There was a default on debt politely retitled a "moratorium" which was later found unconstitutional; there were deadlines when it looked like the city would run out of cash and not be able to issue paychecks or welfare checks; there were widespread layoffs of public employees. And for half a year the federal government refused to help, culminating in a famous Daily News headline that read, referring to President Gerald Ford: "Ford to City: Drop Dead."
I served as budget director for the state during that crisis. Of the figures central to meeting the challenges we faced -- Gov. Hugh Carey, his chief aide David Burke, financier Felix Rohatyn, labor leader Victor Gotbaum, and Paul Volcker, then president of the Federal Reserve Bank of New York) -- I am the only one still living.
In that 1975 crisis, the role of New York State became key, and through discipline, sacrifice, and new institutions and patterns of cooperation, New York City did not "drop dead."
From that experience, as different as it was from the crisis we face today, there are lessons and principles that remain touchstones. One broad lesson is the need for state governments to take the lead on certain issues, especially when the federal government is divided or uncertain. A second is to put in place machinery to assure the continuation of essential services.
The crisis today is national and it is quite different, even though the Senate's GOP leader has mused about the idea of letting states go bankrupt, echoing the federal government's indifference in 1975. This time two forces, the coronavirus pandemic and a shriveling economy, threaten to tie us in knots. Here are a few thoughts about what the states and cities can do to help us move forward.
1. Dwindling revenues and stressed hospital and other municipal systems threaten the operational and budgetary viability of states and large cities. The states need to create emergency financial mechanisms with the capacity to restructure existing public debt where appropriate, and to authorize and, if necessary, assist banks and community lenders to "stretch out" repayment dates for people who hold mortgages and other loans where confinement or shutdowns have temporarily interrupted family incomes. Those structures and resources should not be used to shore up weak state or local pension systems; that is a problem for later.
2. Continued operation at the state and local level of such key services as police, fire, sanitation, health and hospital facilities, welfare, education, and new functions, such as assuring safe and reliable delivery of food from farm to market, is vital. If necessary, states should impose limited emergency taxes that would provide new revenue sources without affecting families in the lower 80% of the income scale. (In New York State, for example, temporary imposition of an emergency stock transfer tax meets that test.)
3. The states, and particularly New York, should start designing and launching their own job intensive recovery programs. State governments should invite local governments, non-profits, and in some cases private companies, to propose and apply for public funding for job intensive public service projects, such as maintenance and regular disinfection of public transportation systems and other essential facilities; the operation of farm-to-market food supply systems and community food banks; and on a crash basis, modification of voting places statewide to provide safe and timely balloting in November. New York, with its broad array of public authorities, is well positioned to launch such a program.
4. The states must start planning for a national, job intensive, infrastructure capital investment program. This program will require significant federal financing and guarantees. It should not just rebuild our infrastructure, it should reshape it as part of the basis for a low carbon economy, as we race to avoid another huge crisis that is coming towards us -- a climate change disaster of wildfires, floods, droughts, and storms.
Examples of important national capital programs that could make the US economy more competitive in the long run and create jobs now: massive rehabilitation and upgrading of mass transit systems; conversion of bus fleets to all-electric; rehabilitation of highways, bridges, water systems and other essential life-support systems; retrofit of buildings to be more energy efficient; and design of a modern and interactive "smart" electricity transmission grid, also for the country as a whole, but also for the New York-New Jersey metropolitan region in particular.
5. Wherever possible, we need to connect dollars with work. The emergency unemployment payments are understandable as an interim measure. But in the absence of a more coherent federal program, states should move in the direction of paying people for actual work and maintaining essential services; there is plenty that needs to be done.
One other rule of the road for governors and mayors to keep in mind: be upfront and clear on what we know and what we don't know about the coronavirus, how this pandemic will unfold, or how deep or long the damage to the economy will be.
There is in fact one thing worse for the public than dealing with these uncertainties, and that is to have to deal with definite sounding statements and guidance from public officials that are later withdrawn or disproved. Governors and mayors need to be clear with the public on what is known and what is not known, and that the challenges require that we forge some new paths together.