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.
In some ways, Bloomberg has reduced the potential for friction by getting ahead of the labor-deal curve. Many of the nastiest, strike-inducing fights of the Koch years came over contracts with civil- service unions. Today, two of the city’s most politically potent labor groups—the teachers and the cops—are locked into contracts through fiscal year 2010. The largest ongoing negotiation is with DC 37, which represents 121,000 city workers ranging from lifeguards to epidemiologists.
Though the city was already facing a $2.3 billion budgetary shortfall next year, Bloomberg was confident he could close it, and outside monitors praise him for creating a reserve fund that dwarfs, in percentage terms, what the state has set aside, for trimming city spending ahead of the slowdown, and for using surpluses to pay off debt. As he steers the city through the Wall Street fallout, Bloomberg will also be helped by what has always been his greatest selling point: that he’s free of traditional political baggage. Having bought his way into office with his own money, Bloomberg—even after more than six years in office and plenty of old-fashioned horse-trading—owes little to the favor bank that restricts politicians who’ve come up through the ranks. That independence should make it easier for Bloomberg to make cuts.
Not that it will make anyone on the receiving end any happier. Bloomberg’s tendency to play the scold could also fray nerves. Last week, and not for the first time, he placed some of the blame for the current economic meltdown on weak-willed consumers. “They say, ‘I want the great American Dream. I want it now, and I’m not going to wait until I put some money in the bank,’ ” Bloomberg said. The mayor also flayed greedy lenders for having lost their “moral compass.” But a prolonged, widespread downturn that hits the city’s middle and lower classes hardest will test one of the weaker elements in Bloomberg’s leadership skill set, his capacity for public empathy. And it will revive something else that has lain on the shelf these past few years—the coldhearted “Billionaire Bloomberg” media trope.
Which is one reason the mayor should act now if he’s serious about running for a third term. Giuliani’s personal popularity was soaring after 9/11, but his attempt to extend his stay in City Hall failed because it appeared to be (and was) blatantly anti-democratic. Bloomberg faces a similar hurdle: Even those who’d like to see him stick around are made queasy by the notion of changing the rules this late in the game. So Bloomberg needs to do it as transparently as possible. Sure, it would be easier for him to quietly back a City Council bill making the limit three terms instead of two, but that would smell of sneaky insider deal-making. Bloomberg should do it the hard way: He should ask that a referendum be placed on this November’s ballot. Calling for a vote of confidence would be sort of British, and essentially make this fall a one-man mayoral primary—certainly not a fair contest, but a good test of whether the city really wants him for four more years. Third terms are historically treacherous; Bloomberg could use a clear public mandate going in.
Whatever the future might bring, the present is plenty scary. Bloomberg is facing the same whirlwind that’s shaking hedgies and homeowners alike. “I have a couple of Lehman brokerage accounts,” says Forsythe, who once worked at Shearson Lehman and is now a professor of financial management at NYU’s Wagner school. “If somebody had asked me a year ago was there any chance at all that Lehman would be going into bankruptcy, I would have said, ‘That’s crazy.’ All of a sudden, there’s a whole new world of uncertainty out there.”
Remain calm, counsels the mayor. He is. “It is easier to govern in difficult times than it is in flush times,” Bloomberg said on that Friday afternoon—before Merrill Lynch was sold, Lehman declared bankruptcy, and AIG became a ward of the federal government. “[In hard times] you have more leverage with legislatures; the public is more sympathetic. They know it’s not easy, and they might not be happy with your decision, but what they want is somebody genuine, somebody they think is at least trying to do what’s right.”
Maybe the city has matured and we realize we’re all in this together, especially after September 11, so the old divide-and- conquer political dynamic won’t fully return. In 2003, the last time severe budget problems forced him to raise property taxes, Bloomberg’s approval rating plummeted to 24 percent (imposing the smoking ban didn’t help). Things certainly turned around, for both the city and for Bloomberg. We’ll see if he can repeat the trick, only this time on a higher tightrope.