Conditional Aid

NEW YORKERS are proud of having the biggest and most extreme examples of all facets of urban life, and we are taking the coming bankruptcy with a kind of perverse pride. If you're going to go bust, after all, you might as well do it on a princely scale--and $12 billion worth of debt is something that only one institution in American can afford to sneeze at.

It is to that institution--the Federal Government--that New Yorkers quite correctly look for aid. President Ford, despite his foolhardy rhetoric, mistaken economics and quite un-Republican belief that welfare checks are more important than bond coupons, is not entirely misguided. Clearly, to give New York outright the help it requires would simply encourage other cities to take the same route of overspending. The waste in New York's budget is indefensible, and no-strings-attached aid will not help the city excise the triple cancer of patronage jobs, greedy municipal unions and a welfare system that is well-nigh out of control.

New York's elected officials, however, are in no position to fight these evils. They themselves are the chief beneficiaries of the patronage system, and municipal unions and welfare recipients wield an immense amount of political clout in the city. No elected official can stand against them. If the Federal Government is to bail the city out, municipal government as we have known it in New York City must come to an end. This may not be so bad. While it is hard to wax rhapsodical over the prospect of Burns, Simon and Ford running the city's finances, at least such a troika would be insulated from the kind of political pressure that has made it impossible for any elected official in New York to produce a sane budget.

WHY SHOULD THE Federal government provide aid at all, if New York's "culpability" is admitted? The main reason has to be a recognition of the true role and status of American cities. We have to begin to look at them as huge-scale public services to be operated on the basis of permanent deficits, like the Post Office or armed forces. They benefit everyone and need to be subsidized.

One could also adduce strong historical arguments--for three decades American cities, chief among them New York, have been subsidizing all of rural America through farm subsidies; and New York, by setting the national standard for welfare benefits and other social services, has attracted the indigent from all over the nation. If the Federal government is to be expected to pay for these services, it must also have the right to administer them.

Useful steps in solving the city's future fiscal problems have already been made as the unforeseen result of the present crisis. The gap between the interests of the city's municipal unions and the interests of the city as a whole has been considerably narrowed by the commitment of union pension funds to New York City bonds. For the first time the Unions have a stake in the city's fiscal stability, and perhaps they will no longer be so complacent about "destabilizing" its fiscal health.

BUT EVEN THIS major step cannot solve the problem of the city's shrinking tax base and increasing demand for services. Three steps that Federal officials, once they take over the fiscal administration of the city, should take are:

1) The re-floating of the city's debt, with full federal guarantees (comparable to the guarantees offered, say, on Puerto Rican bonds). The Treasury should peg the interest rate on these bonds to the fluctuating interest rate on the government's own notes, and set it about 1/4% to 1/2% higher.

2) The re-negotiation of all city contracts. Layoffs should be avoided but increased productivity must be insisted upon, to end situations where, as at present, private contractors can make a profit collecting garbage for 1/3 the price the taxpayers are charged. In particular, the astronomic pension provisions that have festooned recent city contracts must be dropped.

3) The creation of a panel to oversee the bank's role in funding the municipal debt. This group might look into allegations that the big New York banks encouraged the city to borrow more than it needed and that they conspired to set interest rates artificially high.

Trying to assign the blame in the New York bankruptcy is as much fun and as much use as deciding why the Roman Empire fell. Washington politicians tend to the sin-and-decadence theory, New Yorkers to the barbarian hypothesis. Let the historians decide. In the meantime--between, that is, now and December 1--city, state and federal officials should get busy making sure that the coming default does not set off financial panic or throw the country back into another recession. Everyone in New York, from Chase Manhattan to rookie sanitation men must be prepared to make some sacrifices. But these sacrifices will have to be imposed from outside, as the necessary price for saving the city and the nation from the unquestionably deleterious effects of letting New York twist slowly, slowly in the wind.