Financial History Issue 128 (Winter 2019) | Page 24
The city would be destroyed by ser-
vice cuts of this magnitude, the statement
charged, for “the fiscal crisis is far less
dangerous than the social crisis confront-
ing New York City.”
Amidst this mounting anger, it must
have been hard for Albert Shanker of the
United Federation of Teachers (UFT) not
to notice that the city’s plans for getting
through October 17 revolved around the
teachers’ pension fund purchasing $150
million in city debt. The UFT members
had struck against austerity in September;
their contract was still under review by the
EFCB. Why should the union now lift a
finger to help?
Indeed, Deputy Mayor Kenneth Axelson
was sufficiently concerned about Shanker
that he had contacted the Treasury Depart-
ment earlier in the month to alert them to
the possibility that the UFT might hold out
on the bonds until its contract was signed.
And on the morning of October 16, Felix
Rohatyn noted with some concern that the
UFT pension fund trustees had not given
their “firm binding commitment” for the
bond purchase. All the other union pension
funds had already bought their share of the
notes—but not the teachers.
Following this conversation, Governor
Carey spoke to Shanker to emphasize that
negotiations with the Board of Education
had to be considered “completely separate
from, and unrelated to” the use of the
teachers’ pension moneys to fund the city.
Still, no one thought the teachers would
actually refuse to come through. When
Carey left the office in the afternoon of
October 16 to go to the dinner at the Wal-
dorf, he told his staff not to expect him
back until the next day.
Much of the Al Smith dinner proceeded
as usual. The raised platform seating the
city notables was so packed with tables
that it took up nearly half the room.
William Ellinghaus was there, as were
Richard Shinn and Hugh Carey, Arthur
Ochs Sulzberger and Mrs. Vincent Astor,
James Cavanagh and Mayor Beame. The
1,700 assembled guests consumed oysters,
steak and steamed baby Maine potatoes
as they listened to New York’s legendary
urban planner Robert Moses reminisce
about Smith.
But as the night went on, Comptroller
Harrison Goldin noticed something odd.
It seemed to him that the dais was empty-
ing out, the notables seated there melting
away. A bit before 10:00 pm, a waiter
stopped by the comptroller’s table. Mayor
Beame, he said, was requesting Goldin’s
presence at Gracie Mansion immediately.
By the time Goldin arrived, the city’s
bankruptcy lawyers had already been meet-
ing for hours in the basement rooms; the
ashtrays were filled to overflowing. The
teachers’ union, he was told, had voted
against buying the MAC bonds, citing fidu-
ciary responsibility. As pension fund trustee
Reuben Mitchell put it, “We must watch
that investments are properly diversified,
that all our eggs aren’t put in one basket.”
This “Welcome to Fear City” pamphlet offered
safety and survival tips for New Yorkers and
visitors during the financial crisis in 1975,
as many of the city’s public safety services
were reduced due to budget cuts.
The members of the MAC board, arriv-
ing back at the governor’s midtown office
to sign off on their part of the deal, many
still in formal dress from the dinner, got the
news at the same time. Investment banker
Felix Rohatyn burst into the room carrying
the press release from the teachers’ union.
The UFT had done enough to help the
city, it proclaimed; now New York would
need to come up with the money on its
own. Up at Gracie Mansion, the mayor
and his team of lawyers were getting ready
to figure out how the city could declare
bankruptcy and still keep running.
Sidney Frigand, the mayor’s press sec-
retary, later recalled (as quoted in a New
Yorker essay about the evening of October
16 by writer Jeff Nussbaum) the debates
about which workers were indispensable
to the city’s operation. “Bridge tenders
22 FINANCIAL HISTORY | Winter 2019 | www.MoAF.org
who raise and lower bridges were essen-
tial. Teachers weren’t life-or-death.”
Despite the lack of legal precedent for
the default of a city like New York, the
city’s lawyers, working through the night,
drew up a bankruptcy petition to file in
State Supreme Court that would protect
the city’s assets from immediate seizure by
its creditors. Mayor Beame signed it, as did
attorney Ira Millstein and the city’s corpo-
ration counsel, W. Bernard Richland.
Meanwhile, Beame’s old friend and
public relations counselor Howard
Rubenstein prepared a press release in
the mayor’s name that the banks would
have found chilling. “I have been advised
by the Comptroller that the City of New
York has insufficient cash on hand to meet
debt obligations due today,” the statement
began. “This constitutes the default that
we have struggled to avoid.”
The document (which the New Yorker
reprinted online with Nussbaum’s article)
then went on to present the case for a for-
mal declaration of bankruptcy. Unless the
city made this declaration immediately, it
would be legally required to use all of its
remaining money to pay for debt service
“rather than life support and other essen-
tial services.”
Under bankruptcy, on the other hand,
it would be up to the courts to adjudicate
what to do with the resources that remained.
What followed was a list of the city’s pri-
orities in the state of default. At the top were
police and fire protection, sanitation and
public health. Next were food and shelter
for those who depended on the city, hospi-
tal and emergency medical care for people
without other resources and payment to any
vendors who provided these services. Then
the city would pay for the public schools,
primary and secondary alike.
At Carey’s office the mood was morose.
Shortly after the governor heard that
Shanker was pulling out of the deal he
spoke to Richard Ravitch, a wealthy real
estate developer who had helped Carey
cope with the collapse of the Urban Devel-
opment Corporation. Ravitch was person-
ally acquainted with Shanker—they had
been connected through the democratic
socialist and civil rights leader Bayard
Rustin. Later in the evening, Carey phoned
again as Ravitch was climbing into bed.
After the call he prepared to go meet
the governor. They consulted briefly, and
then Carey dispatched a police car to drive
Ravitch to Shanker’s apartment. There, the