New Yorkers are perennially putting up with cheap ’70s nostalgia: In the public eye, our city is forever associated with the music, movies, fashion, drugs, and other hallmarks of that gritty decade. But even now, when no one is going to Serpico screenings at Film Forum or punk shows in dank DIY venues, we seem to be on the cusp of retreading New York’s era of impoverishment and malaise—and not the parts that anyone has missed. For this we can thank the massive hole that the coronavirus crisis has blown through the city’s budget, and the widespread view that there’s nothing the city can do to avoid further deprivation but cut, cut, cut.
Right now, Mayor Bill de Blasio wants to raise taxes and borrow $5 billion to maintain city services and close the budget gap. New York City media outlets and power brokers, however, have framed the fiscal crisis as a repeat of the near-bankruptcy of 1975: A profligate liberal mayor who’s out of his depth wants to mortgage the city’s future because he’s too weak to take the harsh medicine of austerity. The New York Times’ first headline on de Blasio’s request to Gov. Andrew Cuomo for authorization to issue emergency bonds was, “Virus Forces N.Y.C. to Consider Tactic That Nearly Led To Ruin in ‘75.” In an editorial this month, the paper called for deep cuts to the city’s budget and workforce. A former top aide to Mayor Michael Bloomberg argued in an opinion piece for the New York Daily News that the city had to come to grips with the likely loss of its economic base.
Most importantly, Cuomo himself has tried to connect de Blasio’s requests to the pains of the 1970s. “We don’t want to create a situation where the state or any local government borrows so much money that they can’t repay it, and then you have to start to cut service and now you’re in that vicious downward spiral,” Cuomo said back in May. “New York City has been there before.” At the same time, he has steadfastly refused to raise taxes on wealthy New Yorkers, believing that they will just leave the city and state rather than pay, as they did during earlier periods of white flight. Cuomo has suggested that if federal help doesn’t arrive—unlikely, since Congress had been deadlocked on passing more economic relief even before there was a Supreme Court vacancy—then localities will have no choice but to make brutal budget cuts.
That would be foolish—even if, to a certain extent, the conviction among the city’s establishment that New York is reprising grim ’70s history is understandable. Quality of life really has deteriorated since the onset of the pandemic, and de Blasio can sometimes seem like a combination of the mayors who presided over the earlier fiscal crisis, John Lindsay and Abe Beame: a freakishly tall brownstone-belt liberal who can’t be trusted to give straight answers on questions of governance. But the analogy between the two emergencies is profoundly misleading. Worse still, the belief that 2020 is 1975 redux could be self-fulfilling, with catastrophic consequences for New York, not to mention city governments around the country facing similar choices as they gaze out at a fiscal abyss.
To understand how different 2020 is from 1975, it’s worth revisiting the causes of that earlier brush with bankruptcy, which were decades in the making. From the Great Depression through the 1960s, New York City attempted to institute social democracy in one city. It provided its citizens with an array of educational opportunities, cultural amenities, and social services that were unique in the United States, as well as numerous public-sector jobs. This didn’t seem so crazy when the city had ample federal help and a thriving economy based on light industry like clothing manufacturing and its enormous port. After World War II, however, suburbanization, deindustrialization, and the containerization of shipping chipped away at the city’s population and economic base. At the same time, an influx of poor nonwhite migrants from the South and Puerto Rico, who were shut out of what dwindling jobs remained thanks to racial discrimination, meant demand for city services was never higher. The funding structure of the Great Society welfare programs, which mandated states and localities match the federal government’s payments, imposed huge entitlement obligations on the city. Mayors relied on banks to keep the city afloat without cutting off its poorest residents. But as the financial sector innovated and globalized during the late 1960s and early 1970s, small banks that had previously considered it a civic duty to support local governments were surpassed by megabanks and institutional investors with no such loyalties. Investors had more attractive opportunities than municipal debt, and lending to the city dried up.
The more apt comparison is not the 1975 fiscal crisis, but 9/11.
On the eve of the pandemic, by contrast, New York City enjoyed its most robust economic health in living memory. According to the city comptroller, New York’s economy grew faster at the end of 2019 than the country as a whole, when the national economy was going gangbusters. The city was attracting thousands of high-paying tech jobs even as it refused, under public pressure, to grant companies like Amazon sweetheart tax deals. In February, New York City’s unemployment rate was 3.4 percent, the lowest on record. The city was projected to gain half a million more residents by 2040, when it would be more populous than at any point in its history. With memories of “Fear City” long banished, New York was the most popular tourist destination in the Western Hemisphere. The city’s budget had expanded by billions under de Blasio, but it wasn’t paid for by out-of-control borrowing. Indeed, strict reforms instituted after the 1975 crisis make it impossible for the city to routinely accumulate so much debt.
So the more apt comparison is not the 1975 crisis, but rather 9/11: an exogenous shock that killed and sickened thousands, disrupting an otherwise healthy local economy. Except it’s much bigger: The coronavirus has killed 10 times more New Yorkers than the attacks on the World Trade Center and frozen its economy for longer.
After 9/11, the city’s leaders did exactly what de Blasio is now begging the governor to let him do. Two days after the attacks, the state Legislature allowed New York City to issue $2.5 billion in bonds paid off over the course of the next 20 years. When Bloomberg became mayor the following year, he raised property taxes and the city’s income tax on the highest earners. No one batted an eye. The city recovered quickly.
There’s every reason to believe a similar combination of emergency bond issuance and higher taxes will work in 2020. The bond-rating agency Fitch concluded last month that while the city’s economic growth may have slowed, its post-1975 fiscal controls should dispel any notion of a debt crisis, and New York’s unique status as America’s premier financial, media, cultural, and tourism hub should provide a strong base for future expansion. When the city issued $1 billion of more routine general obligation bonds at the end of August, it received orders for twice that amount. The surge in demand for New York City debt drove yields on 10-year notes down to an extremely low 1.45 percent, suggesting there is no danger of falling prey to usurious interest rates, as Cuomo has suggested.
Likewise, the idea that the wealthy will flee New York because of higher taxes is a myth. After all, New York already has high taxes on its highest incomes, and it also has more billionaires than any state except California. Rich people are leaving Manhattan right now, but not Brooklyn or any other part of the city, and they are going to suburbs where they will face much higher property taxes. Studies of tax return data show that the rich do not flee states that impose higher taxes on their wealthiest residents. Other states like New Jersey and California actually saw their wealthy population increase after they imposed millionaires taxes in the early 2000s.
If the rich do leave New York City, it’ll likely be the deterioration of city life during the pandemic that pushed them out, not taxes. But that deterioration is not inevitable. East Asian cities have returned to a good degree of normality even without a vaccine. In Seoul, white-collar workers of the kind who have vanished from Midtown Manhattan returned months ago to open-plan offices with a few changes to layout and behavior, and occasional returns to lockdown following local spikes in cases. But that kind of civic resilience depends on funding effective government services—the very thing Cuomo’s abstemiousness would prevent.
Should New York City be forced to implement austerity, then the city’s economy simply won’t recover anytime soon. Cuts to public health will lead to rising coronavirus case numbers. Cuts to sanitation will lead to filthy commercial corridors and reductions in foot traffic. Cuts to education will drive families out of the city. Cuts to mental health and homeless services will leave more vulnerable people out on the street. Cuts to transit will strand people far from jobs. Austerity will create a vicious cycle whereby reductions in services and infrastructure drive out businesses and residents, reducing the tax base, necessitating further cuts. If steep budget cuts drive the city to that extreme, then even when the virus is eventually contained, the tourists and business clients who sustain the sectors of the economy currently on life support, like hospitality and entertainment, won’t bounce back. Debt and taxes aren’t fun, but they’re a whole lot better than the alternative of imminent ruin.
This is not just a New York problem. In the absence of any federal money, every state and city in America is facing a fiscal apocalypse, with local tax revenues projected to fall by a trillion dollars by 2022. If Cuomo falls back on decades-old received centrist wisdom that There Is No Alternative to austerity, ignoring the wealth of evidence that borrowing and higher taxes are a necessity right now, he will set a dangerous precedent for his peers around the country. This crisis is just happening, as things so often do, first and biggest in New York.
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