The Streets Were Paved with Gold - Ken Auletta [12]
The city’s fiscal crisis is a result of this dwindling economic base. Mayor Beame tried to hide it, but the city’s deficit—like the Red Death—kept spreading. The Mayor’s final budget, offered in the spring of 1977, projected a gap of $86 million for fiscal 1978, not counting over $700 million of expenses still financed by the capital budget. Running for reelection, Beame strove to paint the best face on things, claiming that there was “light at the end of the tunnel.” Running to get away from political responsibility for the city, the state Emergency Financial Control Board, which since 1975 has been empowered to oversee city finances, claimed that the budget was “technically balanced.” Soon after Beame lost the September 1977 primary, the same city officials who tiptoed behind his $86 million claim suddenly discovered that the gap had widened to $468 million. Beame corrected them, giving the new figure of $249 million. In January, the new Koch administration presented to Washington a four-year financial plan that pegged the city’s true gap at $1.022 billion, not counting the cost of new labor contracts.
While Beame was painting a rosy picture, the city’s official prospectus to potential investors was gloomy. The May 20, 1977, 141-page “Official Statement” received little notice but is worth quoting. By June 1976, it reported, the city’s debt totaled an average of $1,476 for each of the city’s 7.5 million residents, a sum approached by no other city in the country and representing an increase of 25 percent in one year. And this total $12.6 billion debt did not include the $8.5 billion “unfunded accrued liability” it said was owed future city pensioners. The report also showed that the value of city real estate had declined and that debt as a percentage of the total value of taxable property reached 28.6 percent—up 45 percent in one year.
Manhattan property values soared by over $200 million in 1977, but City Comptroller Harrison Goldin reported in early 1978 that $214.2 million worth of real estate was removed from the tax rolls that year—the third consecutive year in which the value of city real estate declined. Outside mid-Manattan, abandoned housing multiplies like a cancer. There are 25,000 pieces of property—now mostly razed buildings and lots—off the tax rolls. Even more serious, according to Deputy Mayor Herman Badillo, by June 1979 “the city will pick up a minimum of 25,000 buildings this year.” These buildings, called IN REM properties, are being abandoned by landlords usually because they lose money. Said Badillo, “That means the city will be forced to take over 150,000 apartments, or over one-half million people this year. That’s a disaster. That’s a whole city.” Shaking his head, Badillo added, “By the end of the year the city could have 50,000 to 60,000 buildings.”
Housing Commissioner Nat Leventhal pegs the number at 25,000 and says there are three alternatives: the buildings can be sold to tenants or to landlords, hopefully returning them to the tax rolls, or the city itself must own and manage them. When I asked Leventhal the “optimum” percentage of buildings he thought could be returned to private or tenant ownership with the most vigorous city effort, he answered, “Perhaps 15 percent.”
Thus the city program is destined to fail even if it succeeds. For the foreseeable future, the city will be saddled with the fuel and other costs of managing these buildings. Worse, it is deprived of real-estate taxes, its prime tax source. And it has a difficult task in collecting