The following appears in the September 24-30 issue of the Long Island Business News:
In a terrific new book, “The Man Who Saved New York: Hugh Carey and the Great Fiscal Crisis of 1975,” authors Seymour Lachman and Robert Polner describe the herculean job the Empire State’s 51st governor did to save New York City from bankruptcy. The authors correctly conclude that “although often underappreciated by the public, it was Carey’s force of will, wit, intellect, judgment and experience that allowed the state to survive this unparalleled ordeal and ultimately to emerge on a stronger footing.”
When in the first month of his administration, then Gov. Hugh Carey told the public that the “days of wine and roses are over,” no one, not even the new governor himself, knew quite how true his remark really was. Then, as now, New Yorkers were the most heavily taxed citizens in the nation, and their state had the highest public debt. Viewing the financial mess Carey inherited, former Gov. Nelson Rockefeller said, “Poor Hugh. I spent all the money. And it’s no fun being governor of New York if you haven’t got the money.” And it wasn’t fun. On Feb. 25, 1975, the New York State Urban Development Corp. defaulted on $104.5 million in short-term notes when the state Legislature refused to appropriate the money. Ignoring the state’s “moral obligation” to pay principal and interest due to UDC debt holders was devastating.
Suddenly the state, its agencies, as well as local municipalities throughout the state, had trouble borrowing. New York City officials told the public that the “recent default by the state UDC has created an unwarranted climate of suspicion in the marketplace.”
After four weeks of this, Carey persuaded the Legislature to come up with the money they “morally” owed. He hoped to add some sense of stability to the debt market.
But UDC was only one of the crises Carey had to face; 1975 was also the year New York City’s fiscal house of cards collapsed. After years of mismanagement, budgetary gimmicks, phantom revenue, huge permanent short-term debt and the capitalizing of operating expenses, the financial markets closed their doors to the city.
Carey, grasping the magnitude of the situation, forced the city to begin internal reforms and created the Municipal Assistance Corp., which was empowered to restructure the city’s debt and to monitor its fiscal condition. In September 1975 he announced, “far-reaching steps were taken or agreed to by the city, in close consultation with the state and the recently formed Municipal Assistance Corp. for the City of New York to improve its condition.” They included:
• A ceiling on the size of the city’s budget;
• a moratorium on additional taxes;
• the dismissal of thousands of municipal workers and a freeze on new hiring;
• a suspension of wage increases of city employees.
These measures were not enough to restore investor confidence, and in November 1975 the City defaulted by decree of the state Legislature. Moratorium legislation was enacted on $2.6 billion of notes. Holders of the paper were offered MAC bonds in place of principal payments. Later, Carey convinced President Gerald Ford to sign legislation permitting short-term federal loans up to $2.3 billion a year.
Most remarkable was Carey’s successful negotiations with public employee unions. A.G. Andrew Cuomo summed it up best in a Daily News Labor Day op-ed: “The state recovered through shared sacrifice and a balanced approach that did justice to the interests of both business and labor. … Famously tough labor leaders, like District Council 37 head Victor Gotbaum and Albert Shanker, president of the U.F.T., came to the rescue. The former agreed to shelve pay raises for municipal workers; the latter helped stave off bankruptcy by buying city bonds with pension funds.”
Through a combination of Irish charm and steely Brooklyn smarts, Carey devised plans that saved New York. Our new governor, who will face a broke and corrupt state government, would do well to study with care the lessons of the Carey administration.