Is NY Going Bankrupt Again?
The man who rescue helped rescue New York City from bankruptcy in the 1970s says New York is in deep financial trouble again. And this time, it’s the whole state that’s in deep.
Dick Ravitch, the longtime New York power broker and financial guru, can smell it when smiling politicians proclaim their governments’ budgets fully balanced. He’s been calling them out for years—but often finds his warnings unheeded. A few years ago, when he was New York’s lieutenant governor, Ravitch was edged out in a power struggle with the attorney general during the weak administration of David Paterson. That attorney general? Andrew Cuomo, governor of New York state today.
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Releasing a memoir, Ravitch, 80, is trying to shake people by the lapels once again, with the next generations in mind. Now, however, it’s not just about New York. Where you live is also at risk: California, Texas, Illinois, just to name a few places.
“While a generous society can and should provide the necessities of life to its poorer citizens,” he writes, “we owe it to ourselves to be honest about the costs.”
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Too much of this nation, he said, is eating its own seed corn, to use one of his folksy analogies. That is, future generations are increasingly and unfairly bearing the burden of caring for their predecessors. At the same time, our elected officials are putting off payment on our true financial liabilities—or put another way, kicking the can down the road.
Here are some statistics to back him up:
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China spends a percentage of its GDP seven times higher than the U.S. on infrastructure, per Ravitch’s book.
State and local pensions are underfunded by as much as $3 trillion.
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In Los Angeles, retirement costs accounted for 3 percent of general fund expenses in 2003. It’s 18 percent now, according to The Economist.
A lifelong Democrat, Ravitch sounds like a Republican deficit hawk bearing a centrist prescription: spending cuts and tax hikes. While the federal debt is the one that gets all the attention, he’s troubled mostly by budget stress in state and local governments. In some cases, federal aid to cities is a fraction of what it was. (No president was better at funding mass transit than Ronald Reagan, he writes.) And both Rep. Paul Ryan (R-WI) and Erskine Bowles, Ravitch writes, candidly acknowledged to him that they never studied how their respective deficit-cutting plans would affect states, cities, and towns.
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He saves his biggest criticism for local leaders. Though many are dealt reduced aid from Washington, he writes, that’s no excuse for the fiscal gimmicks governors wield that he says balance budgets on the back of future generations. Also to blame is a press with a limited appetite for mind-numbing budgets. More broadly is an old political conundrum: Politicians don’t want to raise taxes but want to give away goodies that get them reelected. Add to that a disinterested public that fails to turn out on Election Day, and citizens are getting the government they deserve.
Ravitch acknowledges that he comes across as a Cassandra. And one wonders if he is preternaturally bleak, considering we are in the middle of years of steady if sluggish job growth and the S&P 500 was up nearly 30 percent last year. Cuomo is touting his on-time budgets over the last four years as a “grand slam.”
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“The apocalypse is not around the corner,” Ravitch said in one of several recent interviews, which often involved him tucking into oversize meat sandwiches. “It’s just that we’re deferring dealing with the fact that we’ve made a lot of commitments as a society in good faith to the people who work for government, to our citizens who expect that we’re maintaining our infrastructure properly, that we can fund the health-care promises that we’ve made, that we can fund the retirement obligations that we’ve incurred.”
He adds: “And to the extent that we are less and less able to fund that because of inadequate investments, we’re creating enormous potential risks.”
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The investments aren’t only inadequate; sometimes, they’re just bad. Take Attica Prison in upstate New York, the notorious site of a riot in 1971. Ravitch writes that in 1991, in a head-scratching transaction, the state sold the prison for $200 million to balance that year’s budget. Twenty years later, the state had paid twice that in lease payments.
Most of the time, the mischief is buried deep in the spreadsheets. Let’s take New York. Cuomo, as any other governor would, insists his budgets are beacons of responsibility. Ravitch pinpoints fiscal holes plugged by temporary revenue streams (about $5 billion in the recently passed budget, according to the state comptroller). That may work when tax rolls are flush; come another fiscal crisis, the state will be hard-pressed to pay for what it’s already promised.
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Ravitch sees similar shenanigans at play with the Metropolitan Transportation Authority, which runs New York’s subways, buses, commuter rail, and most bridges (which help subsidize mass transit). Apparent to anyone who has swiped a MetroCard recently, trains are stiflingly crowded.
And yet in February, just as Cuomo was ramping up his reelection bid, the Democrat announced a deal to slash tolls for Staten Island commuters, who tend to vote more Republican than other New Yorkers. The MTA board, which is supposed to be independent, codified the deal—even as Ravitch, the agency’s former chairman, took the extraordinary step of testifying against it.
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There’s clearly bad blood between Ravitch and the governor—and although Ravitch doesn’t want to talk about it on the record, it started with the governor’s father, Mario, who held the same office a generation ago. (Ravitch writes that in the little time he spent as MTA chairman under Mario Cuomo’s administration, “the fun quotient of the job had been diminished by the governor’s inexplicable hostility.”)
Mario Cuomo didn’t respond to a request for comment.
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As for the current governor, calls were directed to Bob Megna, budget director under Cuomo and Paterson. Megna says in a statement that Ravitch’s concerns “overlook the fact that state debt is decreasing, rating agencies are giving New York a positive outlook, and spending has been limited to two percent. I think the former Lt. Governor would agree that these are the measures necessary to keep New York State from experiencing the same problems plaguing others.”
An administration official adds that Cuomo has boosted MTA funding.
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“When Ravitch was lieutenant governor, his plan to get us out of trouble was to borrow $2 billion for operating expenses—using that money as a cushion to implement some of the very reforms the governor is putting in place to control spending now—but we are doing it without borrowing the money,” the officials adds.
Ravitch has said the borrowing would have been temporary and would have come in exchange for a more transparent budget.
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What isn’t in dispute is Ravitch’s acquaintance with all manner of meltdowns. A builder by profession, he quickly became something of a Forrest Gump of budgetary doom. Ravitch seems to have been triaging New York at every financial crisis over the last 40 years, all without pay.
If the subway looks bad now, before Ravitch took over the MTA in 1979, it was out of Mad Max, caked in graffiti, prone to fire, and an incubator for all kinds of urban malaise. To rounds things out, there was a transit strike and a failed assassination attempt. Ravitch hasn’t always been successful; his run for mayor in 1989 was a dud.
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The worst was being lieutenant governor, he says. He was unexpectedly sworn in a cocktail or two into his birthday dinner at Peter Luger Steakhouse to help end a political standoff in Albany. That part worked, but his opinions seemed to end up more in newspaper columns than in law. He calls his time as LG “the most professionally frustrating period in my life.” Deflated and defeated after leaving office, he teamed up with his longtime officemate Paul Volcker, the former Fed chairman, to call attention to conditions in New York and five other states.
Today his hair has grayed and he may walk more slowly, but he’s the same Ravitch—rumpled trench coat, tie askew, wolfing down unhealthy sandwiches, forewarning of crises, with a gleam in his eye.
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“I’m an outsider, I’m a kibbitzer,” he told me in his office not long ago. “I try to persuade anyone who will listen to me that we’re going to be in trouble if we don’t change our process.”
A moment later, Ravitch was gone. He had a plane to catch to Detroit. He was about to be named an adviser to the federal judge overseeing that city’s bankruptcy.
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