Political Whisperer
By Robert Hornak
New York City has been here before. It did not go well then and the city is likely to go through a similarly bad experience this time around, and maybe worse.
Just last year the Citizens Budget Commission published a 50th anniversary retrospective on the 1975 fiscal collapse of NYC. Their assessment of this event was that “Fifty years ago, New York nearly collapsed under the weight of its own ambitions. The City tried to lift up all people by funding an expansive array of programs it could not afford with money it did not have – borrowing against future and even phantom revenues.”
The Rockefeller Institute of Government also looked back at the crises and reflected that in 1974. “the annual deficit had reach $487 million. The City maintained spending and services by borrowing to cover these operating expenditures. In 1974, New York City borrowed $2.2 billion to offset deficits and finance other capital projects. In the same year, the City’s outstanding debt has reached $13.5 billion.”
In the spring of 1975 “the banks reviewed the City’s revenue projections and decided they would no longer underwrite the notes and bonds of New York City. The City could no longer borrow money to operate and by April of 1975, New York City ran out of money.”
In October of 1975 NYC had a debt payment of $453 million due, money that it was completely unable to pay. The city went into default. Then President Ford gave a speech refusing to bail the city out, leading to the famous Oct 30, 1975 Daily News headline: “Ford to City: Drop Dead”.
If any of this sounds eerily familiar it should. Earlier this year the major credit rating agencies, including Moody’s, Fitch, and JP Morgan all downgraded NYC’s financial outlook to negative, based on record high spending, structural budget deficits, and reliance on gimmicks and one shot revenue sources.
Now, budget watchdogs, including City Comptroller Mark Levine, are planning to testify to the City Council that the budget gap for 2028 and the following years will continue to grow to destructive proportions, with Levine projecting it to be $8.8 billion in 2028, and the CBC projecting the deficit to grow to $9.8 billion by 2030.
Levine released a statement in advance saying, “We will face that gap without the option of the many one-shot measures that we used up this year.”
The city was able to push off for two years $1.4 billion that it will be required by the court to spend to reduce class size. But Mamdani has also refused to adjust school budgets to reflect the drop in enrollment throughout the system. The Chancellor recently told the City Council, “We need to ensure that our schools are well-funded, despite the fact that we’ve seen enrollment declines.”
This in spite of the fact that NYC now spends $42,000 per student, but now we have phantom students in the system, and at the highest cost per student of any school system in the nation.
There are many ways to cut the budget, including not paying for students that don’t exist. But Mamdani is refusing to make unpopular choices and is unwilling to do anything to put the city on firm fiscal footing.
The CBC describes what happened after the 1975 default, “With federal support denied, the State backstopped funds, created the Municipal Assistance Corporation, the Financial Control Board, and the nation’s most stringent financial systems, practices, and controls for the City to follow. With banks still unwilling to lend, business, labor, and government leaders worked toward a deal to use public employee pension funds to buy MAC bonds to finance the City’s budget. The final piece of the puzzle came the afternoon of October 17, 1975, when the United Federal of Teachers finally agreed to join in, allowing the City to avoid default.”
Everyone says that times are different now. And yes, they very much are. When the next default comes, does anyone see all these groups coming together again to save NYC? Last time it took years and Rudy Giuliani to turn things around. Sadly, yes, much has changed.
Robert Hornak is a veteran political consultant who has previously worked for the NYC office of the Republican Assembly Leader and served as Executive Director of the Queens Republican Party. He can be reached at rahornak@gmail.com and @roberthornak on X.
