Harvard Law School Makes Online Zero-L Course Free for All U.S. Law Schools Due to Coronavirus
For Kennedy School Fellows, Epstein-Linked Donors Present a Moral Dilemma
Tenants Grapple with High Rents and Local Turnover at Asana-Owned Properties
In April, Theft Surged as Cambridge Residents Stayed at Home
The History of Harvard's Commencement, Explained
New York City has staggered and stumbled but somehow maintained a precarious balance in the four officials years of its fiscal crisis. Following the intricate, day-to-day, financial derring-do that allowed the city to stay marginally solvent has presented formidable problems for even the most dedicated newspaper reader, but understanding what the crisis has really meant has been most impossible. The shouts of the city, the unions, the banks and the public have drowned out all but the most superficial explanations of what happened, and, more importantly, why.
Ken Auletta, former politico, now columnist for the New York Daily News and commentator for New York public television, wrote The Streets Were Paved With Gold to sort out how the self-proclaimed greatest city in the world self-destructed. His book is the best overview and analysis yet to appear of the four years of near bankruptcy and the circumstances that led to that debacle. Auletta's discussion avoids hackneyed liberal or conservative interpretations and provides convincing explanations of where the fault for New York's troubles lies.
Dismissing New York's problems with a wringing of hands and perfunctory laments about federal support of the Sunbelt the flight of the middle class to the suburbs, and the greediness of banks and unions, achieves nothing, but Auletta notes that New Yorkers have been offered little more. He says to blame "historical and economic forces, everything and everybody, is to blame nobody. We run the risk of learning nothing from what happened to New York. So Auletta looks at each party's involvement in the collapse and outlines specifically how each is responsible.
The primary culprit is the city itself. "At the risk of overdramatization," Auletta cites 21 "original sins" which the city, state and federal governments committed. In addition to rather prosaic "sins" like the growth of the suburbs and high taxes, Auletta reveals financial shenanigans that politicians and bankers employed to allow the city to continue its spendthrift ways. His discussion of the Nelson Rockefeller championing of moral obligation bonds clearly explains how an irresponsible procedure, responsibly put forth, grew into common practice. Moral obligation bonds, designed by then little-known bond lawyer John Mitchell, allowed the state to sell bonds to the public without voter approval, as had previously been the rule. Rockefeller claimed that projects funded by moral obligation bonds would pay for themselves, but because the government invested them in non-revenue producing projects, they did not. When the Urban Development Corporation defaulted on its moral obligation bonds in February 1975, no bank would lend the city any more money.
The city needed loans because of a practice, begun by Mayor Robert F. Wagner Jr. in May 1965 of borrowing short-term notes, payable within one year, to fill budget deficits. As if that was not bad enough, Wagner's collateral for the loans was Bond Anticipation Notes (statements of what the mayor expected to collect in taxes) based on the mayor's own estimate of the next year's revenues, rather than on last year's revenues. The effect of this practice, continued under subsequent administrations, allowed mayors to anticipate much more revenue than they knew the city would receive, so they could keep borrowing. Predictably, short-term debt rose from $526 million in 1965 to an astounding $4.5 billion in 1975. Now, of every dollar the city collects, 24 cents pays off debts. Despite the manifest irresponsibility of borrowing on this scale, the banks continued and continue to loan the city money. Enormous interest payments--all tax free--did nothing to encourage fiscal responsibility.
But the central question of the fiscal crisis, and of Auletta's book, is why did New York need to borrow all this money in the first place? He answers by calling the city "Liberalism's Vietnam" and provides a cogent parallel of how "more money, more programs, more taxes, more borrowing--didn't work here; just as more troops, more bombs, more interdiction, more pacification programs didn't work" in Vietnam.
Auletta says that New York thought too much with its heart. The nation's highest welfare benefits, a huge public payroll, over-generous union contracts, and high taxes on businesses were all good-hearted policies, but in the long run, they drained the city of its resources. "Whether money is spent, becomes more important than how money is spent." (italics in original) Auletta says the South Bronx renewal project typifies the preoccupation with doing the charitable thing, rather than what makes sense. The federal government has offered New York money to build housing in the desolate South Bronx and the city took it, "forgetting that the amount of money Carter offered is inadequate to the task, that there are still viable neighborhoods that could better use limited resources. No, the South Bronx is an outrage! We will not tolerate outrages!" Because "New York politics was bursting with a quasi-religious fervor," New Yorkers transformed essentially nonideological issues, like balancing the budget and educating children, into moral crusades.
In the great struggle to right wrongs, fiscal irresponsibility didn't matter, because the city had a clear conscience. So the city borrowed too much money because it could always be paid back later, paid its employees too much money because they were the underdogs of another era and taxed its businesses too heavily because it was good to take from the rich and give to the poor. In the end, everyone lost-out, or left.
But why is the city still losing? Why has so little changed? Auletta's depressing answer cites the development of a "local equivalent of a military/industrial complex--what one might call a public/profit complex," an assortment of power brokers from the unions, the banks, the local, state and federal government. They have united in the effort to stave off bankruptcy, but in so doing, "the same absence of opposition, of rigorous checks and balances, which helped cause the fiscal crisis now rendered it nearly impossible to cure." The faces and even the titles of the protagonists have changed, but the public, or even its representative, does not even appear in the play.
Auletta writes in short, clear and unembellished, journalistic prose--a blessing in the long, complicated sections about city finance, but often tiresome in more analytic passages. Almost every paragraph begins with a short, declarative sentence, a basically sound idea, but one which suffers from great overuse. More careful editing and proofreading--the book is riddled with typos--would have helped enormously.
In his conclusion, Auletta ridicules Mayor Edward I. Koch's vision of a renaissance in the city. He feels that Koch has been as promiscuous with city funds as his predecessors; and that the mayor has not yet confronted the issues--growing debt and budget, shrinking tax base, et al.--that will determine whether the city lives or dies. On Koch's efforts, Auletta quotes the Wizard of Oz's excuse to Dorothy: "I'm really a very good man, but I'm a very bad wizard."
The sins of the municipal fathers have placed New York City in a position where only the most drastic measures can restore it to a competitive position among American cities. Auletta never specifies what exactly should be done--that is not what his book is about. It is about a city that sought to do too much--to give what it didn't have, to take what it could not use. Auletta says the city wasn't murdered. It committed suicide.
Want to keep up with breaking news? Subscribe to our email newsletter.