I guess there's nothing that's more on everybody's mind in this room than the New York City financial crisis.[5]  Would you please comment on the current situation, as viewed from a banker's position.

The situation resulted from the way New York City is perceived by the marketplace, not the banks. That perception deteriorated to a point where the City could no longer sell its securities in the marketplace. The history is long and difficult, and everybody can take some share of the blame or some share of the credit.

What happened? The City lived beyond its means and financed itself in the marketplace until the market got glutted. Some taxpayers are voting with their feet. They're leaving this town, and they're leaving this state. The things that you have to do to get them back are the most politically unpopular in history.

You have to put a ceiling on tax rates and, in fact, lower them. If there is zero income tax in Connecticut, and a 14 percent tax here in New York, how long will people stay here? The answer is, not very long. We have to figure out a way to finance the City within the taxes it can collect.

The problems are enormous. It's said there are a million illegal aliens in this town. That certainly isn't the City's fault. But it's a problem that we've inherited. Every time somebody comes to the United Nations to explain that we're a police state, it costs the City a million dollars for police protection. There's no reimbursement from the federal government on that.

We've built up a staggering amount of expenses, and there just is not the tax base here anymore to handle it. The city has to cut back, or the payments have to be transferred to some other political jurisdiction. In the long run, the only way we're going to handle it is to regionalize the municipal tax base--that is, bring in the tax base of Nassau, Westchester and Suffolk counties, and others. That is precisely what they did in Nashville under similar circumstances They don't have as many zeros after their problem, but the problem is the same. They also did it in Atlanta. We have to figure out a way to expand the tax base and live within our means, so we can get the City back into the marketplace with a security that can be sold outside this city. That's what we're all involved in: the banks, the unions, the investment underwriters, the City, Big Mac[6]  and the Governor.

[5] This dialogue took place at the New School for Social Research in New York in January, 1977.

[6] The Municipal Assistance Corporation for the City of New York, a financing entity created by the New York State legislature in 1975 to help the City meet various operating expenses and debt repayments during the period when the City's own securities could not be marketed.