The Streets Were Paved with Gold - Ken Auletta [49]
Which is precisely what came out of John Lindsay in 1977. Talking about the city’s 1975 fiscal crisis, the former Mayor broke a long silence and told writer Harry Stein, “As long as I live I will insist I wouldn’t have let it happen. We would have acted quick! Decisively!” Pounding his desk twice with an open hand, he continued: “That was our way, to confront problems head-on, to do anything that had to be done.”
Budget Notes
Faced with an emergency cash shortage, in 1942 the State of New York for the first time issued budget notes. Such notes require repayment within a year, and, in this case, were promptly repaid. In fact, to underline the emergency nature, the 1942 legislation said notes were permissible in times of “epidemics, riot, flood, storm, earthquake or other unusual peril.”
Looking at the city’s recent history, it appears that epidemics, earthquakes and floods were annual events. A truly “unusual peril” confronted John Lindsay in 1971. To balance the budget, city officials ballooned their forecast of federal aid—a device pioneered by Governor Rockefeller, who used it to balance the state budget. When Congress failed to pass revenue sharing, the city was caught short by several hundred million dollars. No problem, soothed Rockefeller, cracking the whip on the legislature to permit issuance of city budget notes. On June 17, 1971, the Governor signed an amendment to the Local Finance Law allowing the city to patch its deficit. If the city couldn’t meet yearly installment repayments by 1974, the legislation said it could return to Albany and the state “will make a first instance appropriation.”
That month, Lindsay issued more than $300 million of budget notes to cover inflated revenue estimates. The following April, he asked for permission to issue $400 million more. Instead of repaying a part of the original notes each year, as the legislation stipulated, the city merely rolled over this debt, folding it into new borrowing. No heed was paid to the warnings of the Citizens Budget Commission. On April 16, 1972, the Commission issued a study that criticized the issuance of budget notes because it “enables the city to live beyond its means in a given fiscal year” and creates a “double burden” for future taxpayers who must both repay the debt and maintain the spending programs the debt made possible. Asked to comment, Budget Director David A. Grossman said the borrowing was “legal” and “taxpayers would be concerned if we had to raise anything like the $400 million from taxation. It was because of his feelings that the taxpayer was already too heavily burdened that the Mayor instructed me to prepare a plan that would not involve extra taxation.”
By 1974, when the original notes were due, the city was saved by a state election. Malcolm Wilson, the conservative Republican who was Rockefeller’s Lieutenant Governor and automatically became Governor when Rockefeller resigned, wanted to prove he was a friend of the city’s. At Mayor Beame’s request, he signed into law, on May 30, 1974, a bill creating the New York City Stabilization Reserve Corporation. It’s purpose: to issue new notes.
Had the investors read the legislation, perhaps the credit market would have closed in 1974, not 1975. The legislation states:
The Legislature finds and declares that the City of New York is faced with a grave and unprecedented fiscal crisis which threatens