New York Fights Bankruptcy

New York is faced with imminent bankruptcy while Wall Street enjoys billions of dollars in bonuses.

“Goldman Sachs Bankers Arming Themselves in Case of a Populist Uprising” – this is the latest conspiracy theory making the rounds at lunchtime on Wall Street these days. This Christmas season is anything but peaceful in the Big Apple. While some bankers may be able to afford a holiday jaunt to Bermuda in a private jet, the average citizen has problems trying to afford a trip to see the Christmas tree in Rockefeller Center.

The reason is the city’s decaying subway system. The transit authority, MTA, is having trouble keeping the trains running; track replacement was the major hurdle in many parts of the city last weekend. Many of the 10 million daily commuters now carry umbrellas because water drips down from the ceiling at many stations.

Next year will not bring much improvement because MTA will get less money from the government than they had requested. Some routes will have to close, and fares will have to be increased. In spite of all that, record deficits amounting to several hundred million dollars are expected. State Assemblyman Richard L. Brodsky worries, “The MTA is just the beginning, it’s going to affect all areas.”

The transit authority is seen as a microcosm of the whole state. New York City is also struggling to avoid bankruptcy. Governor David A. Paterson warned that only two weeks remain before the city goes into default. He has to deflect a bankruptcy, but has to work with an assembly that has thus far rejected all his attempts to economize. He is barred from taking on further debt by the state’s constitution unless a state of financial emergency is declared.

The continuing financial crisis and rising unemployment are the main causes of this misery. Tax receipts remain far below expectations. Governor Paterson has reduced spending in health programs, collected new fees and economic recovery money from Washington, but it is not enough. This year alone, the shortfall will amount to at least $3 billion, and by 2013 the deficit could grow to about $50 billion. Economists are eyeing cuts in education, healthcare, and environmental protection. “The budget crisis is hitting everywhere, especially in the schools,” said Thomas DiNapoli, New York State Comptroller.

Paterson has meanwhile instituted a budget freeze and blocked the distribution of $750 million to schools and communities. “New York is out of money,” Paterson said. “Since you can’t spend money you don’t have, I will suspend all outlays until the situation improves,” he added.

A group of schools and teacher’s organizations filed suit against the governor last Thursday, claiming his action to block disbursements is illegal and unconstitutional since the state assembly had already appropriated the money. Richard Iannuzzi of the New York State United Teachers Union said the governor had exceeded his authority in blocking the money and was harming the state’s children.

Paterson disagrees, saying there was no other choice. “After we pay all the bills, we’ll have no money at the end of the month,” said the governor. If spending cuts aren’t made in education they have to be made elsewhere, such as in healthcare for the needy. “Educators are putting their needs ahead of everyone else’s,” Paterson criticized, saying his job was to prevent the state from going bankrupt.

While New York’s schools are going broke, investment bankers on Wall Street have a different problem: justifying their billions of dollars in bonuses to the public. The Wall Street Institute already reached $50 billion in profits in the first nine months of this year, more than double the profit made during the record year 2000.

This has also catapulted manager bonuses to record highs. Comptroller DiNapoli says the average bonus rose by 40 percent. Goldman Sachs, Morgan Stanley, and J. P. Morgan were able to reward their top managers with some $30 billion, according to analysts. Even if every fifth tax dollar in New York comes from Wall Street, it still does not make up for the collapse in other areas.

Many New Yorkers are upset by the lack of money on the one side and the excesses on the other. Few have forgotten that without taxpayer help the banks would have gone under in the crisis. In neighborhood bars, on the job and in Internet blogs, anger is spreading. A good barometer for the general mood in New York has always been the “Letters to the Editor” section of the New York Times. There, Scott Baker sums up the situation like this: “The money didn’t go to spendthrift schools, greedy hospitals, firemen, or police officers. The banks were the ones who robbed us.”