New bonds deal for NY finances

It has come out in a national survey that the average American family spends seven hours a day in front of the television tube. So it's no wonder that New York, which used to have six evening newspapers, now has only one.

Last Wednesday evening, the Post was quick to get itself on the newsstands because President Ford had spoken at noon in Washington on the topic that began six months ago as a topic, then turned into a joke, and then a scandal, and then a burning national issue, and now confronts New Yorkers with an approaching rumble of thunder that may turn into – and they're not quite sure which – a mere Indian Summer storm or Armageddon. 

The New York Post had a streamer or banner headline, five words, that blackened half the front page. It said, 'Ford Let City Go Broke'. The New York Daily News was even better next morning, 'Ford Tells City Drop Dead'. Neither is quite the most objective summary of his speech or his plan and it's a sign of the pre-eminence of the telly, as a news medium and a fire bell, that in the innumerable evening news programmes – three half-hours on the national networks, five more on local stations – we saw television reporters thrusting the Post's front page under the noses of people leaving the subways, the buses, shops, stores and out on the streets and saying, artlessly, 'Tell me sir, ma'am, what do you think of the president's plan?' 

Those four black words 'Let City Go Broke' were very likely all that most working New Yorkers had read of the presidential speech. Their response was predictable, 'It stinks!' said one woman, and that was the pungent gist of it, though it came in many bewildered and polite variations. This is what public opinion has come to. It's no less and no more than what Harry Truman used to call a 'gut reaction'. 

The respondent who interested me was a rather serene man. He'd just bought a paper of his own. Evidently a reader, maybe even an intellectual. He looked the interviewer in the eye and said with a smile, 'Reasonable, I think'. And the interviewer was stunned. 'Reasonable!' he shrieked. The man had evidently missed his cue. If the interviewer had been a stage director, you could almost hear him saying, 'Once more, please, with feeling!' 'Reasonable,' the man said. And it struck me, for the first time, that nobody has satisfactorily explained why it must be the federal government that rescues New York. 

Well, if four words could arouse the populace to a single, resounding response, one word was enough to give me pause. Only a couple of weeks ago, I think, I mentioned the sudden and widespread concern that was reported from London, Cologne, Brussels, Geneva, most of all from Bonn, where the German chancellor had warned the president of the possible consequences on the international money and stock markets of New York City's defaulting on its debts. 

I said then – and I'm afraid I was speaking more like a New York City resident than an onlooker – that let us hope that Mr Ford will listen to the Europeans who can tell him that there is not a city in Europe that is unsupported by the national government. Not one whose budget is not scrutinised – in some countries controlled – by the government in exchange for the guarantee that the government will not allow the cities to go bankrupt. 

I'm very much afraid that this was a reversion on my part to an old Anglo-American reflex which is that of shaming Americans into not doing something because it would be thought shameful in England. You say, 'Oh people can't possibly steal all the flowers from Shakespeare's Garden in Central Park! Why, if they did that in St James's Park, the bystanders would be scandalised, the cops would come running.' You say this in the rather naive hope that your American friend will say, 'By God, we'll arrest the next child who steals a daisy.' What the friend says, however, is, 'Is that so?' 

And though there were congressmen who were impressed by Chancellor Schmidt's warning, there were others who were quite unmoved. Many more congressmen, senators, officials of other cities reacted more like the mayor of Buffalo, New York, who said, 'I am a full-time, hard-working mayor with loads of problems and I earn $19,000 a year. I don't feel particularly disposed to pile another tax on the people of my city, including myself, when I hear that the sanitation workers, the dustmen of New York City earn $18,500 a year.' 

Remember, in this country, the mayors – above all, the mayors of cities like New York, Chicago, Philadelphia, San Francisco – the mayors are not figureheads or courtesy wearers of chains. They are the executive rulers of their cities, with full responsibility for everything that happens, from a budget to a police strike, to a dirty hospital. And in a recent get-together of city mayors, it was the consensus that if New York could be rescued by the federal government, there'd be a stampede to Washington of other cities with similar problems. 

Well, what did the president offer and what did he scorn? He said he would veto any bill the Congress passed that has as its purpose a federal bail-out of New York City to prevent a default. He would, however, recommend a bill to provide enough money to prevent the nightmare that haunts New Yorkers just now, the possibility of a general strike that would paralyse the hospitals, empty the schools and leave the streets open to riots and crime. He would see to it that the city got enough money to maintain the police, the fire departments and other, unspecified, essential services. 

But he would veto the sort of bill that, for instance, the Senate Banking Committee has just approved and passed on for debate to the whole Senate, in which Congress would put up so many billions of dollars as a loan, at a long-term rate of interest, to guarantee the city's bonds. Of course, if the city defaults, the city's bonds will be worthless. The big banks own $25 billion worth of them and the people who would be really stung would be the little people who put their savings of a thousand dollars or more into the bonds. 

Well, this bill of salvation squeaked through the Senate Banking Committee but its fate on the floor of the Senate is, to say the least, perilous. From a news agency poll of the senators' opinions – and the senators have been as vocal as anybody – it appears that the bill might just scrape through with a bare, bruised majority. Then if the president vetoed it, it would take a solid two-thirds majority on the next vote to override his veto. The chances of that happening are dim. 

Now what the president proposes on his own sounds humane and fairly simple, even though the governor of New York State bellowed that it would be, in effect, a straightforward subsidy of martial law. It is in fact very complicated. A House committee has been quietly working on it, along with lawyers sent down to Washington by Mayor Beame in anticipation of the worst, namely that Washington will let New York City go into bankruptcy through the courts. 

It's significant – not to say ominous – at the start to know that the House committee working on what is substantially President Ford's plan, a municipal bankruptcy bill, is the House Judiciary Committee. That's the one that looks at bills which have to do with the running or the jurisdiction of the courts and also with bills that pose a constitutional issue. It was the judiciary committee that took up and voted articles of impeachment against President Nixon. Now why, when the... the least New York City is begging for is a quick handout to keep the police and the firemen and the garbage men and, presumably, though by no means certainly, the schools and the hospitals functioning, why should a committee of Congress have to sit down with a battery of lawyers and cogitate and predicate over it? 

Well, these lawyers at the start of their labours will freely tell you that the president’s rescue operation could weave a knot of legal and constitutional issues that might take as long as ten years to unravel. First of all, the bill would allow the city to petition for bankruptcy. Unfortunately, there's a federal law that doesn't allow this. It was devised long ago as a sensible protection for the poor mutts, the ordinary, trusting citizens who put their money into the city's bonds in the first place, or in other ways were creditors. 

The present act says that a city may only petition for bankruptcy when a majority, literally 51 per cent, of the city's creditors vote to allow it. New York City figures it has about 160,000 creditors and they are scattered from here to Alaska and the Mexican border. All right. So the new bill would supersede the old and say to New York, 'You are now free to go bankrupt'. The new bill authorises the federal courts to stop any creditor staking a claim for money, revenues, assets, until the city had somehow worked out a way of settling – they call it 'reorganising' – its debts. But that's the problem, the only problem at the start. And the city owes its workers and creditors $13 billion. 

Well, the way the new federal bill would help the city, and since it's to be a federal bill it would come to apply to any city, is to do something that has never, I believe, been allowed in a bankruptcy act – to let the city issue new bonds, new certificates of indebtedness, after it defaulted, so that it could borrow money (from whom?) to meet its running expenses and stave off general chaos. This sounds like paradise enough but the city controller here – the city Chancellor of the Exchequer, if you like – says that even if the city goes bankrupt and is forgiven its debts, it still needs £1.2 billion in cash to meet, in the next four months, payrolls, welfare and to pay contractors for work already done. There are terrible problems, even constitutional problems here. 

The gut issue, however, surely, is who is going to buy the bonds offered by a city already in bankruptcy? Only, I should guess, people who would demand a federal guarantee that somehow, sometime, they’d at least get their original money back and that's where we all came in. 

Any less complicated, more brilliant solutions – especially any unlikely to lead to ten years of wrangling in the courts – should be addressed at once to President Gerald Ford, 1600 Pennsylvania Avenue, Washington DC.

This transcript was typed from a recording of the original BBC broadcast (© BBC) and not copied from an original script. Because of the risk of mishearing, the BBC cannot vouch for its complete accuracy.

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