A Time of Economic Depression: the 1970s NYC Fiscal Crisis

New York City In The 1970’s

New York City is a vibrant, lively city with so much to see and do. The city constantly attracts tourists and new residents from all over the world. For a city that’s always awake and bustling with people, it might be hard to imagine that there once was a time when the city was in grave financial danger. 

But sure enough, in the ’70s, New York City almost went bankrupt. It was a time of economic depression and financial stress for many. The stock market crashed, people fled the city, and an over 24-hour blackout swept the city in darkness and caused chaos. Here’s a brief history of what went down during this time, and how the city was saved from bankruptcy. 

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a rising crisis

In 1974, New York City was experiencing the second recession of the decade. The annual deficit started at $453 million and eventually reached $487 million. In 1974, the city’s outstanding debt reached $13.5 billion. And in 1975, a bond market failure occurred, causing the city to completely run out of money. 

Between 1969-1776, the city lost about 1,000 industrial firms per year. Over 500,000 jobs were lost in manufacturing. Banks refused to lend any more money to the city, and between 1970-1975, there were 11,000 housing units that were either abandoned or destroyed.  

The city did everything it could to decrease the debt. City workers were laid off and services such as sanitation and after-school programs were cut down. Unemployment rates rose to 12% in 1975. By 1977, the city had to increase transit fares to try to bring more revenue back in. Then the “White Flight” occurred, which was the fleeing of middle-class families to the suburbs, in search of jobs. Over 820,000 people left the city. During that time, there was an increase in crime rates, especially theft and vandalism. It was a very stressful time to be a New York City resident. 

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The 1977 blackout

On July 13th, 1977, the city experienced a blackout that put 8 million people in darkness. The blackout occurred when the city was experiencing an intense, nine-day heat wave that was the hottest in the city’s history.

In contrast to other regional blackouts such as the Northeast blackouts in 1965 and 2003, the 1977 blackout was localized to New York City and its immediate vicinity.

Unlike the blackouts of 1965 and 2003, the 1977 incident led to widespread looting and criminal behavior, including arson, within the city. The city experienced over 1,000 fires, and over 1,600 businesses were destroyed during this time.  

The blackout lasted for more than 24 hours. Very few neighborhoods were spared from the long period of darkness and no electricity. The cause of the blackout was a series of lightning strikes. The first lightning strike hit Buchanan South. Another lightning strike blew out two transmission lines, and a third strike of lightning took two more critical transmission lines out in Yonkers. It was disaster after disaster.

Power companies faced considerable challenges in coping with the heightened demand for electricity precipitated by the occurrence of blackouts. Consequently, these companies encountered difficulties in effectively meeting the escalated electricity needs of the affected regions, as the demand exceeded their anticipated capacity.

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saving the city

Since the banks would no longer lend money to the city, the city was on the brink of bankruptcy with no way to help themselves. Fortunately, President Ford ended up signing legislation that granted the city federal loans. The loans granted the city $2.3 billion every year for three years. The aid came after the president ignored the city’s issue for quite some time and let them run out of money. The Ford administration had been split on whether they should help the city, and some believed the city was too generous and that its failure would teach the government a lesson of the “dangers of entitlement programs.” But the Ford administration pulled through in the end, and thus, the city was finally saved.  

However, it didn’t come without costs. The federal government would only give loans to the city if it managed to create a new budget with intense budget cuts and layoffs of about 20% of the municipal workforce. School days were shortened, and cuts to the budgets of the fire department, police station, parks, and libraries were made. At a time when many already struggled with poverty, this “solution” to save the city created worse problems for the city’s residents—unemployment and less protection and public amenities.

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lessons learned

Since the fiscal crisis, the city has made a few changes to prevent a similar situation from happening again. In the fall of 1975, the Financial Emergency Act was created that would require the city to submit a budget and four-year financial plan as part of the annual budgeting process. The plans are then submitted to the New York State Financial Control Board (FCB), where it’s reviewed. The FCB gives their input on the plan and informs the city of any adjustments that need to be made before it’s approved and published. 

So, what can we take away from the 1970s fiscal crisis? According to Kim Phillips-Fein, a history professor at Colombia University, the fiscal crisis shows, “a sense of the ultimate weakness of the state and its dependence on private economic actors.” She believes that cities should focus on attracting corporations and wealthy individuals. But the bottom line is this—cities and even states—need to be more prepared for times of crisis.  

conclusion

Although New York City is thought of only as glamorous and exciting, many people don’t know that there once was this dark moment in the city’s history. Thankfully, the city is thriving today. In 2023, it attracted 61.8 million visitors. So, as for now, it’s safe to say that New York City is doing well!