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What we can learn from 'Man Who Saved New York'

By Robert Polner, Special to CNN
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STORY HIGHLIGHTS
  • States are facing huge budget gaps due to the recession
  • In 1970s, New York state suffered budget problems; New York City had financial crisis
  • Robert Polner: Gov. Hugh Carey used leadership to bring parties together, averting disaster
  • States can learn from shared sacrifice that enabled New York to pull through, Polner says
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Editor's note: Robert Polner is the co-author (with Seymour P. Lachman) of "The Man Who Saved New York: Hugh Carey and the Great Fiscal Crisis of 1975," newly published by SUNY Press.

(CNN) -- Since I'm not quite as wealthy as the billionaire mayor of New York City, where I live and work, I rely on public services and have often taken them for granted.

So I was surprised when a city bus route used by a family member was discontinued the other day, along with dozens of others. A local subway line I depend on was merged with another, creating confusion and crowding.

Some 2,000 retiring teachers in my city, meanwhile, will not be replaced, auguring an increase in the student-to-teacher ratio. A neighbor in his 70s, a widower, told me that the senior center at the heart of his social life is among many targeted for shutdown.

These kind of cutbacks are the "new normal" all across the country. You'd have to go back to the harsh recession of the early 1970s, when both unemployment and inflation soared and banks tightened credit, to find conditions as severe as those confronting most municipalities and states.

Unlike the federal government, which can fund two protracted wars at once along with rising entitlement costs, local governments cannot just print money.

The blame for the fiscal crisis of the states starts with the financial meltdown of 2008. Not only did the downturn damage public pension plans, but it stanched a once-growing flow of sales- and income-tax revenues.

President Obama and Congress assisted the states with the emergency stimulus, but now this kind of federal revenue-sharing is winding down. State budget shortfalls exceed 10 percent of general-fund spending in 11 states, and many other states aren't far behind. Twenty-two have instituted unpaid furloughs.

All together, states have closed $300 billion in gaps, according to the National Governors Association. An estimated $125 billion gap remains. So Hawaii has reduced the school week to four days. In debt-staggered California, students in the state university system have marched against tuition increases, and Los Angeles is laying off workers to help fix the city's budget problems. In Minnesota, 12,000 nurses are threatening to repeat next month their June 10 one-day strike over a planned increase in the patient-to-nurse ratio.

In these times, there are lessons we can learn from the 1970s. Back then, New York elected Hugh L. Carey, a congressman from Brooklyn, as governor. In his opening speech he warned the state Legislature, "The days of wine and roses are over."

He was more accurate than he realized: One of the state's largest public authorities, the Urban Development Corp., defaulted within two months of his taking office, and by the spring the national banks headquartered in New York refused to extend the badly overstretched city of New York any additional credit, dispatching it on a hair-raising slide toward possible default and bankruptcy.

Then, as now, fractious state legislators of both parties suffered from denial, inertia and distraction, many hoping to muddle through with the help of the usual budget hocus-pocus.

Other civic voices, including The Wall Street Journal, called for the city voluntarily to file for bankruptcy to get out from under its labor contracts.

Carey, however, publicly termed a city bankruptcy "unthinkable" -- and stuck to his guns. By his actions, now little-remembered, he showed that Democrats and Republicans, bank presidents and union leaders, and local and national politicians could in fact work together to meet a fiscal crisis that threatened all.

Such cooperation was astonishing then, as it would be in the financially insecure, vituperative, my-interests-come-first political climate that often prevails today. Yet it did happen, averting a chain reaction that Carey felt would have led to chaos in the city, crippled the state, embarrassed the country and damaged both the national recovery effort and the international banking system. And he prevented disaster with more than a modicum of fairness.

While acceding to the undeniable clout of the banks, he also wrested concessions from them during his national crusade for federal loans to prevent the city's financial collapse.

In winning over a recalcitrant President Ford and Congress, Carey pushed through local tax hikes, a moratorium on the repayment $1.6 billion in notes to the big banks and other bond holders, a painful reduction of 60,000 city jobs over three years, the first-ever tuition at the City University and an agreement by the unions to limit wage hikes and buy a huge volume of risky city debt for their pension funds.

As the danger of bankruptcy eased, Carey achieved structural, long-term changes. He shifted longtime municipal expenses to the state, such as the cost of administering local courts and public colleges. He slowed the growth of Medicaid expenses, something that hadn't ever happened before and hasn't since. And the Legislature lessened pension benefits for all public employees of the state government and its municipalities, saving billions of dollars over the years. In certain ways, the current woes of the states are more intractable than even the imminent bankruptcy of New York City was.

Yet with the eyes of the world watching, Carey, with a strong sense of public purpose and an extraordinarily dedicated group of aides, never flinched. He publicly laid out the fiscal realities and his admittedly imperfect prescriptions, asking all interested parties, including his own office, to pay it forward, lest anyone be blamed for what he determined would be the worst possible results.

He demonstrated sensitivity to all competing interests, and gained each one's respect clear across the political spectrum as he held fast to the center.

It's a remarkable tale of survival that mayor and governors would do well to review in a new and painful season of very hard choices.

The opinions expressed in this commentary are solely those of Robert Polner.