New York City Politics: Governing Gotham

Chapter 3: The State and the City

58 In chapter one, the role of the state Public Authorities Board in rejecting the Jets/Olympic Stadium and approving the Nets basketball arena was discussed. In chapter two, the state’s role in assisting the city with economic development was examined further. The state is involved in every aspect of city governance. Dillon’s Rule, discussed in chapter one, gives the state the ability to intervene in, if not control, most of the activities of its local governments. State laws affect how the city raises revenue and delivers services. The state gives the city the ability to structure its political system but still mandates, regulates, and monitors how democratic accountability will be achieved. And finally, state policies influence the city’s ability to maintain civil harmony. The New York City Fiscal Crisis There may be no better illustration of Dillon’s Rule than New York State–New York City relations during and after the city’s fiscal crisis of the mid-s. This work will not attempt to offer an in-depth analysis of the New York City fiscal crisis . There have been several studies (Bailey ; Shefter ) that have exhaustively examined the crisis and its implications for New York City politics and fiscal relations. In the mid-s, New York City faced fiscal problems similar to many other U.S. cities. During the s and s, a large percentage of the city’s middle class left for the suburbs, leaving a growing concentration of low-income residents , primarily minorities, who needed city services but did not significantly contribute to its tax base. This problem was exacerbated by state requirements that the city share substantially in the cost of services, primarily welfare and Medicaid, going to low-income New Yorkers. The resulting financial burden that New York State placed on the city was much greater than any other state placed on its cities. The problem was also exacerbated by the city’s own fiscal practices. 3 The State and the City Chap-03.qxd 8/16/07 1:51 PM Page 58 With state permission, the city was selling short-term debt in anticipation of incoming tax revenues. City accountants, however, routinely overestimated incoming revenue, making it necessary for the city sell more short-term bonds to pay off those that had matured. In , the banks, the financial agents selling city tax anticipation notes, informed the city that they would no longer sell city shortterm bonds. Unable to sell bonds to meet it debt obligations and unable to raise the revenue on its own, the city faced defaulting on its debt and, in effect, declaring bankruptcy (United States Congressional Budget Office ; Robertson ). As the legal guardian of the city, the state’s role in assisting the city out of its crisis was never in doubt. Even if the state had allowed the city to default on its short-term bonds, the state would have been ultimately responsible for the delivery of basic services to its citizens in the city if budget cuts and public employee layoffs had caused major disruptions. On a less legal, but still compelling level, given the city’s status within the state as a major source of tax revenue, the state could not allow conditions in the city to deteriorate to the point where the revenue flow of tax dollars from the city to Albany was seriously disrupted. In addition , relations between New York City and New York State have been, and will be, affected by the degree of upstate antipathy for the city. This upstate hostility toward the city is exacerbated by partisan differences between the city and upstate political constituencies. Upstate Republicans have their institutional base in the New York State Senate, which has had a Republican majority for many years and whose leadership is predominantly representative of upstate constituencies . The New York State Assembly is controlled by Democrats, with a majority of those from the city. Upstate Republicans have traditionally viewed New York City public officials as profligate tax and spend liberals who are constantly calling on the state for greater financial assistance for social programs and expansive government activities. Unlike the two houses of the state legislature , the governor’s office has been very competitive on a partisan level. The state’s response to the city’s fiscal crisis took on two different institutional forms. The first response was the creation of the Municipal Assistance Corporation (MAC) in June . It was created to sell bonds to...