Retrenchment and Recovery: American Cities and the New York Experience

Abstract

Retrenchment has been a common theme in municipal government for the better part of a decade. Contraction raised serious challenges for elected officials, professional administrators, and students of city government who were accustomed to nearly continuous growth in the local public sector. It was not clear what role, if any, municipal policy could play in reversing the local economic decline that often underlay public sector retrenchment. Nor was it clear that municipal managers could alter their behavior in ways that would permit services to be maintained in the face of resource reductions. Because of its dramatic fiscal crisis in 1975, New York is perhaps the best known example of retrenchment in America's cities. In that year, the City of New York was bankrupt in all but a legal sense. The city's private economy declined sharply for the sixth straight year; its municipal government could not pay its bills; its elected leaders defaulted to a coalition of state officials and local business and labor leaders. In subsequent years, however, the city moved toward recovery, albeit at a slower pace than was anticipated initially. A three-year plan for fiscal recovery proved unsuccessful, leaving the city with continued deficits and without access to the capital market in 1978. A second, four-year plan was somewhat more successful, yielding a balanced budget in 1981 and limited access to the capital market. Since 1981, the city has had budget surpluses and further expanded its access to capital markets. However, the recovery was costly and remains incomplete. In balancing the budget, New Yorkers suffered serious reductions in the volume and quality of many municipal services. And after four years of recurring budget balances, the city is still unable to finance all of its capital needs through the bond market. It took roughly a decade for the city to move to the point of fiscal crisis, and it is likely to take more than a decade to recover fully. Continuing analysis of New York City's economic and fiscal condition since 1979 has provided a substantial body of evidence from which to derive broader pos-