A lonely voice warns of debt
Ravitch sees trouble ahead
There’s no such thing as a formal rebuttal to the governor’s annual budget address — but if there were, former Lt. Gov. Richard Ravitch would have delivered it. Ravitch is worried sick about New York’s crumbling finances and use of hidden borrowing to pile up debt — practices that he predicts could someday run the state economy into a Detroit-sized ditch if left unchecked.
On the same day Gov. Cuomo was patting himself on the back for keeping state spending under control and allegedly generating a $2 billion budget surplus, Ravitch — the co-chair, with former Federal Reserve Chairman Paul Volker, of a panel investigating troubled state finances nationwide — said New York is playing kick the can, covering payments to employee pension funds with promissory notes.
“This business of borrowing is inexcusable and indefensible intellectually, and anybody who’s in the business knows that,” he told me. “This didn’t start with Gov. Cuomo, it started with Gov. Paterson. They passed a law permitting cities and counties and school districts — and the state itself — to make the contributions that they’re actuarially required to make in the form of promissory notes. If I were a public servant and dependent on my pension when I retired, I’d begin to get worried.”
Worrying about debt has been in his blood since the city’s near-brush with bankruptcy in 1975. Then-Gov. Hugh Carey, along with a group of bankers and union leaders, spent hours huddled in Ravitch’s Manhattan apartment. (A wellknown business executive, Ravitch had been tapped by Carey to help rescue New York from fiscal disaster.)
Things were pretty far gone by the time the emergency meeting happened. A formal declaration of default had been drawn up, along with desparate measures like seizing trucks, cars, cash and other city assets to protect them from banks looking for payments they were owed.
Union presidents — notably, Victor Gotbaum of District Council 37 and Albert Shanker of the United Federation of Teachers — helped save the day by investing millions of their pensioners’ money in a new round of debt so that the banks could be paid that day, held at bay for the moment. The formal declaration was never issued.
After that day of tough bargaining in Ravitch’s home, the city began a long, pain- ful stretch of layoffs, tight budgets and new procedures to prevent debt from piling up beyond the city’s ability to pay.
Ravitch never forgot the main lesson of that day. He saw how quietly racking up government debt and using new loans to pay off old ones — each act politically safe and hidden from public view — had led to disaster.
“One of the most interesting things about 1975, when NYC almost went broke, was that in the previous seven years, the city kept borrowing more and more money,” he told me. “And all of a sudden in February of 1975, the city had $8.5 billion of debt and no way of paying back unless the banks were willing to continue to underwrite it. And they weren’t. The question was, why did they keep lending up until then?”
Ravitch is asking the same question now, wondering why banks, editorial boards and other civic voices are standing by as New York’s major cities, counties and school boards delay or borrow to cover vital expenses like pension costs and infrastructure projects.
“The cities and counties in New York are in serious trouble,” Ravitch told me in December. “There’s a control board in Nassau County. Suffolk County is suffering ter- ribly. They are being forced to borrow in order to cover their operating deficits. That’s why New York City almost went bankrupt in 1975. Nobody learned the lessons of the past.”
The solution, he says, is to have New York and other states pass multi-year budgets and follow the same accounting rules that private corporations follow, accruing and paying expenses as they come up instead of deferring them indefinitely. No more promissory notes.
And somewhere along the line, we’ll have to revisit the dreaded word “taxation” and debate whether New Yorkers need to pay more for the services we want and expect.
But such changes require a different mindset in Albany and in the city halls and county centers around the state. In most cases, the easy, politically safe move is to hold down taxes, run up unpaid expenses and plan to play catch-up later on.
Those of us old enough to remember the fiscal crisis and its aftermath — the tens of thousands of city workers laid off, the shuttered businesses, the programs for the needy slashed to the bone — already know how that story ends. We should avoid it at all costs.