It’s early on the Friday afternoon before Wall Street’s most recent Black Monday. Lehman Brothers is wobbling, but the larger chaos in the financial industry is not yet evident. Mayor Michael Bloomberg sits on a red couch in one of City Hall’s private offices, chatting with one of his predecessors, Ed Koch, about the lessons New York learned from the bad old days of the seventies. “[Today] we will reach into our pocket, pay taxes, no matter how politically bad it is, no matter how much it hurts,” Bloomberg says, “if the alternative is to lose control of the streets and the parks. We’re not gonna do that again.”
Koch is silent. He believes Bloomberg has been a brilliant mayor. But Koch knows plenty about political pain, and about a mayor’s limited ability to control events. Just how much pain is Bloomberg willing to endure as the city heads back into tough economic times—and as political forces that have been dormant for a decade threaten to come back to fractious life?
In the scramble to analyze the municipal fallout from Wall Street’s implosion, the instant speculation centered on whether the mess helps Bloomberg’s case for a third mayoral term. It does. But whether or not Bloomberg ultimately does try to tear up term limits, the financial debacle alters the landscape in larger and more immediate ways. We’re heading back to the days when politics was a central part of the city’s life. When fighting over budgetary crumbs became a life-and-death struggle.
Thirty years ago the wound was self-inflicted; sloppy bookkeeping and the borrowing of millions of dollars to pay operating expenses killed the city’s credit rating and drove it to the edge of bankruptcy. Now we’re about to pay for the excesses of investment banks and the irresponsibility of federal regulators. No matter the causes, the effects could be similar.
“The city was very fractured when Koch was mayor, and politics was about getting enough pieces of the factions together to govern and to get reelected,” says Bill Cunningham, a former Bloomberg strategist who worked with Governor Hugh Carey during the seventies rescue of the city. “The city in the seventies was in decline, and everyone knew it. So that began the fight over the shrinking pie. Politics was a lot more important 20 or 30 years ago—not only did you have the remnants of the bosses dividing up the pie, but you had the interest groups and the neighborhood activists, everybody trying to take a piece.”
To be sure, those fights never go away completely. But one of the reasons Bloomberg has been hugely popular is that he seemed to have quieted the scrapping, the pitting of one interest group against another. Prosperity certainly helps, but even if Bloomberg didn’t cure the problems all by himself, he at least knew how to take advantage of the improved conditions. Now, as the financial industry crumbles and the city’s divisions between rich and poor worsen, we may find out just how good Bloomberg really is.
“What seem like relatively modest changes in the revenue base of the city or the state, like 2 percent here or there, end up having a very big impact in terms of the management of these organizations,” says Dall Forsythe, a former New York State budget director and board member of the Municipal Assistance Corporation, which was created to bail out the city in the seventies. One reason for this, says Doug Turetsky of the Independent Budget Office, is that the city has a limited set of available options to make up the Wall Street revenue gap: “Raising taxes, cutting spending, or getting more money from the Feds and the state.”
That last one is pretty much impossible now, further narrowing Bloomberg’s choices. In 2002 and 2003, Bloomberg used loans and refinancings to help fill gaps, but tapping the credit markets again seems highly unlikely. “There are also one-shots, things like selling hospitals and other gimmicks,” a city budget official says. “Rudy Giuliani did a bunch of those, but this mayor has been very good at avoiding them.” Relatively little maneuvering room exists: Of the $59 billion scheduled to be spent by the city in fiscal year 2009, only about $20 billion is truly subject to revision.
But those are mere numbers. The political headache is that the most malleable money in the city’s budget is spent on the neediest New Yorkers. Cutting means layoffs, or closing libraries, or taking away a senior citizen’s lunch. Bloomberg has, in the past, distributed cuts across nearly all city agencies. City Council members, many of whom are running for another office in 2009, will be emboldened to make a show of resisting Bloomberg, even though they have little power to actually do it.