The Big Apple on the Brink

New York City is an exciting, exceptionally varied metropolis that offers everything people could ever want -- and an awful lot of things they do not want. Notable among the latter is an incredible fiscal problem: the Big Apple is slowly going broke. Its budget is expected to be in the red by at least $120 million in this fiscal year and by almost $900 million next year. A few experts even suggest that the city start afresh by reorganizing its finances under Chapter IX of the Federal Bankruptcy Act. Last week the daily American Banker reported that New York might even have to default on $450 million worth of notes that are due April 14.

Base Pay. Inflation and recession have driven the city's expenses $280 million higher than anticipated in this fiscal year, to a breathtaking $12.5 billion, and the recession has cut tax collections by $150 million. That is a financial headache as big as the Waldorf for New York's mayor, Abraham Beame.

New York sometimes seems to be run not so much by its elected officials as by the heads of its powerful civil service unions -- men like Albert Shanker of the teachers union, Ken McFeeley of the Patrolmen's Benevolent Association and Victor Gotbaum of the municipal employees union. Over the years, those organizations have wrenched some extraordinary settlements from the city. A garbage collector's base pay after three years is $14,800. A policeman can retire at half pay after 20 years on the force, and probably collect more money in pension before he dies than he ever did in wages. A high school teacher can insist on no more than 34 students to a classroom. In the past decade, though the city's population has declined, the number of its employees has risen 38%, to 340,000 -- and the average of their salaries has crept up 10% each year.

The city has met its growing financial needs by using fiscal gimmicks, such as postponing city contributions to employee pension programs. To get by, the city simply borrows -- and borrows and borrows. Its total debt burden hit $13.7 billion this year, and the city has begun issuing new short-term notes virtually every week simply to meet its payroll. The eleven major local banks that underwrite most of the bonds and notes are not only protesting but also squeezing the city to become prudent. Led by Ellmore Patterson, the chairman of Morgan Guaranty Trust, the bankers have ended their competitive bidding for new issues. They are now demanding detailed daily information on the city's financial condition. Municipal officials must sit down for protracted and embarrassing negotiations before the bankers will agree to market its securities.

Welfare Systems. How did New York City get into such a mess? The trouble started at least two decades ago under Mayor Robert Wagner. In the name of good labor relations and even better politics, Wagner encouraged the growth of the city's civil service unions. His successor, John Lindsay, tried at first to tame the unions, but they only grew stronger. Lindsay also favored the unwise practice of borrowing to meet the city's operating expenses, not just its capital construction projects. Moreover, New York offers a number of services unavailable in many other cities: free four-year colleges, subsidized day care and a wealth of cultural programs. Its mammoth welfare system disburses some $1 billion a year.

To pay for all those services, New Yorkers bear skyscraper-high taxes. A family of four with a taxable income of $15,000 pays $179 a year in city income tax, in addition to $476 in state income tax and hefty sales, cigarette and gasoline taxes. Not many citizens think that they are getting their money's worth.

Students in the city's schools consistently score below national norms on standardized tests. The streets are pocked with potholes and snow removal is sluggish. More and more middle-class residents and the companies that employ them are fleeing to the suburbs, eroding the municipal tax base.

Now the beleaguered Beame has to shepherd the city through a crisis he did not create. But the mayor has a few advantages. A homespun accountant who joined the city government in 1946, he can speak to the civil servants with rolled-up-sleeves rapport. Union members do not distrust him, as they did John Lindsay. Unlike Lindsay, who was always feuding with Governor Nelson Rockefeller, Abe Beame gets along well with Governor Hugh Carey -- an asset in a city that receives almost one-third of its budget from the state. In addition, the city's ambitious comptroller, Harrison Goldin, an earlier critic of Beame's financial housekeeping, has quieted down to help out in a time of need.

Beame is struggling to bring down the budget. He braved union opposition to begin layoffs of thousands of city employees, won concessions that would lead to policemen's working five days in the next 15 months without pay, and tightened work rules in a number of city departments. Last week he announced that he would sharply curtail the city's borrowing, reduce police, fire and sanitation services, increase teachers' workloads and raise real estate taxes by 10%. The measures are designed to save the city some $135 million in the fiscal year that begins in July, and to impress on local bankers that .Beame is serious about curbing New York's profligacy. The Beame scheme may be working; shortly after His Honor spoke, First National City Bank Chairman Walter Wriston declared that the city was "fortunate" to have a mayor "so well equipped to read the numbers."

Labor leaders, however, are fighting back. The teachers union threatens to sue the city to prevent an increase in workloads, and the policemen want to cancel their agreement for five payless work days. Meanwhile, Beame is also struggling to squeeze more money out of Albany and Washington and is lobbying for the creation of a federal agency to buy municipal bonds at low interest rates. If he is not successful on these fronts, the city will be forced to take other measures. Among the possibilities: increasing various city taxes, raising the subway fare from 350 and charging tuition at city colleges. Last week Beame bluntly told New Yorkers that they will have to accept reduced services or higher taxes -- or, more likely, both. "You can't pay bills without money," he said. "The city is no different from the home."

If there is a silver lining somewhere in the clouds over New York, it may be that the city's financial problems have become so serious that civil servants and other New Yorkers are willing to accept sacrifices that should have been made years ago. Otherwise the nation's biggest city could become not even a nice place to visit.

This file is automatically generated by a robot program, so viewer discretion is required.