The Press FRIDAY, NOVEMBER 14, 1975. New York’s plight

Press, Volume CXV, Issue 34000, 14 November 1975, Page 12

The Press FRIDAY, NOVEMBER 14, 1975. New York’s plight

The financial plight of New York City is so serious that before the end of the month the city may find Itself without enough money to pay its debts. This would have happened already had New \ork state not intervened and set up an Emergency Financial Control Board. This board has the financial management of the city in its hands. The pressing question is whether the Federal Government will, in its turn, step in to avert a default by the city. Committees of both houses of Congress are preparing bills which would provide Federal guarantees for further borrowing by the city or the state to finance the rescue of the city. President Ford has steadfastly refused to support federal aid for New York City. Many suspect that he is taking this position because he sees “ running against New York ’’ as a good strategy in his campaign for the Republican nomination for the Presidency.

President Ford appears to be taking a grave risk to secure a temporary political advantage. This does him little credit; for although no-one can estimate exactly what the effects of default by the city would be, Mr Ford and his advisers seem to be taking them too lightly. Because of the increased lending risks implied by the New York problem, other American cities are already having to pay higher interest rates for loans; so they borrow less and curtail important services. Other cities may be forced to follow New York into bankruptcy if its default leads to even higher interest rates for municipal bonds. Almost certainly, New York State and Consolidated Edison, the city’s electricity supply company, will also go bankrupt if New York City defaults. No large bank or financial institution will fail, because the Federal Reserve has promised to aid any bank left holding large amounts in New York City bonds or notes. But this will not prevent default causing the economic recovery in the United States to falter, if only because all cities will have to curtail their spending. Default would also damage confidence in the American financial and economic system, both within America and abroad.

Mr Ford apparently thinks that these risks are small, or are worth taking because the traumatic experience of being forced into bankruptcy will force the city to mend its ways. He believes that New York’s spending is profligate. The city is already being required by the State to adjust its spending in return for the assistance given through the Emergency Financial Control Board, and no-one expects Federal aid to be given to the city without conditions. Even if it is “ bailed out ” by the Federal Government, New York cannot avoid having to make strenuous efforts to reform its fiscal practices, balance its budget, and reduce its indebtedness. In a wider context, the city’s plight points to the need to reorganise the political and financial structures of almost all American cities. Many New Zealand cities are fragmented politically, and are finding difficulty in making ends meet. The situation is far more serious in most American cities, where local governments make up a political jigsaw puzzle which bears little relation to contemporary problems and where property taxes are so high that city officials are powerless to raise the revenues needed to solve urban problems. No New Zealand city would ever find itself in the position of New York because here the central Government backs local government loans, and because no New Zealand city will ever have to deal with the extraordinary problems of New York —extraordinary even by American standards. But problems <ff political fragmentation and of increasing demands for expensive services are not unfamiliar in New Zealand and these problems are at the root of New York’s plight.