Weekend Question 4: Did Gerald Ford Save New York City?

ANSWER: Felix Rohatyn thinks so. And he should know.

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Rohatyn says as much in his OpinionJournal.com op-ed on Thursday (bolds are mine):

Ford to City: OK
How the 38th president saved New York.

The year 1975 was a difficult one for the city.

….. a crisis had been building up here for some time. The city’s financial condition was deeply concerning, running a significant deficit as a result of an exodus of private sector jobs and an influx of new municipal employees. Politically New York was always a Democratic city, a union city, with a strong Republican business community and little contact between the two. Morale was bad, the city was dirty, crime was up and the economy was weak.

….. Year after year, and with the support of the state, the city spent more than it took in. It had the choice of raising taxes, cutting spending or borrowing. Naturally the politicians chose to borrow and, in addition, characterized tens of millions of expenses as capital investments. The result was to constantly reduce the city’s ability to make capital improvements while, simultaneously, increasing the debt by $1 billion annually. While the mayor had just agreed to a major pay increase for the municipal work force, no one really knew the level of the city’s deficit.

By the beginning of May we had little over a month to avoid a default–the next debt maturity of $1 billion would occur on June 18. At that point, Gov. Carey, brilliant and courageous, stepped into the picture.

….. Gov. Carey appointed a bipartisan committee of business leaders to review the impact of a New York bankruptcy. The committee unanimously recommended against it because of its unfathomable risks and we turned to a structure which became the Municipal Assistance Corp. The MAC was a financing mechanism, which could sell its own bonds backed by the New York sales tax and which might give the city time to bring its budget into balance. The banks and labor leadership joined in the recommendation and on June 18 the state legislature voted to create MAC. Gov. Carey immediately christened it “Big MAC” and the underwriters began selling its bonds.

….. We created the Emergency Financial Control Board, chaired by the governor, to control the budget. With the EFCB in control of the budget and the MAC in control of the financing, the state effectively controlled the city. The unions went along even though they were kept outside these structures because they knew this was the city’s only chance. They committed to investing part of their pension funds in MAC bonds while the banks extended their existing loans.

….. on Oct. 29, Ford gave his famous “drop dead” speech. He never spoke those words; but he indicated that he would veto any legislation proposing a financial bailout–and the meaning was quite similar. The Daily News engraved them in stone.

….. Ford deserves great credit for his willingness to change his mind. On his return to Washington, he signed legislation providing credit to the city; this unlocked other pieces of the package: from the banks, the pension funds and insurance companies. It saved New York but it did not save his presidency. Jimmy Carter was elected in 1976.

In 1980 the city balanced its budget; in 1981 it re-entered the securities markets and repaid the government guarantees. Since those dark days the city’s recovery was uninterrupted, except for 9/11. New York’s present economic boom is ample proof that those who opposed bankruptcy were right, and that in a crisis, bipartisanship and business-labor cooperation will go a long way. One of Ford’s greatest achievements may have been that he knew when he had pushed New York City to the limit and that, contrary to some of his colleagues, he also knew when to stop.

Between the Nixon pardon, which even most die-hard opponents at the time have come around to agreeing with, the tax cut that served as a bit of a field test for supply-side econ, and the tough-but-fair love for the Big Apple described by Rohatyn, the Ford Legacy looks ever more impressive, and should not be forgotten.