The pandemic economy could revive one of America’s ugliest fights over local control

New York City had a distinctive kind of social welfare state that was undone by a budget crisis in the 1970s.

Forty-five years ago, New York City stood on the precipice of financial ruin. Facing rapidly rising welfare and social services costs, municipal leaders found they could not rely on their rapidly shrinking tax base, a newly parsimonious federal government, or once-friendly local financiers. 

In 1975, New York’s leaders were forced to radically cut basic services and accept oversight by the state-appointed Emergency Financial Control Board. The city’s basic social contract was abandoned, sending transit fares skyrocketing and imposing tuition on the City University of New York. Not even police and fire protection were spared, despite rising crime rates and a plague of arson that devastated neighbourhoods across Brooklyn and the Bronx.

New York University professor Kim Phillips-Fein tells the story of New York’s fiscal crisis in her book Fear City, which was nominated for the 2018 Pulitzer Prize in History. Her story is framed as a reckoning between an island of social democracy in America and the ascendant conservative movement, backed by a revanchist financial industry. 


Since then, fiscal austerity has been imposed time and again on weakened governments from Greece to Puerto Rico, by bond vigilantes and conservative politicians. Now the Covid-19 pandemic has sent municipal revenues plunging, and Republican leaders in Washington, DC, have largely dismissed calls to lend a helping hand. CityMetric spoke with Phillips-Fein about Fear City and lessons of 1975 for cities facing a nightmarish budget season. 

Your book is about how the fiscal crisis in New York was used to discipline the city and curb it's more social democratic policies. Do you think the current debates in the US over state and local relief could play out the same way? 

Today’s reluctance to extend aid to states or cities reflects a crass sense of where support for Trump, and the Republican Party more broadly, is located. More deeply, there's a tacit argument that the places affected by this are cities, poor people, and people of colour. There seems to be no sense that those people or those localities are part of whatever vision of America the right has. There's a certain way in which they can be written off. 

It’s a theme you see in parts of Trump's rhetoric, where economic growth is being counterposed to public health. The ultimate logic of it is that it doesn't matter if these cities are affected, it won't matter to you if these other people are sick or die. Now, as much as in the 1970s or the AIDS crisis, the question of who deserves healthcare and how the public sector will address the crisis are affected by both short-term political calculations and a larger ideological framework.

In both cases, the fiscal issues facing municipalities are not necessarily their fault. New York in the ’70s was on the losing end of national policies that undercut its budget, as well as policies incentivizing white flight, deindustrialisation, and segregation.

In the 1970s, the right said New York brought its problems on itself. It's the result of the structure and institutions of local governance, it's their fault, and we don't have to do anything to help. In the 1970s, in New York, I think that was wrong. The problems that New York had were not limited to the city. They reflected larger historical and economic forces and also political choices made at the level of the federal government.

But at least then, there was a certain logic to it. New York did have a distinctive kind of social welfare state. Today, the coronavirus is a different type of problem. It obviously is not something that New York brought on itself or that any city brought on themselves. It's even stranger seeing that logic being trotted out here where it so obviously does not make sense. In the 1970s, there was at least a conflict between different ideas about governance that was playing out.

Your book shows how little power local politicians have in the end. They are beat up on by bond markets, the state, and federal authorities. It makes municipal leaders almost seem inconsequential.

By the 1970s, the city had developed a very distinctive set of institutions, ranging from its public transit, tuition-free City University, its parks, its libraries, and its public housing programs. The city government played a critical role in bringing all those into existence. 

Similarly, today, the choices made at the level of the New York government deeply affects the kind of city we live in. The public sector has grown in recent years, for example, with the expansion of pre-kindergarten programs. At the same time, there is much more leeway for public-private partnership models, like Business Improvement Districts, that wind up concentrating wealth in certain parts of the city. But both of these are choices made at the level of city government. With the response to the public health crisis, there are a lot of decisions made at the city level. It's not as though city politicians are completely impotent, or that city politics is totally irrelevant. 

City governments are easier for local actors, local social movements, to influence and put pressure on than higher levels of government. At the same time, the story of New York in the 1970s is that there are also limits to what cities can do. They can be powerful, but there are limits.

Now city governments need help again, and maybe you could see political self-interest at higher levels work against austerity. During the Great Recession, the failure to really bail out state and city governments is a big part of why the economic downturn lasted so long and why the recovery was so weak. But then, Republicans in Congress didn't have the political incentive to make the recovery stronger. Now you might think that they would have that incentive. Do you think that kind of base political motivation could change how this plays out? 

My sense is that ideological considerations will be stronger. There's a way in which the right may feel there's political strength in being punitive. This particular strand of the Republican Party, or at least Trump's version of it, may have the sense that the benefits of not helping the cities are actually politically greater than the political cost of deepening the recession. 

Being able to say “I wasn't supporting the cities, I wasn't supporting public sector workers, I wasn't supporting poor people, or the people of colour who use these services.” That's how some of the forces around Trump would perceive it. That's not totally different than when Gerald Ford took the hard line against New York. It was partly an effort to court the right of the Republican Party, which was gaining strength. 

Ford actually did wind up bailing out in New York, albeit on conditions that were pretty bad for the city. But after he gave the “New York drop dead” speech, he went around and talked to different Republicans audiences on a big fundraising trip about not being bullied or pressured by New York. Clearly that was supposed to be a selling point.

You write that for ordinary citizens on the losing end, "austerity meant not only not only budget cuts but a political mood of bleak hopelessness."  What did the fallout of the fiscal crisis mean for ordinary people, for political engagement, and hope for the future?

In 1970s New York, there was a very visceral sense of seeing these local institutions threatened with closure. It's not just the city budget, but it is your children's school, your park, your local library. Whether or not the street lights are on, what the bridges are like, what the roads feel like. The budget actually creates the social world of the city and, in a very direct and personal way, what it is like to live in a particular place. 

The more money you have, the more you can insulate yourself from that. You can buy a house with a backyard, you can go to private school, you can take a car instead of the train. With money you can separate yourself from the public sphere. But the less money you have, the more that is your world. 

I started working on Fear City right before my daughter was born and I was acutely aware of how much the experience of our family was shaped by the public resources around us. By being able to go to the park, by being able to go to story hour at the library, by being able to go to the public school in our neighbourhood. These are the sinews of our lives.

During the 1970s, what was shocking to people in New York was that this was happening when poverty in the city is rising, when the homicide rate is climbing, in the middle of an arson wave – this is the moment when firehouses are being closed. There was something shocking about the withdrawal of resources in that context  There's a feeling of bewilderment, confusion,and ultimately apathy, that nothing you do matters. We'll see how it plays out today. My fear is that the withdrawal of resources, especially at this moment of political and social crisis, could lead to resignation and rage that doesn't have anywhere to go. 

What lessons would you hope readers today might take from your book?

People really responded to the portrait of social democratic New York in the beginning of my book, the sense of what the city was like in the postwar years. The sense of hope around the vision of a more egalitarian city life, the role of the public sector, and of collective action in bringing that about. 

Once those kinds of institutions are created, they don't just disappear. They're actually very difficult to fully dismantle. Even though there’s tuition at CUNY now, it still does exist and it’s a powerful educational institution and resource for the city. There's a lesson, going back to the beginning of our conversation, that cities and governments can actually create places that are better for people to live in. 

Fear City told part of the story of the rise of the present order, and it may be in some ways that we're now living on the other side of that. Perhaps the crisis can reshape people's ideas and lead to a different kind of future. It’s far too early to say how things will go. You could also imagine really negative outcomes, and imagine the politics of the country taking very scary directions.

Jake Blumgart is a staff writer for CityMetric.

 
 
 
 

What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.


Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.