Money Squeeze

Underlying these visible symptoms, there are much deeper problems. Many big cities in the U.S. and in other countries are being squeezed in what has been termed a “financial vise”: On the one hand, soaring pay demands of highly organized public employees plus skyrocketing costs of everything a city has to buy, and, on the other hand, swelling numbers of poor city dwellers who require more and more services even though city income is waning.

This “financial vise” tightened early last year into a death grip on the so-called “financial capital of the world,” New York city. City spending had more than tripled in ten years. Even after slashing thousands of city jobs and frantic fund-raising activities by the hastily formed Municipal Assistance Corporation, the city remained under threat of financial collapse from week to week. And when New York State stepped in to help, its own financial integrity immediately began to crumble.

Economic shock waves spread rapidly. The financial journal Business Week declared:

“New York City’s problems are poisoning the well for everybody. . . . Already, states and cities​—even those not in financial distress—​are encountering difficulties borrowing, and paying higher prices when they do. . . . many states and cities may find themselves sliding inexorably into New York City’s dilemma: either cut spending and services . . . or see their increasingly shaky financial scaffolding collapse around their ears.”

Agonized cries for federal help raised this question in another journal of finance: “Uncle Sam can bail out New York, but who will ball out Uncle Sam?” (Forbes magazine, July 1, 1975, p. 42) The U.S. federal government already owes its creditors almost twice as much as it takes in annually from taxes, while New York city owes little more than a year’s income!

Furthermore, much of the world’s economic system is similarly founded upon layer after layer of credit. And many analysts believe that New York reflects the world’s credit structure in miniature. “Credit is faith,” noted a New York official. “Faith lies in the ability of a borrower to repay. If a major borrower like New York doesn’t, that affects credit transactions everywhere.”

Behind this far-reaching financial dilemma are numerous deep-rooted city problems that refuse to go away. Creeping urban “ghettos” hasten the flight of the “middle class” to the suburbs, public employees grow more militant, welfare rolls spiral, housing decays, pollution pervades and crime and violence thrive. Such problems tend to concentrate in big cities far more than higher population alone accounts for, and they are inexorably worsening in many of them.

A Worldwide Disease

“New York just got hit first,” said Mayor Henry W. Maier of Milwaukee. “All large cities are in the trend New York is in. It’s a matter of time.” And U.S. cities are not alone. Japan’s Daily Yomiuri, for example, reports that hundreds of cities in that nation are “on the verge of ‘bankruptcy’ with snowballing expenditures.”​—October 5, 1975, p. 2.

The populations within the taxable bounds of some American big cities are actually shrinking to “their lowest size in this century,” according to recent census information. “The populations of Boston, Pittsburgh and Jersey City haven’t been so low since 1900. . . . New York’s population is down almost to the level of 1940.”​—U.S. News & World Report, September 1, 1975, p. 64.

Driven by a growing distaste for big-city existence, taxpaying citizens, business and industry are fleeing out of the big “central city” areas to noncontributing suburbs and beyond. A sore point in San Francisco’s police strike, for example, was that more than half of those demanding higher pay lived outside the bounds of its taxpaying community. And even though New York’s taxable population has fallen to well under eight million, some estimate that as many as another ten million people living outside the city in some way derive economic benefit from it.

A Vicious Cycle

Hence, a self-perpetuating “vicious cycle” of lost taxpayers, higher taxes, more lost taxpayers, and so on, has developed. When the more prosperous families and industries move out, taking taxes and jobs with them, the poor, unemployed, aged and minorities least able to pay taxes remain. Said Milwaukee’s Mayor Maier: “We, along with other cities, are part of a deepening trend . . . toward an ever-growing concentration of the poor and the relatively poor in the central cities of America.”

Meanwhile, regular city services, as well as programs for the mounting numbers of poor and unemployed, continue to skyrocket in cost. As New York city’s spending for all purposes tripled during the past ten years, welfare costs grew at almost twice that pace!

To compensate, cities raise taxes on remaining property owners, business and industry​—an encouragement for them, too, to leave. San Francisco has been forced to more than quadruple average property taxes since 1950​—a pace double that of the rise in the cost of living.

But such high taxation makes owning housing a losing proposition for some, and this, in turn, hastens urban decay. New York apartment owners will reportedly abandon an estimated 50,000 dwelling units in 1976, after having abandoned about 35,000 units annually in recent years! Not only are taxes on these properties lost to the city, but gone also are the former residents of block after block of rubble-covered land and condemned buildings​—thus feeding the “vicious cycle.”

When highly taxed business and industry choose to leave as well, tax revenue is not the only thing taken. Since 1969, for example, it is reported that New York city steadily lost half a million manufacturing jobs​—and taxpaying workers—​due to business moves. But the alternative to higher taxes, say city officials, is cutbacks in city services. Such cutbacks make the big cities even less desirable​—driving more “middle class” and industrial taxpayers away.

Thus urban problems tend to concentrate in big cities and get driven out of proportion to what higher populations alone account for.