A Financial Last Hurrah?

Had anyone wished to stage a cliff-hanging serial to dramatize the squeeze that inflation and recession have clamped on most U.S. cities and even some states, he could hardly have come up with anything more pointed than the fiscal agonies of New York City (TIME, May 26). New York's woes, to be sure, are vastly worse than those of almost any other local government: no other municipality faces a threat of being unable to meet its payroll or pay off creditors. But the difference is one of degree, not of kind; other states and cities are also trying to cope with inflated costs, recession-shrunk revenues and mounting debt. Like New York, they are laying off employees, cutting services (including, in some cases, police and fire protection, and garbage pickup), borrowing heavily against the future and raising taxes--all actions that could weaken the national economy's recovery from recession.

Last week New York's suspense story reached the melodrama stage as Mayor Abraham Beame went before TV cameras to unveil a "crisis" budget of $11.9 billion for fiscal 1976. A patchwork document hurriedly reproduced on copying machines by 150 clerks who worked through the night, the budget calls for dismissals of 37,315 city employees, or one-fourth of the total, including 12.5% of the police department, 2,304 firemen, 8,941 school employees and 2,882 sanitation men. That would come on top of 35,082 job eliminations planned under Beame's previous "austerity" budget, for a total work-force cut of 72,397 by June 1976.

Stopgap Move. In fact, the cutbacks are unlikely to go that far. Beame described his budget as "shock therapy," and it was clearly intended to prod the state legislature into coming through with the $641 million in increased aid and taxing authority that Beame seeks. Last week, in a stopgap move, the state advanced the city $200 million in welfare funds; that will keep the city solvent at least through this week while Beame pursues other means of coming up with the $800 million that the city needs to pay its bills through June and thus avoid a financial last hurrah. Beame in his emotional TV appearance called for a congressional investigation of why New York's giant banks are refusing to underwrite new issues of city bonds, and New York Congressmen are going to start such a probe. Though the banks have reasons--the city's habit of borrowing against future revenues to pay current bills would frighten any creditor--they can hardly relish the prospect of scrutiny by unfriendly liberal Democrats. Municipal unions are trying to get their members to withdraw deposits from First National City Bank, which to them symbolizes the financial community, as a means of putting pressure on that institution to make more credit available to Beame.

Meanwhile, a panel appointed by New York State's Democratic Governor Hugh Carey recommended that $6 billion of the city's short-term debt be bought by the state and converted into long-term debt, a scheme that would greatly ease the city's cash squeeze. Whether or not that specific plan goes through, the outlook is for some sort of compromise under which Beame will get new aid and loans, but less than he seeks, and reduce his layoff plans.

To one degree or another, similar budget juggling is going on in states and cities throughout the U.S. Normally, spending by states and cities tends to rise constantly and put a prop under business in good times and bad, but this year the picture is different. A recent survey by the Congressional Joint Economic Committee concluded that cities in 48 states (excluding Hawaii and Alaska) will levy $1.5 billion in new taxes this year and reduce planned spending by $1.4 billion. Adding in tax boosts and spending cutbacks by the states themselves, the JEC found the economy likely to be deprived of $7.5 billion to $8 billion of potential buying power, heavily diluting the benefits of the federal tax cuts legislated by Congress. The National League of Cities, in a survey earlier this year, found that 43 of 67 cities expect spending to outstrip revenues in 1975; 42 expect to raise taxes or cut services; 36 are postponing capital improvements; and 21 report layoffs or hiring freezes.

Acute Squeeze. There are some exceptions to this gloom, notably in localities awash in oil revenues (Houston, New Orleans) or farm profits (the Dakotas). But in northern industrial cities, the squeeze is acute. In Detroit, where the auto-industry depression has pushed unemployment to 23%, the current budget deficit is $17.6 million. A few weeks ago, several white policemen assaulted a black cop during a demonstration outside the Federal Building; they were afraid that newly hired blacks would be kept on the force while senior white cops were laid off. So far, the city has managed to avoid police furloughs, but layoffs seemed inevitable last week when the police union rejected a compromise that would have required some cops to take unpaid leave days. Cleveland's Mayor Ralph Perk, refusing to support an increase in the city's 1% income tax, has been selling off city property--a zoo, the sewer and transit systems--to private buyers to cut costs and raise money. Still, the city cannot afford to tear down most of its abandoned houses, and garbage pickups were briefly cut from once a week to once every two weeks.

Among the states, the problems are no less severe. In Georgia, where the state constitution forbids borrowing to meet current spending obligations, Governor George Busbee has imposed a hiring freeze, forbidden all but necessary travel by state employees and delayed purchases of equipment. New Jersey has avoided layoffs, but a longstanding hiring freeze has left 4,000 state jobs unfilled. Massachusetts, facing a $496 million deficit, plans to right itself through a $450 million bond issue. It also is considering new taxes, including one on meals priced under $1 that would threaten the survival of the 99-c- blue-plate special, a favorite of blue-collar Bostonians.

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