Koch Did Much For NYC, But Didn’t Save It From Bankruptcy

Ed Koch’s exuberance and larger-than-life presence embodied the spirit of New York, and he did much to elevate the spirit of the city.

There was political corruption that festered on his watch and his often-acerbic comments increased tensions in the African-American community, but his complete and tireless dedication to the city was inspirational.

His good deeds will live after him. However, in glorifying his accomplishments it is important not to give him credit that belongs to others. 

Headlines have been proclaiming, and eulogists have solemnly testified, that Koch restored fiscal sanity to New York City and saved it from bankruptcy. Thane Rosenbaum, writing in The Jewish Week (“The Mayor Who Defined Chutzpah,” Feb. 8), after characterizing Koch’s predecessor as a “nebbishy party hack not quite ready for prime time … who lacked the grit and charisma required of a melting pot mayor,” describes how Ed Koch came forth and saved the city from bankruptcy. I was there, and I can tell you, it didn’t quite happen that way.

In 1975, New York City had over 330,000 employees and was running a $5 billion deficit. Bankers and underwriters were profiting by extending credit to the city until it became obvious to them that the city was borrowing money just to pay operating expenses and interest on the loans. The city was insolvent, but not yet bankrupt because some bankers were lending the city money to pay day-to-day expenses.

I was in the Assembly Chamber in Albany when Gov. Hugh Carey declared, in his first State of the State message, that “the days of wine and roses are over.” His reference was not only to the city of New York, but to the state of New York as well.

Carey wasted no time in partnering with the best and the brightest financial minds in New York — one of the most prominent being Felix Rohatyn. Recognizing that the financial well being of the state was tied to the financial recovery of the city, Carey created the Municipal Assistance Corporation (MAC) to receive the city’s sales tax revenue and to manage the city’s loans. MAC was authorized to issue bonds against these revenues (Big Macs). He also created the Emergency Financial Control Board to monitor every expenditure made by the city and to garner concessions from the unions.

Among the many stumbling blocks Carey faced was how to raise the funds to pay the outstanding short-term obligations of the city.  Because of the city’s desperate fiscal paralysis, Carey proposed, and the legislature, in an extraordinary session, passed a three-year moratorium on actions to enforce the city’s obligations. I was a member of the New York Court of Appeals when the constitutionality of that moratorium was challenged.

New York City’s then-corporation counsel, Norman Redlich, argued before our court that if we did not allow the moratorium to stand, and if instead, we compelled the city to pay the note and bond holders, the city would not be able to pay its police or fire fighters. His words to our court: “If you strike down the moratorium, blood will flow in the streets of New York.”

Despite this warning, the New York Court of Appeals held, in a ruling by Chief Judge Breitel, “that our State Constitution provides ‘that a city may not contract indebtedness unless it has pledged its faith and credit for the payment of the principal thereof and the interest thereon.’” Because the City had made the pledge, our court struck down the moratorium, and ordered that the City had to pay its creditors.

That was not an easy decision, and we feared that Redlich’s warning might be realized. On the other hand, we felt that not only did we have to uphold the Constitutional guaranty, but that the credit of New York City would be forever impaired if it were permitted to violate its full faith and credit obligation by declaring a “moratorium” on payment.

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After our decision, the New York bond and note markets rallied and the Municipal Assistance Corporation Bonds were not only salable, they became desirable. By the end of Carey’s first year in office, the federal government, which had previously refused to bail out the city, lent the city $2.3 billion. New York City was once again solvent and its budget balanced. 

Three years later, Ed Koch became mayor. 

Koch was eulogized as someone who made New York a better and safer place to live. If by that it is suggested that he reduced crime, then once again history has been distorted. I was Chief Judge during his last four years as mayor. The crack epidemic caused the crime rate to skyrocket, so much so that we were running arraignment parts around the clock. Rikers became so overcrowded that a barge had to be floated up from Louisiana to handle the overflow of prisoners. By the time David Dinkins became mayor, New York’s crime rate, which had been rising for 30 consecutive years, remained unacceptably high.

During Koch’s final years in office he was not the spirited mayor we saw during his early years in office or the spirited senior we saw after he left office. His programs were all but overshadowed by scandals.

I was also Chief Judge during the Dinkins administration, when the crime rate diminished for the first time in three decades. Dinkins secured federal funding for the addition of thousands of police officers and his “Safe Streets, Safe City: Cops and Kids” program deserves much credit not only for the reduction in crime statistics, but starting the trend of crime reduction, which continues still.

We are all grateful that we had Ed Koch. He energized and added a dimension to New York City and its citizens, but in remembering what he did, we should not forget what was done by others to keep the city solvent and safe.

Sol Wachtler, distinguished professor of constitutional law at Touro Law School, is a former chief judge of the State of New York.