What Came After ‘Drop Dead’

In 1975, New York was a city on the brink of collapse. 

The city lost nearly 600,000 jobs from 1969 to 1976. Working class, middle and higher-income New Yorkers were voting with their feet — leaving for the Sunbelt or to the suburbs. By 1980, 800,000 fewer people lived in New York City than in 1970. Population decline contributed to widespread property abandonment, resulting in increased costs for city government and lost property tax revenue.  

Federal transportation and housing policy encouraged the move away from urban centers like New York. Construction of the federal interstate highway system made it easier for city residents to move to Long Island, New Jersey and Westchester and commute to jobs in the city. At the same time, many federally funded highway projects destroyed urban neighborhoods. For example, the Cross Bronx Expressway divided and devastated a series of Bronx neighborhoods. Redlining furthered segregation and disinvestment, with impacts lasting to this day.

Between 1961 and 1973, federal aid had grown from 4.5% to 21.6% of City revenue. But the end of Great Society programs meant that the City was less able to rely on Washington for funding.

Rather than acknowledging these dramatic shifts, New York continued on its unsustainable course.

City government continued to fund a robust social safety net. New Yorkers depended on mass transit more than any other U.S. city, and the transit system was funded as a public good, with low fares and high subsidies. Free college was provided through the city’s public university system.

Strikes by teachers, transit workers, sanitation workers and even the police led to increased job protection, wages and benefits. New York City was living beyond its means.

The myth of “Drop Dead”

By 1975, when the City could no longer access short-term financing, default loomed. There were draconian budget cuts. Increased transit fares. An end to free tuition. Fewer police officers. Overcrowded public school classrooms. 

The recent documentary film “Drop Dead City” appropriately credits New York business and labor leaders and Gov. Hugh Carey for their roles in forcing through these austerity measures and saving New York City. But the film’s title refers to the role of the federal government. As the fiscal crisis fades in memory, many New Yorkers have come to believe that the City made it back to financial health without any help from indifferent federal policymakers. 

The truth is more complicated.

After the state created the Municipal Assistance Corporation as the mechanism for refinancing City debt, New York City and State sought federal assistance to back this debt. 

Initially, there was bipartisan opposition. And in late October 1975, President Gerald Ford announced that he would veto any bailout legislation for New York City saying that “[T]he people of this country will not be stampeded. They will not panic when a few desperate New York officials and bankers try to scare New York’s mortgage payments out of them.” The speech prompted the infamous New York Daily News headline — “Ford to City: Drop Dead.” 

But President Ford never actually said “drop dead,” and less than two months after the speech, Congress passed — and President Ford signed — the New York City Seasonal Financing Act of 1975, authorizing the treasury secretary to provide up to $2.3 billion in seasonal loans to the City. In other words, the feds threw us a lifeline at a critical moment.

The help didn’t end there. In 1978, with financing authority coming to an end, the City sought long-term federal loan guarantees. President Jimmy Carter — whose electoral vote margin in 1976 came from his win in New York State — won Congressional passage of long-term federal loan guarantees for New York City and signed the bill at City Hall in August 1978. With continued federal intervention, the City could access the bond market. More importantly, the federal government had signaled its support for New York’s comeback. 

A half-century later, New York’s fiscal and management practices are often held up as examples for other large U.S. local governments. Many of the budget reforms adopted in response to the fiscal crisis — clearer and more accurate financial reporting, multi-year financial planning, multi-year capital plans and detailed collection and reporting and analysis of operational data — are now widely acknowledged best practices.

In other words, Washington gave invaluable assistance with clear conditions to help New York nurse itself back to fiscal health. The stability of the City’s finances was essential for New York’s economic comeback. Population losses of the 1970s have been fully reversed and, before the pandemic, more people were living in New York than ever before. Neighborhoods that most New Yorkers had given up on in the 1970s have become desirable places to live; indeed, many of these neighborhoods are now unaffordable for middle-class New Yorkers. 

The exception, not the rule

Unfortunately, instead of becoming a model for federal intervention in support of fiscally distressed cities, the New York case has been the exception. 

Carter called the 1978 loan guarantees a “step forward toward the fulfillment of America's national urban policy. It's part of a much larger effort to strengthen the fiscal and the economic base of our communities.” 

Fifty years after the federal government helped to save New York, there is little sign of a national urban policy. President Donald Trump’s budget calls for “revitalizing federalism” by eliminating funding for Community Development Block Grants and cutting funding for the Economic Development Administration. Even the 2024 Democratic platform fails to lay out an urban agenda or a place-based strategy for economically challenged cities. 

More recent federal efforts to work with economically and fiscally challenged cities pale in comparison to what was done in New York.

In 2013, Detroit became the largest U.S. municipality to ever go bankrupt. There was no New York-like response by the federal government. Instead, Detroit’s state-appointed emergency manager told reporters that, "[W]e have to solve these problems ourselves. The concept that someone else is going to come in and solve problems of our making isn't exactly productive." 

The Obama administration did work to help Detroit better utilize existing federal resources and technical assistance and deployed an interdepartmental Community Solutions Team and “an integrated federal government to align resources, cultivate working relationships, and streamline communications.” But there was no increase in aid or loan guarantees or short-term financing. 

The Obama administration also deployed a team to work with Chester, Pennsylvania — a Philadelphia suburb where 70% of residents are Black and 30% of residents are living in poverty — on a series of initiatives, including development of a downtown revitalization plan, opening a local grocery store and the demolition of an abandoned hotel. But Chester had spent nearly two decades under state fiscal oversight and had made little progress.

In 2021, President Joe Biden visited Chester — a half-hour drive from his Delaware home — in one of his first stops after proposing the American Rescue Plan. Less than two years later, Chester’s state-appointed receiver filed for bankruptcy. While many local governments have unfunded pension obligations, Chester simply had no money left to pay pension benefits, and the cost of retiree health care exceeded the cost of active employee health care.

There was no special federal effort to support Chester. But American Rescue Plan funding for Chester was critical to avoid deep cuts to city services. With an annual operating budget of approximately $60 million, Chester received more than $30 million in one-time federal support. While American Rescue Plan funds went to all local governments, for fiscally distressed places like Chester, it became a critical lifeline.

With the expiration of American Rescue Plan funding and the potential for an economic downturn, many cities like Chester are at risk. Yet 50 years after New York’s successful fiscal recovery, there is no clear federal policy to assist fiscally challenged places.

Feds to cities: you’re on your own

Conditions like those faced in New York, Detroit and Chester are almost always the product of failure at the local level. No amount of federal intervention can substitute for a lack of local leadership. 

But the experiences in New York, Detroit and Chester also highlight that the federal government has an important role to play in promoting the fiscal health of American cities. 

All cities — but especially economically and fiscally challenged cities — need to tap into the technical and financial support that the federal government brought to bear in Detroit.

Federal intervention in New York and Detroit succeeded because state and local officials were already moving forward with the development and execution of effective fiscal plans. In New York, it was only because of tough fiscal planning that the federal government agreed to play its instrumental role. One-shot federal funding helped Chester, but the benefits might have been limited without a state-appointed receiver. Where states have not come forward to support fiscal planning, the federal government should support technical assistance.

Finally, the federal government must provide aid. In the case of New York, it came through short-term financing and loan guarantees. In Detroit, it was through freeing up existing resources. And in Chester, it was American Rescue Plan funding.

Ultimately, the lesson of the federal intervention in New York is that fiscal and economic comebacks are possible and that the federal government can play an important role. While New York may have been “too big to fail,” cities that are collectively home to millions of people shouldn’t be written off as too small to save.