Spotlight On: New York City’s Financial Crisis

When King Ploobis was groveling over Gorch being on the brink of default, the writers weren’t pulling a random idea out of thin air. When Saturday Night Live debuted in October of 1975, New York City was seriously on the brink of default.

“There is no other business I can think of where the proprietor knows absolutely that he will face bankruptcy every year,” John Lindsay wrote in 1970. Following the Second World War, New York City had a boom period which enabled the creation of a lot of social programs and projects. Among these creations was a public university which guaranteed all New York City high school graduates automatic admission, and free tuition. In addition, many bridges and expressways were built during this period, including the Brooklyn-Queens Expressway (aka “The BQE”), the Staten Island Expressway, and the Cross-Bronx Expressway.

The construction of the latter may have led to the City’s eventual downfall. In the 1960s, middle class families began to move out of the city and into the suburbs, and factories were pulling out of the city as well. At the same time, minorities with agraian backgrounds were coming into the city for better economic opportunities, and the jobs available in the city didn’t line up with their skills. As the city entered the 1970s, one in eight people living in New York City was on welfare.

To cover their losses, the city began borrowing money from banks. As a BBC Documentary from 2007 put it:

To make ends meet, the mayor had to become a magician. He had two budget hats. One for day-to-day expenses, and one for long term capital projects. Into the current expenses hat went tax revenues. Out of it, he was supposed to pay for city services. Into the captial project hat went money borrowed by selling city bonds. This money was intended to pay for long term projects like bridges, roads, and hosptials. As the deficit grew, the current expense hat came up short.

But the mayor had a trick. He topped it out with borrowed money, and covered the gap. It was a good trick while it lasted, but when money was needed for capital projects, he found that it was already paying for the salaries of city workers. Soon, the city had no money for building or repairs, and had to keep borrowing money just to pay the wage bill.”

 

By 1975, the municipal bonds that New York City sold to cover its expenses were no longer so enticing to bankers. The city made painful cuts to their budget. Many city employees were forced to take serious cuts to their benefits; other employees were laid off completely. There was a fifteen cent increase in public transportation fares. The City College dispensed with its free tuition. Construction projects were halted. Yet, that wasn’t enough. In order to avoid bankruptcy by year’s end, New York would need help from the federal government.

At first, President Gerald Ford steadfastly refused to aid. Many at the time deemed President Ford’s actions as political posturing, done to impress the GOP’s constituents by sticking it to New York’s smug, lofty elites. This inspired the infamous October 30, 1975 New York Daily News headline: FORD TO NEW YORK: DROP DEAD. At the last minute, however, Ford changed his mind, and made a deal with the city to forward 2.3 billion a year through June 30, 1978.

Yet New York City had hardly hit its nadir.

As mentioned above, The BBC made a documentary titled Nightmare In The City That Never Sleeps that was broadcast in 2007. It goes in depth into New York City’s financial problems leading up to the 1977 blackout, and definitely worth wasting time watching on YouTube:

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One Response to “Spotlight On: New York City’s Financial Crisis”

  1. […] Ford, but Rich Little won’t work for scale.” As Gerald Ford, Chevy Chase discusses New York City’s financial problems. He hasn’t granted New York City federal funds yet, stating: The longer I hold out on New […]

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