The Streets Were Paved with Gold - Ken Auletta [170]
The city’s annual debt service payments continued to devour an astounding portion of the budget—24¢ of each locally raised dollar in 1978. The $2 billion tab was the same the city paid in 1975, though slightly less than the $2.3 billion paid in 1976. In the long run, admitted Keilen, “total debt service will rise somewhat.” MAC had succeeded in stretching out the city’s debt repayments, but such stretches also swell the interest charges for future taxpayers. In July 1977, for instance, MAC refinanced $2.5 billion of city and MAC securities held by the banks and city pension funds. MAC Chairman Rohatyn boasted that between 1978 and 1984, the city had reduced its debt service payments by $1.3 billion. What he didn’t advertise was that this stretch would burden future taxpayers with an additional $1.7 billion in interest over the longer life of the new bonds. To gain breathing room, the city was doing what it had always done: pay less now, pay more later.
“The cure for New York’s fiscal crisis may prove worse than the disease,” warned Howard Samuels in 1975. Instead of pushing for lower interest rates or demanding Washington’s help to radically restructure and reduce the debt service burden, or, more drastically, seeking relief in the courts, the city and its new fiscal overseers once again made decisions on the basis of short-term rather than long-term consequences. “In retrospect,” reflects a city official who has been at the center of the fiscal recovery effort, “bankruptcy would have been the best thing for the city in 1975. You could have refinanced the city’s debts rather than refunding more costly MAC bonds. The city could have received relief from costly pension contractual obligations. Bankruptcy would have ended the viselike power of the unions [and the banks]. It might have changed the political make-up of the city.” Maybe.
I have always believed bankruptcy was intolerable. But so is what the city has done. As was true in Vietnam, the city ignored past lessons and was pulled deeper and deeper into debt. By 1978, Rohatyn—ignoring the lessons of the UDC’s 1975 collapse—urged the state to place its “moral obligation” behind the city’s bonds because they could not be sold without it. When the State Comptroller and Senate Majority Leader Anderson wondered aloud why the state’s moral obligation backing was needed if the city’s bonds were truly secure, Rohatyn and others double-talked, obfuscating the issue. Simply put: New York bonds were not yet credit-worthy.
By 1977, Mayor Beame—ignoring the fiscal crisis and the city’s future deficits—acted as if the war was over. His reelection year budget was stuffed with goodies. Rather than slashing the city’s work force by 7,523, as he had promised on January 6, 1977, he announced the hiring of 9,400 additional workers. For the duration of his campaign, Beame stopped the attrition clock from running, temporarily ending the agreed policy of shrinking the work force. Many laid-off workers were given federally funded CETA jobs, with the city paying the difference between their former city pay and the federal CETA ceiling of $10,000. Workers were promised cost-of-living adjustments; taxpayers got longer library hours, more police, the reopening of subway toll booths; the crime-fighting District Attorney offices got a 20 percent budget boost. As Lindsay once shut his eyes to a shrinking tax base, Beame shut his to the city’s spreading deficit. “I estimate we came out of the year 1977 with an expenditure base that was $200 to $300 million higher than it had to be,” claims former State Budget Director Peter Goldmark.
The city’s new fiscal monitors—the state MAC and Control Board and the federal