NYC is faltering — and a bailout from Washington is highly unlikely

This month marks the 50th anniversary of the New York City fiscal crisis of 1975.  After years of budgetary and accounting shenanigans, the Standard & Poor’s ratings agency suspended the city’s A rating on its bonds, triggering a cascade of events that nearly resulted in the city filing for bankruptcy and only resolved when President Gerald Ford  bailed out the city with federal loans.

While pundits often misplay the notes of history to force a rhyme with today’s events, sadly, given the realities of the city’s current economic condition — a projected $5.5 billion budget shortfall for fiscal 2026 growing to over $13 billion in fiscal 2028 — the parallels to 1975 are unmistakable. 

The 1975 crisis was caused in large part by an exodus of high-paying industrial jobs from the city. Over the past decade, New York has witnessed a hemorrhaging of the financial industry sector. A decade ago, one-third of America’s total securities industry jobs were found in New York City. Today, it is less than one-quarter. In the decade leading up to the 1975 crisis, nearly a million middle class New Yorkers abandoned the city, replaced by an influx of poor and less-skilled workers. Similarly today, hundreds of thousands of middle class and well-to-do New Yorkers have left the city in the wake of the COVID epidemic, replaced by tens of thousands low-skilled migrants. 

Another factor that heavily contributed to the 1975 fiscal crisis was the reduction in federal aid to the city, with the arrival of the Nixon administration ending many of LBJ’s War on Poverty programs.  Now with the arrival of DOGE, no one doubts that the windfall that benefited the city from the Biden administration’s spending programs will not be repeated. In 1975, like today, inflation was stubbornly high and interest rates wreaked havoc on municipal budgets. And just like in 1975, New York state’s fiscal condition is not much better than the city’s. Then, as now, elected officials in Albany and Washington told the public not to be alarmed, they have a plan, there will be no crisis. Never believe anything in New York politics until it has been officially denied.

When the next New York City fiscal crisis arrives, its solution — just like five decades ago — will be found in Washington. But this time the city’s prospects for a bailout look much worse.  In 1975, New York was a “swing state”: Each of the Republican and the Democrat candidates had won the state during three of the preceding six presidential elections. Not so in 2025. What forced Ford to bail out the city was the political imperative of winning New York and its 41 electoral votes (now down to 28 due to population loss). 

But Ford’s miserable showing in New York City cost him the state and with it the election in 1976. With New York now a deep blue state with a Democratic victory a foregone conclusion in presidential elections, the consequences of a president of either party mistreating it are minimal. Today, with a Republican White House and Congress, something more than the natural gravitational pull of national politics will be needed for the city to receive a favorable bailout from a favorable administration.

Even the most benign of bailouts, like the one approved by Ford and an overwhelmingly Democratic Congress, impose austerity measures with real bite. Ford’s Treasury loans to t were conditioned on a hiring freeze. There were budget cuts that hurt the most vulnerable New Yorkers. Far higher taxes were implemented and union workers had to pay a larger portion of their pension costs to the city — while also having to loan pension fund money to City Hall. 

This time, with a Republican president and Republican control of both  houses of Congress (and likely to hold at least the Senate after the midterms), the conditions to a bailout are likely to make AOC’s head spin: No more “sanctuary city” status; no more congestion pricing; no more DEI or ESG schemes; a complete rewrite of union contracts; and a federal “control board” that approves all expenditures, taxes and borrowing. Don’t like it? See you at the federal bankruptcy court.

A cooperative relationship with the Trump administration is the city’s best hope for a non-draconian fiscal salvation. Yet the mayoral candidates in this year’s Democratic primary seem to be finding ever-more caustic ways to stick their fingers in Trump’s eye. New Yorkers may well regret this when the time comes to go hat-in-hand to the Oval Office. The better path, in my judgment (even as a lifelong Democrat), is to follow the example of Mayor Adams in finding ways to cooperate with the Trump administration when it is in the city’s best interests. Time to cut out the juvenile “Resistance” rhetoric, which has never saved a single firehouse from closing, special educational program from being eliminated or a policeman from being laid off.

Richard E. Farley is lawyer and author of the new book Drop Dead.