Planet Money (NPR)

Episode: The Year NYC Went Broke

Date: October 15, 2025

Overview

This episode explores the infamous financial crisis of New York City in 1975—a moment when the city literally ran out of money and couldn’t borrow more. Through interviews with experts, insiders, and former officials, Planet Money delves into the missteps that led to the crisis, the chaos on the ground, and the unorthodox solutions that eventually pulled NYC back from the brink. The episode also considers the legacy of this near-catastrophe, which left a permanent mark on municipal finance across the United States.

Key Discussion Points & Insights

The Basics of Running a City and Cash Flow Management

• City services like trash collection, public schools, and emergency services are funded by a complex system of taxes that come in on uneven timelines.
• To bridge gaps between payments and income, most cities, including New York, use short-term debt—selling IOUs called Tax Anticipation Notes.
  • [01:29] “Altogether, more than 300,000 people work for the city of New York...This marvel of social coordination, like so many things in our world, is made possible by money.” – Nick Bowset

The 1970s Downward Spiral

• NYC's financial trouble was triggered by:
  • White flight and decline of manufacturing, shrinking the tax base
  • Surging demand for social services
  • A nationwide recession
• Urban decay and dysfunction were widely felt:
  • [05:11] “Everybody thought New York City was going to hell. Nothing seemed to work. The subways were, you know, 120 degrees in the summer. There was crime. There was dirt. There was just dirt everywhere.” – Steve Clifford

Creative Accounting and Debt Accumulation

• For years, the city covered up budget gaps with accounting tricks:
  • Delaying payments (e.g., pension funds) to push expenses to the next fiscal year
  • Overestimating revenue to falsely balance the books
• These maneuvers were technically legal but grossly misrepresented the city’s true finances.
  • [07:56] “For at least 10 years, there was a totally uncoordinated charade of different people devising different gimmicks that produced accounting revenue but didn’t produce cash.” – Steve Clifford

The Tipping Point: Losing the Trust of Creditors

• By rolling over debt endlessly, the system relied on investor trust.
• When banks and investors realized the extent of the city’s financial gimmicks, trust evaporated and NYC could no longer sell short-term debt.
  • [11:30] “The banks started saying, wait a minute. What's behind this rolling over? ... The bank said, well, that’s great. Now, how much money does the faith and credit have? And that's when it all went nuts.” – Steve Clifford
• A notorious failed bond auction in February 1975 marked the beginning of the end, with zero bids coming in for $260 million in tax anticipation notes.
  • [12:05] "That morning, the city tried to hold an auction...But that day there were precisely zero bids." – Nick Bowset

The Human Toll: Chaos and Decline

• As bankruptcy loomed, basic city services faced collapse: no garbage collection, threatened police layoffs, mass protests and strikes.
  • [20:03] "At airports and hotels, members of the police union handed out brochures...titled WELCOME TO FEAR CITY." – Nick Bowset
• Garbage piled up and was literally set on fire in the streets.
  • [21:15] “Yes. Smelling trash all over the place.” – Donna Shalala

The Search for a Solution: Municipal Assistance Corporation (MAC)

• Governor Hugh Carey formed MAC, a state-backed entity to borrow on the city’s behalf and restore creditor confidence.
• The board included business leaders and Donna Shalala, who described herself as the only woman and a political outsider at the time.
  • [16:13] “It was originally set up to issue bonds to stretch out the debt of New York City...to give them some time to get their house in order.” – Donna Shalala
• Even with state backing, selling MAC bonds was extremely difficult due to NYC’s tainted credibility.
• Memorable moment with David Rockefeller refusing to use the back door of a Dallas club because Donna, as a woman, wasn't allowed in the front entrance.
  • [18:26] Donna recalls Rockefeller: “Donna, I’ve never gone in a back door in my life. ... He walked me right through the front door.”

Grand Bargain and Shared Sacrifice

• Felix Rohatyn, MAC’s prominent leader, built coalitions between business, labor, and government through negotiation and sheer force of personality.
  • [25:09] “People had to take cuts. Everybody had to give something up if they wanted to keep New York City solvent.” – Donna Shalala
• Real estate moguls paid taxes early (in exchange for discounts), and unions used pension funds to buy MAC bonds.
  • [26:17] "Some of the city's biggest property owners agreed to pay hundreds of millions of dollars in real estate taxes months before those taxes were due." – Nick Bowset

Loss of Local Control and Rise of Oversight

• As a condition for a bailout, NYC effectively lost control over its budget to the Emergency Financial Control Board—a less democratic but more responsible overseer.
  • [28:44] “The state essentially took away home rule from the city for the financial part of the city.” – Donna Shalala

The Final Piece: Federal Reluctance and the “Drop Dead” Headline

• President Gerald Ford initially refused a federal bailout, leading to the infamous Daily News headline:
  • [30:35] "FORD TO CITY: DROP DEAD."
  • [30:46] Donna: “Of course. I had it for a long time framed.”
• Under political and economic pressure, the federal government ultimately offered over $2 billion in short-term loans.
  • [31:23] “I talked to Jerry Ford about it years later...Did he regret it? No, because he said from his point of view, it forced the city to pull itself together and to get it done.” – Donna Shalala

Aftermath and Legacy

• Returning to fiscal stability required years of budget cuts, tax increases, and reduction in public services—especially impacting the city’s poor.
• Once NYC emerged, the “New York playbook” became a reference for future municipal crises in places like Detroit and Puerto Rico.
  • [32:35] "Because of New York City, they also had a playbook to follow. A series of difficult and painful moves that could eventually lead them back out of that crisis." – Keith Romer

Notable Quotes & Memorable Moments

• [06:48] Steve Clifford: “You could look at Park Avenue and you can say, these guys can't go broke. ... The city can't go broke.”
• [09:04] Keith Romer: “All of the things they were elected to do... All of that takes money. Moving some things around on the balance sheet made it possible.”
• [15:26] Donna Shalala: (on Felix Rohatyn) “He had an instinct not for politics, but how to pull people together to get decisions.”
• [27:38] Donna Shalala: “Well, it’s transactional. It’s a New York transactional.”
• [29:37] Nick Bowset: (on federal bailout) “In other words, Beam was asking the federal government to bail out New York City. But President Gerald Ford, was not having it.”
• [31:47] Keith Romer: “But in reality, it wasn’t quite that neat. It took years of raising taxes, slashing public services and cutting back...”

Important Segment Timestamps

• [01:29] – The basics of city services and the financing tricks that smooth out city cash flow
• [04:44] – The roots of NYC’s crisis: white flight, economic decline, and overextended budgets
• [07:08] – Steve Clifford’s discovery of financial mismanagement
• [12:05] – The failed auction: no one will buy NYC’s debt
• [13:10] – Mayor Abe Beam and the politics of blame
• [16:13] – The formation of the Municipal Assistance Corporation (MAC)
• [18:26] – Donna Shalala and David Rockefeller challenge club rules in Dallas
• [20:03] – “Welcome to Fear City” police union protest
• [21:12] – Trash strikes, garbage fires, and the streets of NYC in chaos
• [25:09] – Rohatyn’s negotiations and the necessity of shared sacrifice
• [28:44] – Home rule revoked in favor of state oversight
• [30:35] – President Ford’s “Drop Dead” moment
• [31:47] – The consequences and slow road to recovery
• [32:35] – The legacy: how this crisis shaped responses to future municipal defaults

Summary Takeaways

• New York’s 1970s fiscal collapse was precipitated by a toxic mix of economic decline, political avoidance, and creative accounting.
• When the city's longstanding reputation for solvency collapsed, the gears of urban life nearly ground to a halt, profoundly affecting daily existence and leading to both chaos and bold reforms.
• Rescue involved a rare collaboration among rival interests—business, labor, state officials—each sacrificing to avert disaster, overseen ultimately by state (and eventually federal) authority.
• The experience created a blueprint for future municipal crises—one that’s as much about human incentives and institutional trust as it is about money.
• Despite official salvation, recovery brought years of austerity and hardship, especially for the most vulnerable New Yorkers.