular reports on the city budget so as to be able to sound the alarm if the city turns profligate anew. Current-expense items now make up 40% of the capital budget: over the next decade they will be put back in the current operating budget where they belong. The city will be limited in its short-term borrowing to $8 billion, which will be shaved over a four-year period to $6.2 billion.

In return for this partial surrender of home rule, the money spigot has been turned on again. Big Mac is empowered to convert up to $3 billion in short-term debt into long-term bonds. The new bonds will be backed by some $1 billion in revenues from the sales tax and stock-transfer tax. This arrangement is expected to reassure investors who were frightened away from city offerings.

With financial pressures relaxed, the mayor could begin bargaining for additional taxing authority from the state. It is almost certain that he will be able to present a less stringent budget for fiscal 1976 than the so-called crisis budget he proposed last month. Instead of having to lay off as many as 50,000 city employees, he may be able to get by with as few as 20,000 dismissals.

But even smaller cuts will not be easy in Fun City. Last week city hall was ringed by thousands of protesting teachers, parents and students. To fight the proposed layoffs, the policemen, firemen and other city union members started distributing a pamphlet with a skull on the cover and the title: "Welcome to Fear City." Inside were morbidly detailed instructions on how to avoid crime and other hazards in New York: "Do not walk. If you must leave your hotel after 6 p.m., summon a radio taxi by telephone or ask the hotel doorman to call a taxi while you remain in the hotel lobby ... Avoid public transportation. You should not ever ride the subway for any reason whatsoever." Calling the pamphlet a "new low in irresponsibility," Beame obtained a court order to prevent its distribution. New York's basic problem still remains: how to cut massive spending in the face of militant and powerful resistance.

THE MEDICAL MEDIATION.

In their agonizing over soaring malpractice-insurance rates, New York doctors had hoped to get relief from the state. They asked for a clear-cut definition of malpractice, a ceiling on awards in suits against physicians, a limit to lawyers' contingency fees that encourage high settlements and the establishment of panels of medical experts to advise juries in malpractice cases. The legislature provided none of these, though it did three weeks ago set up a pool of insurance companies to continue to provide malpractice coverage in New York. Dissatisfied with the new law, the doctors called a slowdown, refusing to handle any but emergency cases.

Not all physicians joined the protest and many responded reluctantly. Some doctors as well as patients considered it ill-timed and dubious at best. It soon became apparent that the doctors' closest allies were suffering most of all. Hospitals in already precarious financial straits were further imperiled by the growing number of vacant beds; hospital workers were being laid off and many were already on a four-day week. Said Dr. Jameson Chassin, chief of surgery at Booth Memorial Medical Center: "The risks of damage to our own employees was greater than the additional educational value of the protest. We really have no desire to have a bloody mess in the streets of New York in order to make our point. The legislature and the governor can hold out longer than we could."

Governor Carey offered a partial concession. He named a nine-member commission to re-examine the malpractice issue and propose further changes in the law if it thought they were needed. After a heated night's debate, the Crisis Committee (a group of doctors leading the slowdown) voted to accept the proposal, and the doctors returned to work. Said a member of the Crisis Committee: "Despite the fact that we were extremely unhappy with the intransigence of the Governor, we felt that nothing further should be done to the disadvantage of the patients. How can you say no after years of saying yes?"

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