PDF Summary:Fear City, by Kim Phillips-Fein

New York City's economic crisis of the 1970s was a perfect storm—the city's tax revenues shrank as costs soared, fueled by an expanding social welfare system and an exodus of middle-class residents. Fear City by Kim Phillips-Fein examines how unrelenting short-term fixes led to a larger fiscal crisis, pushing the city to the verge of bankruptcy.

The Ford administration's response rocked New York—withholding federal aid until the city enacted drastic budget cuts. This forever altered priorities, shifting focus from social programs to appealing to businesses and the affluent. Phillips-Fein underscores the human toll, highlighting how vulnerable New Yorkers bore the brunt of austerity's effects.

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The decision by the Ford administration to withhold aid

The approach of the Ford administration to the fiscal upheaval in New York City reflected not only economic policies but also political maneuvers and deep-seated ideological beliefs. President Gerald Ford's hesitance to maintain the social support initiatives that began in the era of the Great Society and his opposition to raising government spending shaped his viewpoint on the crisis. The president was keenly aware of the growing conservative movement within the Republican Party and recognized the significant challenge posed by Ronald Reagan as a rival. Ford resolutely refused to extend monetary support to New York City until it significantly cut back on its social services and reduced its workforce, a stance that garnered strong support from the conservative members of his administration.

President Ford's perspective on New York was influenced by his strong commitment to financial prudence and his disapproval of the Great Society's ideals.

During his time as president, Gerald Ford was a steadfast advocate for fiscal responsibility and frequently expressed his opposition to the spending associated with the Great Society initiatives. The fiscal turmoil in New York City was seen as a result of a prolonged period of liberal policies that led to an unsustainable increase in government commitments. He attributed the city's difficulties to its substantial expenditures on employee wages, retirement funds, and social support initiatives. He firmly believed that New York was responsible for its own difficulties and should confront the repercussions of its choices, even if that entailed declaring bankruptcy, which he saw as both unavoidable and a just penalty for its mistakes.

The faction within the administration that leaned towards conservative policies swayed Ford to take on a stricter stance, also considering concerns regarding Ronald Reagan's position.

The incumbent President was under considerable strain to distance himself from any measures perceived as supportive of New York City and its social spending policies, given the rising influence of conservatives in the Republican Party and Ronald Reagan's impending challenge in the 1976 presidential primary. Phillips-Fein examines the significant impact of prominent individuals within the Ford administration, such as Treasury Secretary William Simon, Alan Greenspan of the Council of Economic Advisers, and Donald Rumsfeld, who subsequently assumed the role of Secretary of Defense. These individuals stood firm against the idea of providing financial aid, believing that it would only endorse the city's irresponsible financial behavior and set a dangerous precedent for bailing out other cities with similar fiscal mismanagement issues. They argued that New York's potential failure to meet its financial commitments might serve as a vital tool to enforce fiscal discipline and curtail the city's extensive social programs.

After significant cuts were made to the city's financial plan, Ford eventually consented to support the loans with assurances from the federal government.

In late 1975, after some hesitation, Ford agreed to aid New York City by endorsing federal loan guarantees. Assistance was granted to the city only after it agreed to terms that led to the surrender of its financial self-governance to state-controlled bodies, and it pledged to carry out significant cuts in its workforce, salaries, and municipal services. The author suggests that the decision made by Ford was influenced by more than just financial reasoning, emphasizing his calculated maneuvers in the political arena. The president, facing an impending election, sought to showcase his commitment to sound fiscal stewardship, and he was aware that a full-blown economic collapse in New York City could have broader consequences that his administration would find politically untenable.

Other Perspectives

• The Ford administration's decision to deny aid could be seen as a necessary tough love approach to enforce fiscal responsibility and prevent moral hazard.
• Discussions about federal funding could also be influenced by legitimate concerns about the sustainability of New York City's financial practices, not just varying views on urban governance.
• While federal funding for social programs is important, it could be argued that local governments should prioritize fiscal sustainability to maintain these programs without federal intervention.
• Critics advocating for financial discipline may have a point in emphasizing the need for a balanced approach to social welfare and economic growth.
• The shift in major financial institutions' attitudes could be interpreted as a rational response to changing market conditions and risk assessments.
• Financial specialists' loss of confidence in New York City might reflect broader economic trends and challenges rather than just local governance issues.
• The transition in banks' roles from midlevel bankers to top executives dictating fiscal strategies could be seen as a necessary evolution in response to the increased complexity of municipal finance.
• President Ford's commitment to financial prudence and skepticism of the Great Society's ideals could be viewed as a principled stance rather than a purely ideological one.
• The conservative influence within the administration might be considered a reflection of a broader public sentiment favoring fiscal conservatism during that period.
• Ford's eventual agreement to support loans could be criticized for potentially delaying necessary structural reforms in New York City's financial management.

Following the turmoil, the city underwent significant changes in its governance strategies.

The city of New York underwent a considerable change after facing economic distress. The city, having lost its self-governance due to the establishment of state supervisory agencies and weighed down by substantial fiscal obligations, found itself forced to drastically cut back on its city workforce and adopt an innovative approach to city management that focused on attracting business and private investments over the well-being of its residents.

The establishment of state-level entities significantly reduced the power and control that was once wielded by the municipal government and its elected representatives.

The economic turmoil resulted in the creation of autonomous bodies tasked with overseeing the City's financial matters, which functioned beyond the normal scope of democratic procedures. The priorities of investors were given priority, as agencies led by business and finance appointees seized control of fiscal policy from elected city officials, marking the beginning of a period where the desires and necessities of New York's residents were secondary.

The creation of the Municipal Assistance Corporation was designed to ensure financial support for the city and simultaneously impose strict financial management practices.

In June 1975, Governor Hugh Carey took a vital step by creating the Municipal Assistance Corporation, which had the authority to sell bonds with longer repayment terms, with the city's sales tax revenue ensuring the avoidance of the city's financial collapse. Phillips-Fein demonstrates that the creation of this new entity was intended to bolster the assurance of investors, especially those who were reluctant to directly take on the city's fiscal responsibilities. The Municipal Assistance Corporation (MAC) was created to serve as a financial tool aimed at implementing a strict schedule of budget cuts and economic reforms, which in turn increased the confidence of hesitant investors and facilitated the effective handling of the city's financial obligations. The author describes a moment when the MAC board stressed the importance of implementing extreme actions, referred to as "overkill," to credibly demonstrate to the financial industry that the city's strategy had undergone a true transformation. The creation of this powerful body, capable of dictating budgetary cuts for the city, marked a pivotal change in governance, underscoring the power shift from public officials to influential individuals in the financial sector.

The establishment of the Emergency Financial Control Board granted it the power to oversee the city's fiscal strategies and override the choices of municipal authorities.

In September 1975, Governor Carey, frustrated with the city's refusal to recognize the required scale of cutbacks, set up a new body called the Emergency Financial Control Board (EFCB). As Phillips-Fein narrates, this organization, with strong ties to the corporate and financial sectors, took control of New York's financial planning, acquiring the authority to endorse or reject the city's budget plans and to override local decisions that could jeopardize the city's economic equilibrium. Corporate sector representatives, unaccountable to the voting public, took charge of the city's public amenities and determined the future for its government employees.

Corporate appointees assumed control over the city's fiscal affairs, signifying a shift away from conventional governmental control of the budget.

The author emphasizes another consequence of the economic chaos: a shift in the responsibility for overseeing the city's fiscal commitments. Mayor Abe Beame and his administration, seen by the business sector as conventional politicians without proficiency in municipal finance, were pressed to bring in business leaders to oversee the city's financial planning and assume control of its healthcare system. The appointment of these individuals to their respective positions represented a notable departure from the established political conventions of previous years. The city's budgetary priorities would shift, focusing less on the requirements of its residents. The goal was to manage city services with a focus on efficiency, akin to a corporate entity, by merging services, cutting costs, and demonstrating fiscal responsibility to earn the trust of financial backers.

City services saw a marked decline in quality.

Confronted with overwhelming financial obligations, soaring costs of borrowing, and relentless demands from financial institutions, state officials, and national authorities, the city was compelled to undertake drastic reductions in size and services, resulting in employment cuts and substantial fiscal cutbacks across all municipal departments. The cutbacks described by Phillips-Fein not only diminished the quality of life in the metropolis but also impaired the public sector's capacity to fulfill the critical requirements of the metropolis's underprivileged and working-class inhabitants.

The number of employees working for the city government was reduced, leading to a smaller group of staff available to oversee the transportation, education, and sanitation systems.

Driven by demands for austerity and faced with dwindling tax revenues, New York City implemented a series of layoffs that dramatically shrunk the city’s workforce. Staff reductions were implemented across a range of municipal departments such as police, fire services, schools, sanitation, healthcare, parks, libraries, and social service agencies. The city's workforce had shrunk by more than 69,000 from the 1975 levels by the year 1978, as Phillips-Fein points out. The efficiency of municipal operations declined as a result of these staff reductions, she argues. Educational challenges intensified as teachers dealt with a significant increase in the number of students per classroom, and concurrently, New York experienced a surge in criminal activities, drug abuse, and fire outbreaks due to the reduced presence of police and emergency services.

Numerous institutions, such as hospitals, day care centers, drug treatment facilities, and health clinics, experienced significant reductions in their operations or were entirely closed down.

The city's adoption of severe fiscal restrictions resulted in a marked reduction in services and the closure of many public amenities that were essential to the economically disadvantaged and the working class. Cuts to the budget significantly impacted a range of public services, such as hospital healthcare, education, facilities for childcare, initiatives for public health, and programs for social services. Phillips-Fein documents the closure of many hospitals and the reduction of services at others, along with the diminished or entirely halted support at the city's facilities for child health, tuberculosis clinics, substance abuse treatment centers, day care establishments, mental health institutions, libraries, and public schools – institutions that often acted as the last line of defense against sickness, poverty, violence, and the myriad difficulties associated with urban life.

Affluent residents began to embrace a philosophy of independence and civic engagement in place of standard government services.

Wealthy New Yorkers and their powerful groups believed that private initiatives could make up for the cutbacks in municipal services. Kim Phillips-Fein emphasizes that, although the strategy was presented as a shared responsibility and reciprocal compromise, it actually masked the real consequences of the cutbacks, allowing municipal leaders to forsake their earlier commitment to providing a full spectrum of social services to all residents.

Wealthy New Yorkers stepped in to assume responsibilities traditionally managed by municipal employees.

After the economic downturn, the city's leadership in New York urged wealthy citizens to contribute their time and resources to improve services that the city could no longer afford. Mayor Beame launched an initiative encouraging community involvement in the provision of services to schools, parks, libraries, and nonprofits, thereby advocating for the voluntary assumption of responsibilities that were once managed by municipal employees, consistent with the goals of the city's commercial elite and the EFCB.

The Citizens Committee of New York City led initiatives to enable community organizations and business entities to take charge of city services that had been previously overlooked.

The formation of the Citizens Committee for New York by Senators Jacob Javits and James Buckley at the height of the crisis further underscored the importance of self-reliance and the merits of voluntary service. Phillips-Fein notes that the committee played a key role in encouraging community involvement by inspiring local groups and spurring on area business owners to invest in the betterment of their surroundings. The group developed educational content and guides for self-assistance, as well as coordinated events to foster a spirit of civic engagement, aiming to cultivate a neighborhood mindset in which residents, instead of municipal employees, assumed responsibility for the maintenance and safeguarding of their city surroundings.

City officials advocated for a civic engagement model grounded in personal responsibility and proactive participation in community activities.

Phillips-Fein argues that the shift toward volunteerism, embraced not solely because of financial limitations but also by the new city administrators and prominent business personalities, must be considered within a wider framework. This push for fiscal responsibility in managing the city's financial constraints also transformed the perception of self among New Yorkers, marking a shift away from the enduring promise to provide social services to the residents. The author observes that the advent of the new administration redefined "being a good liberal" to support a government that prioritized business concerns and promoted self-sufficiency and philanthropy among the wealthy, rather than relying on municipal authorities to address social disparities and poverty.

Other Perspectives

• The establishment of state-level entities and the creation of the Municipal Assistance Corporation (MAC) and the Emergency Financial Control Board (EFCB) could be seen as necessary interventions to prevent fiscal collapse, rather than a reduction of municipal power.
• The shift in control to corporate appointees and financial experts might be argued as a pragmatic approach to address complex financial issues that elected officials were not equipped to manage.
• The decline in city services could be viewed as an unfortunate but unavoidable consequence of the city's dire financial situation, where prioritizing fiscal stability was essential for the city's long-term viability.
• Reductions in the city workforce and the scaling back of services might be defended as part of a difficult but necessary fiscal austerity measure to balance the city's budget.
• The closures of institutions and cutbacks in services could be argued as a redistribution of resources to maintain the most critical services rather than a complete withdrawal of support.
• The philosophy of independence and civic engagement adopted by affluent residents might be seen as a positive community response to a crisis, showcasing resilience and self-help rather than a withdrawal of government responsibility.
• The involvement of wealthy New Yorkers and community organizations in providing services could be interpreted as a form of public-private partnership that benefits the community, rather than a shirking of municipal duties.
• The promotion of a civic engagement model based on personal responsibility could be argued as a means to foster a stronger, more involved community that is less dependent on government services.

The enduring influence on New York's public amenities, social initiatives, and the fiscal and managerial strategies of the city.

The economic upheaval described by Phillips-Fein resulted in a permanent alteration of New York's fiscal priorities, fostering an environment conducive to economic expansion and setting the stage for a city that would rely on the encouragement of real estate development, the growth of financial services, and the attraction of affluent new residents. The author emphasizes that the city's resurgence came at the cost of its commitment to social programs, leading to the most vulnerable and impoverished residents bearing the brunt of the economic decline.

The city’s financial and political priorities oriented toward economic development

Following the crisis, New York City altered its focus, moving away from directly addressing poverty and inequality towards creating conditions that would encourage economic expansion by attracting private investment and establishing a favorable atmosphere for business interests. Proponents of this approach agreed that fostering economic development was the only way to improve living conditions and guarantee the fiscal solidity of the city. Phillips-Fein depicts the shift that emphasized economic expansion while diminishing the role of welfare networks, consequently reshaping the urban governance structure by bolstering the roles of individuals in banking, business, and public administration, and diminishing the roles of labor unions and local groups.

The municipality offered economic incentives and perks to attract businesses and real estate developers.

In its quest for economic advancement, the city's leadership increasingly turned to financial enticements and tax concessions as a strategy to attract corporations, banks, and property developers, aiming to foster business growth, create jobs, and boost municipal revenue. The author illustrates this transformation by examining Donald Trump's refurbishment of the Commodore Hotel in 1976, which benefited from a tax abatement plan worth millions, similar to the incentives previously provided by the city to encourage the establishment of major projects like the expansive Battery Park City and the iconic World Trade Center. Kim Phillips-Fein posits that this approach marks a transformation in how the responsibilities of a city are viewed, prioritizing the lure of corporate and fiscal interests over the commitment to provide aid and services to its inhabitants.

The luxurious high-rise symbolized a new design for urban development, signifying a shift from initiatives aimed at accommodating the city's middle-income population.

The resurgence of New York City's economy after the downturn was symbolized by the rise of luxury condominiums and cooperative housing projects, which were supported through city-provided tax breaks. These skyscrapers, as characterized by Kim Phillips-Fein, were constructed to captivate the city's burgeoning upper class, including leaders in finance, industrial magnates, and real estate moguls, attracted by the growing financial industry and the widening gap between rich and poor, and also to allure affluent individuals from around the world who might consider acquiring a secondary home in the city for sporadic stays. The city altered its priorities, moving away from supporting and keeping its middle-class population, to cater to the interests of the very wealthy.

New York began prioritizing the demands of an expanding international upper class, steering clear of its former commitment to assist the city's impoverished and working-class residents.

Following the economic turmoil, the city experienced substantial transformations, with a notable realignment that now leaned towards supporting commercial concerns. A number of the city's key figures, once recognized for their opposition to New York's social spending, redirected their focus towards objectives that did not emphasize creating a city renowned for its welcoming and inclusive nature. They sought to attract wealthy, transient residents, shifting focus from earlier efforts that supported the maintenance of existing neighborhoods comprised of individuals with lower incomes and blue-collar backgrounds. The author cites Felix Rohatyn, who previously chaired the Municipal Assistance Corporation, and his recommendation that New York City should appeal to a wealthy international demographic by declaring, "This time around, New York City should look to Europe and say, ‘Give me your rich!’"

The enduring consequences of the decline in both the economy and societal structures.

Phillips-Fein's account illuminates the strategies employed to fortify the city's fiscal health, such as providing tax breaks to developers and enterprises that garnered acclaim from the 1980s forward, while also highlighting the enduring consequences these approaches had on residents facing the greatest economic hardships. The municipal administration's adoption of a rigorous economic austerity strategy led to a significant increase in disparity. Support systems within the city designed to assist its most vulnerable residents, which were already deteriorating prior to the financial downturn, encountered further budget cuts, resulting in considerable difficulties for neighborhoods populated by individuals with low incomes and those in the working class.

The reduction of vital services in the city, which intensified as poverty levels rose, had a disproportionate impact on the residents with the most severe financial hardships.

The austerity measures, designed to avert a financial default and to satisfy investors, disproportionately affected the city's poorest inhabitants, as depicted by Phillips-Fein. The city experienced a marked rise in poverty, especially in regions already grappling with financial difficulties before the crisis began. The increase in the number of people without homes, along with the decline in the condition of public housing and the loss of critical local amenities like health clinics, highlighted the weakening of a previously accessible safety net for individuals on the margins of society. During the economic upswing of the 1990s, there was a temporary pause in these problems, but they emerged again with greater force in the early 2000s and afterwards, aligning with the boom in financial markets and the growing wealth gap.

The city saw a rise in its homeless population due to a lack of accessible housing and insufficient mental health support.

The most evident and ethically concerning signs that New York was embracing stricter budgetary measures for numerous residents included the increase in the number of people without homes and the shutting down of facilities for mental health care, leading to a higher presence of marginalized individuals living on the urban thoroughfares. During the 1970s, the challenge of homelessness escalated throughout the United States, with the circumstances in New York deteriorating markedly due to cuts in funding, exacerbating the existing perception of insufficient support for those facing extreme poverty.

Society began to reevaluate the tumultuous occurrences that defined the 1970s.

Debates regarding the economic difficulties faced by New York City have continued in public discourse for more than four decades. Phillips-Fein argues that these narratives often distort the actual roots of the turmoil, obscuring the wider factors that shaped urban life post-World War II, such as the growth of international commerce, the shift towards suburban living, the reduction of financial support for metropolitan regions, racial conflicts, the decrease in local industrial production, and the role of government actions in exacerbating these problems. Recent difficulties in cities such as Detroit and countries like Greece highlight how stories of inadequate city governance often mask the entrenched power imbalances inherent in global capitalism, making it more challenging to conceive different approaches to austerity.

Conservatives frequently pointed to the city as a key illustration of the failures in liberal policy, indicating that it represented a more widespread collapse in government authority.

The economic turmoil became a powerful tool for conservatives to question the welfare state's viability and underscore the risks linked to overly intrusive government actions. The author documents this progression by examining the 1978 bestseller that utilized New York City's brush with financial ruin to highlight the flaws in broad liberal policies and emphasize the need for a leaner government framework, reduced taxes, and a shift towards supporting free-market values and corporate interests. Conservative policymakers across the country, along with entities such as the Manhattan Institute, eventually adopted this perspective on the crisis.

Residents of New York City rejoiced in their steadfastness and the current era's affluence and consistency.

Many saw the situation in New York City as a critical moment, a chance for reform that highlighted the dangers of heavily investing in social welfare programs and the power held by unions. The city's revival was celebrated, with enthusiasm for the growth of industries driven by finance, the influx of new investment, the decrease in crime, and the transformation of dilapidated districts into prime locations for major building projects. For these analysts, contemporary New York represents a beacon of victory, having overcome its grim past by showcasing the power of market freedom, the vigor of entrepreneurial initiatives, and resilience in the face of disasters.

Residents remember the chaotic era with a mix of nostalgia and unease.

Phillips-Fein explores the complex perspectives of New York City's residents on the financial crisis, including those whose political beliefs cannot be easily categorized as either conservative or liberal. For those individuals, the period of turmoil is remembered with a bittersweet combination of longing for the past and apprehension. The period was marked by robust civic and political engagement, where intense discussions about the city's administration and future direction were prevalent, alongside a profound concern for its fate. Many reminisce about that period with fondness, remembering a New York that was authentic and unrefined, which has since given way to an urban landscape that is prohibitively expensive, lacking in distinctiveness, and characterized by growing inequalities. Some individuals are wary of a potential return to the turmoil and societal breakdown that echoes the 1970s, a period they are keen to steer clear of.

Other Perspectives

• Economic development and business incentives can be seen as necessary for the revitalization of a city's economy, which can ultimately benefit all residents by creating jobs and increasing the tax base.
• Tax breaks and incentives for businesses and developers are common strategies used by many cities globally to stimulate growth and can lead to broader economic benefits.
• The construction of luxury high-rises and the attraction of wealthy residents can be part of a diversified urban development strategy that includes affordable housing initiatives.
• Prioritizing economic growth does not inherently mean neglecting social programs; it can be argued that a stronger economy provides a better foundation for funding such programs.
• Austerity measures, while having immediate negative impacts, can be argued to be necessary steps to prevent fiscal crises that could result in even worse outcomes for all residents.
• The rise in homelessness is a complex issue that can be influenced by a variety of factors beyond city policy, including broader economic trends and federal policies.
• The use of New York City as an example of liberal policy failures by conservatives could be countered by highlighting successful social programs and the complexity of urban governance.
• The celebration of New York City's revival may be seen as recognition of the city's resilience and the success of its residents in overcoming adversity.
• Nostalgia for past eras can sometimes overlook the real challenges and hardships faced during those times, and a focus on the present and future may be more constructive.