New York City 1985-2009: How a City Buried in Destitution was able to Rise Back into Prominence

      In 2009, New York City is considered the model city for the rest of the global community to follow.   Within the confines of the bustling city, the financial district is the heart which pumps significant funds through the extremities of the city.  Wall Street has been designated as the bastion or representative symbol for the city’s flourishing financial sphere.  The government of the city has relied heavily on tax revenue produced by the securities and financial realms because of the exponential growth of these booming industries.  Through innovative tax policy and a renewed confidence in the private sector, New York City was able to shed its vice-ridden image and become a beacon of success. 
      Nonetheless, New York City did not always hold the mantle of financial superiority.  In the mid-to-late 1980’s, New York City was combating poverty and crime that was nourished by deprivation along with a passive City Hall.  For many, New York City’s best days were behind it, as it spiraled downward and shed the prominent image once held for much of the 20th century.  This trend was reversed in the early 1990’s and would continue through the 21st century, as the government cracked down on crime and restructured tax laws to prohibit the danger of several corporations moving out of the city, such as giving Bear Sterns a $75 million tax break and Bertelsmann A.G. a $25 million package of tax breaks for new office towers (Bagli,1).  Thousands of scholars, experts and corporations infiltrated the city and adequately filled niches; in the process the city was reinvigorated and reclaimed its position as the greatest city in the world.  New York City’s financial history demonstrates the hardships faced by the city along with the resolve of its business leaders to reshape it.  Without financial institutions continuing to stay in New York City, it is difficult to imagine how it could re-emerge from the undesirable position it was in.
    This paper will trace New York City’s financial history from 1985 to the present.  First, the financial hurdles and maladies afflicting the city in the 1980s under Mayor David Dinkins will be discussed.  Dinkins’ role in lubricating the city’s comeback will also be examined.  Subsequently, Mayor Giuliani’s policies during the 1990’s will be delved into, focusing on the booming securities business and his policies on welfare.  Lastly, a discussion on the policies of Michael Bloomberg and the current financial crisis the city is embroiled in will be delved into.
    In 1985, New York City was drowning in its own incompetence, poverty and passive response.  Although there was a hotel-building boom in the early part of the decade, uncontrollable crime rates deterred many tourists from entering into the city (The Economist, Staying in Style in New York). Ballooning poverty, unemployment and hopelessness ravaged the city’s underclass.  In 1984 alone, there were reportedly 40,000 homeless in New York City and 2 million children alone were part of families who were mired in welfare (Maloney,1).  In dire straits, many often reverted to crime as a source of income and a therapeutic manner to unleash their anger and frustration.  In addition, the spread of AIDS throughout the city was partly culpable for paralyzing development, since the esoteric disease was still dreadfully misunderstood. 
    By 1985, some corporations which had once made New York City their home jettisoned its cramped, crime-ridden confines in place for spread-out suburban scenery.  From a cost-benefit perspective, taxes were lower and workers would have a shorter ride to work (The Economist, The Big Apple Regains its Shine).  With the advent of the personal commuter and other methods of fast communication, location was becoming more obsolete.  In fact, thousands of middle class families migrated from the city to the suburbs.  Along with this sudden shift in population was the uprooting of millions of taxes dollars the city had grown to rely on.  For the past ten years, it had seen families and businesses abandon it, discarding the city as past its prime and succumbing to irrevocable destitution.  In particular, the population under 18 began to heavily increase, drawing fear out of experts who believed that it would eventually lead to further contractions in the tax revenue stream and labor force for the future (Basler, 1).
    The incumbent mayor in 1985, Ed Koch, had made several attempts to resuscitate a city on its last legs.  He had made progress in briefly increasing the size of the city’s budget through stringent fiscal policy, having almost doubled it to $26 billion during the early 1980’s.  However, after winning the 1985 election, he suffered a stroke in 1987.  Although he pressed on and still carried out his duties, the public perception of his fortitude diminished.  This was compounded by various government scandals he was tied to, including the Donald Manes suicide (NYC Mayors).  Although Koch would lose his candidacy for a fourth term to David Dinkins, the first black mayor of New York City, a landmark case involving the finances of New York City would be ruled upon by the United States Supreme Court with significant implications for the future of the city.
    In the case of Board of Estimate of City of New York v. Morris, citizens of Brooklyn, the most populous borough at the time, were irate over the format for electing representatives on the Board of Estimate, which controlled the budget.  The Board of Estimate consisted of the Mayor and two members elected per borough.  These representatives had one vote each.  While each borough was represented equally in terms of officials, the populations varied disproportionately, resulting in disparities (Board of Estimates, Cornell Law School).  It was vehemently argued that this violated a provision of the 14th Amendment known as the “Equal Protection Clause.”  This mandates that “no state shall…deny to any person within its jurisdiction the equal protection of the law” (US Constitution Online).  In turn, the city denied such violation, pointing out that the specific framework of the Board was imperative since it “accommodates natural and political boundaries as well as local interests.”
    The court ruled in favor of Morris, which would result in a mass overhaul of the power structure over the city budget.  The Board of Estimate was completely dissolved and financial power was devolved to the Mayor and the City Council (Board of Estimate of the City of New York, 1).  In this vein, more control was clearly apportioned to the Mayor, which meant that a single executive could directly control most of the city’s budget.  Of course, the City Council would also have a role in decisions concerning the allotment of funds related to the budget.  This was implemented in 1990, as David Dinkins would assume the office of the Mayoralty. 
    With the Koch dynasty terminated, Dinkins pledged to contest racial tensions and close the budget deficit, which was at a staggering $1.8 billion dollars.  A former borough President of Manhattan, Dinkins was heralded by some as the savior the city needed.  After all, Dinkins had made history as the city’s first black mayor and was enjoying much media coverage.  Dinkins’ economic philosophy was bent on stimulating the city through City Hall - a risky venture given the ineptitude and stumbling that had become characteristic of the city government.  In an effort to balance the budget, Dinkins would raise taxes twice during his office.  Fees and fines were also increased in order to acquire further revenue for the profoundly-depleted government treasury (Malanga, 1).
    In addition, Dinkins attempted to stimulate growth in the economy by diverting resources to twelve different industries within the city such as recycling, entertainment and healthcare, hoping one of them would emerge as the economic rebound needed so desperately.  Dinkins’ also attempted to invest city money in risky funds and quick-start companies, which was criticized as ill-conceived and a contorted scheme to salvage the city’s financial standing (Lueck, 1).  Despite the high level of uncertainty associated with those kinds of investments, Dinkins held a staunch position on his policies.  The over-riding image of the Dinkins administration was one of desperation, where the incumbent administration was investing money and time into alternative ideas that were sometimes ill-conceived and incompetently carried out.  Dinkins’ various financial devices to stave off further deflation of the economy and revitalize failed industries.  Due to excessive fines, fees and taxes, the business failure ratio reached a staggering 4,000 businesses, compared to 400 in 1989 (Malanga, 1).
    In 1991, Dinkins was faced with two brewing municipal challenges: how to house the homeless and dispose of garbage.  Despite the odds against him, Dinkins stated that he was dedicated to expanding housing for those who needed it and salvaging the recycling department.  However, the embattled mayor faced several financial obstacles between him and reaching financial stability within New York City.  Due to his expansion of the police force at a hefty $800 million dollars among other government entities, the city faced a critical deficit of $3.5 billion dollars out of its $28.7 billion budget.  Unfortunately, this dovetailed with a slight recession that was hitting financial and real-estate institutions hard.  It put more pressure on the middle class to shoulder more taxes.  As a response to this, many advocated for cutting taxes and reigning in the size of government (Minerbrook,1). 
     In his second State of the City address in 1992, Dinkins continued his campaign against the reeling economy.  He vouched that he would immobilize property tax hikes, hoping to financially buoy small businesses that were struggling to maintain themselves in the volatile New York City economy.  However, these stipulations were met with acerbic comments from Andrew Stein, the President of the City Council at the time.  He called discarded these declarations as “vague promises and clichés.” Stein believed that this approach was indicative of the entire Dinkins administration, as it was long-overdue and it was not enough to counter failing businesses and migration of middle-class families out of the city.  Dinkins retorted by illustrating that his administration was successful in reducing overall crime by 6% and close budget gap deficits in 1990-1991.  He also pledged to expand health facilities for low-income citizens in order to free up emergency rooms, thereby depressing costs implicit in crowded health facilities.  He rounded out his address by stating that he would introduce over $100 million dollars in government construction and projects designed to rebuild the city and induce job creation (Sims,1) .
    In December 1993, before he officially left office, Dinkins blocked a bill that would have impaired new-mayoral elect Giuliani from privatizing much of the government.  Although Dinkins was steeped in the belief of Keynes-type economics, he also believed it would be a low political blow to undercut Giuliani’s administration from the beginning.  If this bill were passed, it would have required lengthy debate and cost analysis by the council before a city would be transferred to a private company (McKinley, 1).
    With the advent of Mayor Rudolph Giuliani, city institutions would experience a transformative administration.  In February 1994, the city’s budget stood at $31.7 billion (Giuliani, 59).  One of Giuliani’s primary concerns was the self-indulgence by the government by over hiring workers and its proclivity for solving social problems by increasing taxes.  He focused on governmental efficiency by ensuring that workers were committed to their jobs.  For instance, the Office for Children’s Services had become a swollen government agency.  While in 1994, it only collected $209 million in child support, the Giuliani administration was able to double that by 2001.  It also held departmental branches accountable for performance, instantly closing them and reshuffling management if it had a mediocre score (Giuliani, 94).  Clearly, this kind of accountability and micromanagement had never been done before, as city institutions were neither statistically responsible for their performance nor suffered dire consequences as a result.  This impelled workers to work to preserve their jobs and bring results.
    Giuliani, a firm believer in small, manageable government, worked diligently to pull New York City out of its cratering deficit.  He cut spending by roughly $2 billion dollars and placed pressure on labor unions to construct feasible contracts with government rather than exploit market demand for exuberant benefits.  In 1999, he faced a threatened strike from the Metropolitan Transit Authority.  Emboldened by the city’s desperate financial situation, he precluded the mobilization of the proposed strike by placing an injunction on the company (Giuliani, 272-274).
    Moreover, the introduction of Compstat helped break the cycle of crime causing more businesses to flee the vice-ridden streets of New York City.  Originally conceived by Bill Bratton, Commissioner of the NYPD, this was predicated on the broken window theory.  It was determined that if low-level crime was stamped out, it would also disengage criminals from perpetrating graver offenses against the community (Giuliani, 166).  Through this, financial institutions slowly began to descend back into New York City, with the reassurance that their employees and clients wouldn’t be subjected to the penury that mired the public’s perception of New York City.
    In stark contrast to Mayor David Dinkins’ social policies, Giuliani moved to cut down welfare rolls, shrinking them from 1,112,490 to a mere 497,113.   This development towards decreasing welfare began at the inception of his administration in office.  However, it was facilitated with the introduction of the Welfare Reform Initiative in 1996, which created several systems to transport unemployed people into jobs.  He rebuked the cliché that this was a mutually beneficial program for all parties (Giuliani 162-163).  The dignity of working for many was returned and the immense pressure that was on the New York City government to uphold such an expense program with little return was alleviated. 
    At the tail-end of his administration, Giuliani had performed a successful convalescence of the city’s finances.  Tax revenues were at an all-time high, helped by the aggregate prosperity that had become contagious in the United States.  However, on September 11, 2001, New York City was faced with a crisis of immense proportions.  As the twin towers’ collapsed, it was broadcasted on every mainstream television and radio network. The faith and security New Yorker’s had grown accustomed to walking with instantly evaporated.  Citizens were immediately made cognizant of the undesirable notion that New York City’s financial supremacy was not totally impregnable.  This sent the international stock market plummeting, as the entire global community suffered from its deleterious repercussions.  Although Michael Bloomberg had won the election in 2001, it was agreed that Giuliani’s tenure would be protracted based on the calamity that had struck the moral and financial solidarity of the city.
    Mayor Bloomberg began his administration under a debilitated New York City, with shaky faith and reservations about its financial future.  Due to the attacks of 9/11, the city’s GCP was already estimated to be 3.1% lower in 2002 by comptroller Alan Hevesi.  In addition, it was predicted that tax revenues would precipitously decline by over 7%, translated into $1.6 billion (Sherman, 1).  Facing this grim prospect for the fiscal 2002 year, Bloomberg’s first priority was to make cuts in spending in order to regain control over the budget.  He was met with firm opposition, especially from leaders in departments such as education.  Instead, supplemental taxes such as a “seven-cents-a-day personal income tax surcharge” to equalize budget cuts were rejected by Bloomberg (Bode, 1).
    At the end of 2002, Bloomberg was faced with a budget gulf of almost $6 billion dollars.  This deficit was enhanced by the high expense of employing government workers, averaging nearly $70,000.  In response to this, the mayor purged nearly 8,000 jobs (Wasserman, 1).  He also faced an impending strike on Broadway, which would serve as a further evisceration of the sputtering economy (Shin, 1).  Luckily, Bloomberg was able to combat these issues by adding roughly $ 90 million dollars back into the budget in mid-2003, citing that state and federal funds would match the city’s investments in libraries, health and after-school programs among other ventures (Saul, 1).  Clearly, Bloomberg’s creative management was able to placate the fears of both conservatives who wanted budget cuts as well as liberals who feared social cuts would undermine systemic programs that thousands of people relied on.
    Remarkably, two years removed from the cataclysmic debacle of 9/11, the city flexed its financial muscle, substantially decreasing the unemployment level.  Labor demands expanded on both Wall Street and within the media industry (El-Faizy, 1).  Encouraged by this, Bloomberg pushed to roll back part of the 18.5% property tax hike he instituted a year before in order to close a vast budget of nearly $6 billion (Saltonstall, 1).  Bloomberg was hesitant to indulge in the resulting tax revenues, anticipating future budget deficits that needed to be closed (Lipton, 1).  One of the hallmarks of his administration, Bloomberg would deliberately underestimate tax revenues in order to curtail frivolous spending by the city.
    By the beginning of 2004, it became clear that New York City’s economy was in full swing again.  A bellwether, arguably, for this were the opulent bonuses for the past fiscal year on Wall Street, which were 25% higher than 2002.  With the uplift in the economy, Bloomberg chose to give homeowners back money.  By 2006, Bloomberg was able to balance the budget with a $3 billion surplus.  In addition, businesses remained in the city as crime plunged 19% after 2001 (Stalonstall, 1).  With increasing tax revenues from commercial property sales, personal and business incomes, the city began to solidify its standing as the financial epicenter of the world again (Chan, 1).
    Mayor Bloomberg would continue to cut taxes in unique areas such as sales, since prosperous times called for a blanket relaxation of many city dues (Cardwell, 1).  This policy burnished his image with the city, emblematic of a flourishing economy which provided plenty of job opportunities and stability.  The city’s coffers were awash in emergency funds, which held special consideration after the 9/11 attacks.
    Still, Mayor Bloomberg’s penchant for environmental-driven programs would raise concerns for some.  Departing from his business-like agenda, in 2007 Bloomberg began to promote ideas to make the city more “green” (Lucadamo,1).  His most controversial foray into environmental politics concerned a congestion tax that he was looking to implement.  It would require cars to pay $8 dollars and trucks to pay $21 dollars during the hours of 6AM and 6PM for anyone driving southward past 84th street.  Although this bill was adjusted for mass appeal, such as changing the street from 84th to 60th, it was overridden with the argument that it would constrict small businesses that relied heavily on shipping goods to Manhattan.  Moreover, the thousands of commuters who drive into the city would also suffer and it would be biased against those in the lower socio-economic strata who could not afford the congestion tax (Newman, 1).  Due to the overwhelming perception that this tax would impinge on the city’s finances, it was eventually shot down in the New York State Assembly (Lisberg, 1).
    But for a few political blemishes, Bloomberg’s approval ratings were so high that it motivated him to seek a third term in 2008 against the backdrop of a faltering economy.  Due to the lack of oversight of the Securities Exchange Commission, millions of mortgage homeowners defaulted on loans that they could no longer afford.  This sent a ripple effect throughout the global economy, decimating businesses and evaporating savings.  Bloomberg supported his bid to run for a third term in 2009 by suggesting that this global meltdown required his retention as mayor to stabilize the situation.  In late October, the city council approved Mayor Bloomberg’s bid to run for a third term (Honan, 1).
    Bloomberg would have to put aside personal back-slaps for his victory, as his focus would shift to the current financial crisis in New York City.  Refusing to countenance this crisis, Bloomberg met this predicament with shrewd cuts to government programs designed to stimulate small business growth.  He apportioned $5 million in city funding to stimulate $10 million for small business in a greater effort to thaw out the frozen credit market.  Additionally, $24 million in federal funding would be allotted to purchase foreclosed homes and resell them as middle and low-income homes.  Still, not even Bloomberg’s brilliant management skills could halt the necessary though severe budget cuts, as the city was faced with a $12.5 billion budget gap for fiscal 2009.  The budget was undermined in part because New York State was also heavily entrenched in the fiscal calamity.  As a result, state aid has been diluted, undermining the survival of many social and health programs like Medicaid (Frazier, 1).
    Currently, the financial crisis is simmering, although there are signs within the stock market that the economy may rally back before the year is out.  The current financial climate in New York City is ambiguous at best, given the controversial cutbacks that have been politicized by hopeful mayoral candidates in 2009.  In considering the historical trajectory of New York City examined throughout this paper, it is practical to believe that New York City will be able to climb out of this.
    This paper has illustrated the mechanisms that have propelled business back into New York City.  Keynesian economics, a staple of the Koch and Dinkins administrations, relied too heavily on government to solve the city’s financial and social discrepancies (Times Magazine, 1).  As demonstrated repeatedly, mayors who subscribe to Keynesian viewpoints often misjudge the incoming money supply.  For one thing, the primary source of job creation has been from the private sector, rather than the government.  In addition, city governments are too complex and monolithic to distribute resources as well as jobs throughout the city.  The private market is the best arbiter for proper apportionment and dispersal of goods and services.  As under the Giuliani and Bloomberg administrations, steps were taken to empower the private sector, entrusting it as the main engine of job growth.  By lowering taxes, especially payroll taxes, small businesses were encouraged to expand and use their savings towards stabilizing their businesses.
    If one departs briefly from statistics and tax brackets, it truly was on the backs of hard-working and faithful New Yorkers that the city was able to pull itself out of its tailspin.  Hindered by crime, high taxes and little entrepreneurship, the city gracefully picked itself back up through lowering taxes and providing incentives for businesses to hold their flagship offices there.  New Yorkers are cut from a different cloth, since many to not wish to be persuaded or appreciate prevaricators.  This straight-forward mentality demanded respect from each mayor, as their constituents held them to the highest standard.  Without this, the city would have regressed further, irretrievably losing its historic luster.  Amid another financial mess, New York City is still able to shine.

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