Scramble for Solvency

Once I wrote the budget, gee what fun

Playin' with my magic wand.

I could fudge the budget, now that's

done--Brother, won't you buy a bond?

The tune was the Depression lament Brother, Can You Spare a Dime?, but the lyrics--sung by a character playing Mayor Abraham Beame in this year's Inner Circle satire by political reporters --are all too relevant today. Beame still cannot sell New York City bonds, and the state's Municipal Assistance Corporation securities marketed on the city's behalf recently suffered a ratings drop by Moody's Investors Service. Last week the city's unrelenting financial crisis gave New Yorkers yet another painful jolt. With the entire City University of New York system temporarily closed for want of funds, the Board of Higher Education reluctantly voted to impose undergraduate tuition fees for the first time in CUNY's 129-year history.

CUNY occupies a special place in the city's heart and history. It has been an upward mobility machine for millions. Alumni include George Goethals, Bernard Baruch, Felix Frankfurter, Sylvia Porter and Abe Beame. The decision to charge for tuition at roughly the same rate as the state university will still allow many children of poor families to attend because aid for the needy is available. But admission will no longer be automatic, even for bright students.*

Exam at Sea. Yet the dramatic break with tradition did not solve the immediate problem of reopening the university to its 270,000 students. One dedicated physics professor administered his final examination on board the Staten Island ferry at night last week. The vast majority of students were in limbo while officials work out an agreement for emergency funding.

Late last week Beame was able to defer an imminent strike of hospital workers by delaying the firing of still more employees. Victor Gotbaum, local head of the American Federation of State, County and Municipal Employees, has vowed to lead an illegal stoppage from jail, if necessary, to prevent an additional 3,150 layoffs (5,900 already had been let go). If Beame yields to such pressure, he will have to scramble to save dollars elsewhere. Tense bargaining with other major unions this month could produce new conflicts.

Serious Flaws. Though City Hall can no longer fudge the budget--state and federal auditors now scrutinize fiscal affairs in minute detail--there are serious new doubts about Beame's ability to make all the economies necessary to restore stability. Last week Stephen Berger, executive director of the state's Emergency Financial Control Board, said that Beame must still overcome "serious flaws" in the budget that takes effect July 1.

Beame and his aides defend their figures and pledge alternative trims if necessary. But if the skeptics are correct, the city could face a new default threat next winter and an end to the federal loans that have kept the city solvent since January.

The city has been unable to break free of crisis despite some dramatic reforms and painful austerity. Though slow to move when the problems became obvious 18 months ago, Beame was finally compelled to take strong measures as the price of state and federal cooperation. Since last summer, taxes and the transit fare have gone up, while the city work force of more than 300,000 was reduced by 46,525. Ranking subordinates out of step with the new music were replaced with tougher administrators.

Yet the comprehensive recovery plan finally agreed to last year refused to jell. The key to that program was a phased reduction in the city's operating deficit to restore a truly balanced operational budget by June 30, 1978. Originally pegged at $724 million, the cumulative deficit grew to more than $1 billion as one budget assumption after another dissolved.

Quasi-independent agencies, such as the Health and Hospitals Corporation and the Board of Higher Education, were even slower than other departments to make firm economy plans. Finally, Beanie's new budget director, Donald Kummerfeld, acting the stern parent, put them on a strict monthly allowance. Already overspent, CUNY was unable to meet its payroll May 28, and the university closing followed.

Implicit in the original financial plan was the expectation that the city would benefit from the U.S. economic recovery. Instead, New York, like some other old cities of the Northeast, has lagged significantly. Energy prices and other business costs are high in the region, and so are taxes. New York's recession started long before the nation's, and its continuation has forced welfare costs up and tax yields down.

Government's normal response to this kind of problem would be pump priming. New York has been compelled to do the opposite. Says Felix Rohatyn, who heads the Municipal Assistance Corp.: "We have proved here that Keynesian economics works. In a recession we have increased taxes, cut employment and practiced deflation in the most brutal way." While the national gross jobless rate fell from 8.8% to 7.4% between January and April and continues to go down, New York City's went from 11.4% to 10.7%.

The implication is both clear and frightening. Though the city must continue to cut costs, additional mass layoffs will depress the economy further. More reductions in basic services will speed the heavy exodus of private business, compounding the problem.

Giant Step. Ideally, further savings should be made by increasing the city work force's efficiency and cutting frills. Last week Raymond Horton, staff director of Beame's Temporary Commission on City Finances, produced a major study showing City Hall how to take a giant step in that direction. Horton demonstrated just how expensive fringe, leave and pension benefits for city employees have become. For every $100 in base pay, it now costs an average of $66 more in extras such as pensions, sabbaticals and contributions to union welfare funds. In some departments, the add-ons exceed salary. Average pay for a fireman, for instance, is $17,458, while his total package comes to $35,288.

Horton proposes reductions in a number of categories that would save $97 million in next year's expense budget of $12.5 billion. He also urges that leaves and vacations be scaled down, while the basic work week is increased from 35 hours to 37 1/2 hours; the effect of these changes would be to increase the work force by the equivalent of 9,000 employees.

Union leaders, including Gotbaum, dispute Horton's figures and argue that civil servants, by accepting a pay freeze last year, agreeing to work-rules changes and allowing pension funds to be used to buy city securities, have already done more than their share. Nonetheless, in the new round of bargaining now beginning, the city will be following Horton's advice at least part way by seeking $24 million in efficiency savings. Says Kummerfeld: "We are putting demands on the table that are very stiff."

Beame is naturally reluctant to drive the unions into a corner that will force still more labor turmoil. Strikes next month would be a particular embarrassment because the Democratic National Convention takes place in Manhattan during the week of July 12. There are also purely local political considerations. Though he has been regarded as a lame duck, Beame has regained his confidence and is now considering running for a second term next year. To do so he will need labor support.

What Beame seems to be banking on is an eventual extension of the 1978 deadline for achieving a balanced budget, along with other policy changes in Washington. The biggest federal assist would be a reform of the welfare system that would shift the municipality's share of costs to Washington. Before endorsing Jimmy Carter last month, Beame elicited a promise that Carter would work for just such a change.

City Hall will probably look to Washington no matter what happens in November. Beame still seems to be a gambler betting on an unseen card. He appears to be following the dubious premise that it will be easier to bargain with the President of the U.S. than the presidents of the city unions.

*Open enrollment, the controversial and expensive policy that did away with academic admission requirements, is also being dropped.

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