Global Economic Slump : New York City fears return to 1970s

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New York City fears return to 1970s
Tue Jan 27, 2009 3:48pm EST

By Joan Gralla

NEW YORK (Reuters) - While many U.S. cities worry that their economies are deteriorating to the level of the 1930s Great Depression, New York City fears reliving a more recent decade that features strongly in city lore.

The 1970s were a low point in city history as a fiscal crisis almost pushed it into bankruptcy, crime rates soared, and homeless people crowded sidewalks as public services crumbled.

Almost a million people fled New York's Mean Streets during the decade for the safer, more stable suburbs, a population decline that took more than 20 years to reverse.

When discussing the current crisis, Mayor Michael Bloomberg, now seeking a third term, promises that he will not allow the city to return to the darkness of those days, although he stresses that it faces "giant financial problems."

"I know some are concerned that city services will erode," he recently told reporters. "Let me remind you that the city went down that road in the 1970s ... I can just tell you that we are not going to make that mistake again."

But behind the rhetoric, there are signs of a city under growing stress, including a rise in homelessness that's driving more families to shelters and last year's 57 percent spike in bank robberies.

There were 444 bank robberies in 2008 compared with 283 in 2007, according to the city Police Department.

A Bank of America branch in Manhattan near Rockefeller Center said it has posted a sign asking its customers to remove sunglasses, hoods and hats before entering, one of the anti-crime measures the police department recommended.

As city revenues slide with the demise of Wall Street firms, the mayor, an independent, has slashed spending by all agencies and there's more to come.

The budget plan drawn up by New York State Governor David Paterson will cost the city $1.6 billion in cuts and force it to lay off thousands of police officers, firefighters and teachers, Bloomberg warned last week.
The mayor has already said he will cut $3.6 billion, or 6 percent, from next year's $60 billion budget.

SLIDING TAX REVENUE

Wall Street's financial industry is one of the city's biggest taxpayers but it has lost more than $36 billion in the last two years and may eventually shrink its work force by a quarter, the mayor said.

That will deprive the city of billions of dollars in lost tax revenues, including the mini-bonanzas it gets when securities firms pay bonuses every year.

Factoring in layoffs at the many service companies from law firms to shops that rely on Wall Street, the city could lose as many as 243,000 jobs from 2008 to 2010, economists say. Continued...

 

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Meanwhile, raising funds has become harder for many states and cities around the nation as the tax-exempt bond market has been caught up in the broader financial market crisis.

Despite its high-credit status as semi-sovereign debt, the $2.7 trillion muni market has lost some of its biggest buyers -- banks, hedge funds and insurers. Many of them have lost money and need cash to shore up their balance sheets.

The collapse of Lehman Brothers and Bear Stearns has returned the muni market to retail investors, its traditional client, but demand has been inconsistent.

Many individuals lost confidence in municipal bond insurers after their top ratings were slashed and were stung by last year's collapse of the auction-rate securities market.

New York City is one of the nation's premier issuers of municipal bonds and although capital markets have not temporarily locked it out as they have California, the city has slashed its average bond sales by a third. So instead of selling $1 billion at once, it now sells just $300 million.

Still, the city can take heart from its experience of previous downturns, according to Harrison Goldin, the Democrat who began his first of four terms as city comptroller in 1974.

New York "has proven time and time again its enormous resiliency," said Goldin, who left office in 1989 and opened a turnaround consulting firm.

"The city, obviously, is looking at a deteriorating economy and eroding revenues, but it has a full handle and grasp on the extent of the problems. As painful and difficult as they may be, it is in a position to act pre-emptively and to avoid ending up in the sewer."

There are more safeguards than before, perhaps most notably in helping the poor get health care. Dr. Unsup Kim of Elmhurst Hospital Center in Queens cited the development of trauma centers and programs for outpatients with chronic diseases as two key developments since he began running the public hospital's surgical department over 30 years ago.

Though narcotics-related violence has fallen and gunshot victims are more likely to survive, thanks to faster ambulatory times and medical advances, gangs can still be troublesome, Kim said. He cited the recent stabbing of an 18-year old in a fight that the patient said involved 20 people.

When the economy bloomed, Bloomberg was the nation's first politician to save money for public retirees' health care.

Monitors praise him for this and for improving high school graduation rates, cutting crime and refusing to sell assets to close budget holes. Investors eventually balked in the 1970s when the city was issuing debt to pay operating expenses.

But Bloomberg is faulted for granting city workers overly generous pay hikes and approving too many real estate developments that have fallen apart in the credit crunch.

Though Wall Street's misdeeds pushed the global economy to the brink, the mayor says the city needs its talent. So he aims to help these workers become entrepreneurs or learn green jobs. That will increase employment faster than pouring money into infrastructure, which is unlikely to offer openings to office workers and clerks, he said.

(Reporting by Joan Gralla; Editing by Jan Paschal)