"Drop Dead" + 50

It's been a half-century since Gerald Ford gave a famous speech ruling out federal assistance to a virtually bankrupt New York City.

On Oct. 30, 1975, the front page of the New York Daily News featured one of the most memorable and widely quoted headlines in the history of American journalism. “Ford to City: Drop Dead” did a lot to shape—and distort—popular impressions of what transpired at a crucial juncture in a multi-year municipal fiscal crisis that has enduring relevance to New York City’s politics and governance.

But let’s start with a less concise and memorable but slightly more enlightening and accurate headline from another New York paper that same day.

Just a day before the President’s speech and press conference at the National Press Club in Washington, DC, Democrats on the Senate Banking Committee had reportedly agreed on compromise legislation guaranteeing $4 billion in loans to New York, provided the city’s finances were placed under the control of a three‐member federal board headed by Treasury Secretary William E. Simon. Needless to say, coming just a month after the state itself already had taken control of city finances, this was not an attractive prospect to Gov. Hugh Carey, much less Mayor Abe Beame.

Less than two weeks before that Oct. 29 speech, a front-page Times story quoted unnamed sources as predicting that Ford “would reluctantly sign legislation to ease New York City’s fiscal crisis provided that it contained the stringent restrictions that Congress is likely to insist upon.” In the same story, House Majority Leader Thomas “Tip” O’Neil predicted an aid bill would pass Congress.

By late October, however, the outlook for aid had soured. In fact, the President’s intention to veto a bailout wasn’t even a surprise. In its same-day advance coverage of Ford’s “suddenly scheduled” speech, the Times reported “the President will continue to oppose Federal assistance to prevent a default by the city, the officials said, and will make clear that he believes the city and New York State have the ability to avert a fiscal collapse.”

This was pretty much what Ford proceeded to do, albeit employing rhetoric that was sharper and, yes, more “castigating” than he had previously aimed at the city (although it was downright mild by current presidential standards).¹ The President opened on a sympathetic note:

New York City, where one out of every 25 Americans lives, through whose Golden Door untold millions have entered this land of liberty, faces financial showdown.

After months of recurring close calls, in mid-October 1975 the city had “tottered on the brink of financial default, which was deferred only at the eleventh hour,” Ford noted. Declaring “it is time for straight talk,” he ran down a laundry list of fiscal abuses and framed his position in terms of fairness.

There can be no doubt where the real responsibility lies. And when New York City now asks the rest of the country to guarantee its bills, it can be no surprise that many other American ask why.

Why, they ask, should they support advantages in New York that they have not been able to afford for their own communities?

Why, they ask, should all the working people of this country be forced to rescue those who bankrolled New York City’s policies for so long—the large investors and big banks?

Treasury Secretary Simon (the former head of the municipal debt department at Salomon Brothers) had said the city should simply declare bankruptcy, rejecting arguments that a New York default would destabilize credit markets. This would have put the city’s finances at the mercy of its creditors and a federal bankruptcy judge— a messy process likely to hamper city management and planning for years under the best of circumstances, Carey and others believed.

Ford’s speech offered a sort of fig leaf to Carey and Beame in the form of a proposed amendment to the federal Bankruptcy Law, similar to one already pending in the House, consisting of a new section tailored to address some of New York’s objections by ameliorating some of the usual requirements of the process and supposedly assuring that funding for essential public services would be preserved.

The President’s alternative landed like a lead balloon. Hugh Carey denounced it as “fiscal illiteracy” and said it “deliberately unravels every step we have taken to solve our own problems” and would actually cost the feds billions of dollars.” Behind the scenes, however, the governor didn’t waste time complaining. As described in my piece in the Spring edition of City Journal, he went to work twisting arms in City Hall and the State Capitol:

The Daily News headline created the sense of urgency that Carey needed to push for a unilateral reduction in city subsidies of employee pension contributions, a package of state tax increases, and, to buy more time, a clearly unconstitutional (and thus temporary) “moratorium” on city bond payments.

Just four weeks to the day after the “Drop Dead” speech came another Daily News headline that hardly anyone now remembers.

The president agreed to legislation authorizing up to $2.3 billion a year in federally backed seasonal cash-flow loans for the city, or a total of up to $6.9 billion. “Bankruptcy for New York City is now behind us,” Carey declared. “Talk of collapse and chaos now should disappear. In its place we shall talk of the work of rebuilding and restoring confidence in New York City, of insuring New York’s place in this nation.”

By 1978, the city ended up borrowing and repaying (on time) $5.235 billion in federal seasonal loans, equivalent to $31 billion in 2025 dollars. This alone wasn’t nearly enough to patch the massive structural imbalance in New York’s finances, but it placed a stable floor from which the rebuilding effort could proceed.

So much for dropping dead.

The aftermath

While Ford’s initially tough anti-bailout stance may have helped fortify his standing with conservatives, the “Drop Dead” headline on balance probably didn’t help the President’s re-election chances in New York, which was then still politically competitive enough to make a difference in national elections.² In 1976, Jimmy Carter carried the Empire State by just under 289,000 votes, a roughly 52 to 48 percent margin, making it the closest presidential election in New York since 1948. Ford’s 32.95 percent share in heavily Democratic New York City was notably lower than Richard Nixon’s 48 percent in 1972, though just a point lower than the 33.9 percent Nixon had garnered in 1968.

Yet despite all the focus on the President during the bailout struggle, it was not as if Ford alone had the ultimate say on how much aid the federal government would or wouldn’t provide to the city. Boosted by the Watergate scandal culminating in Nixon’s 1974 resignation, Democrats in 1975 had 61 out of 100 votes in the Senate³ and had a supermajority of 295 out of 425 members of the House of Representatives.⁴ If positioning on the New York City bailout question had broken down strictly across partisan lines, Congressional Democrats would have had enough votes to at least force the issue to Ford’s desk.

But Democrats, in fact, were not united in favor of a bailout for the city, certainly not on granting unconditional aid, as was demonstrated repeatedly in the congressional hearings dedicated to the topic in the summer and early fall of 1975. As noted above, leading Democratic senators in late October were forging a loan guarantee bill that included what amounted to a poison pill of federal fiscal control. A Times story datelined Oct. 29, the same day as the Ford speech, reported how the New York City fiscal situation had become a political lightning rod down in Texas, with a bailout drawing opposition from Democrats and Republicans alike.

Liberals contend that Federal aid to New York is simply a means to bail out big Eastern banks. Conservatives maintain that it means bailing out an irresponsible administration. And Texans in general think it’s about time that New Yorkers had their comeuppance after years of treating people west of the Hudson River like country hicks.

By the same token, Republicans in other states weren’t entirely unsympathetic to the city’s position. Among the immediate reactions to Ford’s speech, the Times reported that Senate Minority Leader Hugh Scott of Pennsylvania “supported the President’s proposal [to change the bankruptcy law] but said that he was maintaining ‘an absolutely open mind’ on Federal loans or loan guarantees to aid New York City. ‘If more is needed, I would he prepared to judge it on the basis of what is fair and just’ he said.”

With a significant minority of rank-and-file Democrats still unconvinced that New York deserved a no-strings-tied bailout, Ford could hardly be expected to stick his neck out on the city’s behalf—not when he was facing a primary challenge from Ronald Reagan. As a former seven-term congressman who had befriended colleagues on both sides of the aisle, Governor Carey understood this better than most. (It was one of the reasons why he deserved the title conferred on him years later by his biographers: “The Man Who Saved New York.”)

Myth vs. reality

When the city emerged from state financial control in the 1980s, in political circles especially, the story of the fiscal crisis became shrouded in a sort of myth. In this version of the story, when the fiscal situation looked bleakest, confronted by greedy bankers and anti-government Republicans, there came a heart-lifting Kumbaya moment when New York’s elected officials, business leaders and municipal unions put their differences aside and joined forces to make mutual sacrifices to avert insolvency and restore the city’s fiscal integrity.

The truth was much more complicated. The municipal unions, in particular, made no lasting sacrifices. Yes, there were massive layoffs starting in 1975—but when given a choice, public employee unions have always chosen reverse seniority-based layoffs over pay cuts, hard freezes, or other money-saving concessions. When no one else would lend the city money, it was treated as a big deal that union leaders allowed their trustees to vote in favor of buying Municipal Assistance Corp. (MAC) bonds. But that result should never really have been in doubt. As Fred Siegel and I wrote in Public Interest on the 30th anniversary of the crisis:

Then, as now, public pension benefits in New York were effectively guaranteed by the state’s constitution. City taxpayers were ultimately responsible for making good on earlier poorly considered pension promises to the unions. So despite their high-minded talk of heroic self-sacrifice in taking a risk and purchasing the new MAC bonds, the unions were “gambling” with house money. They would get their pension benefits no matter what. But they did gain something from their so-called concession--they created the public perception that they were trying to play nice with the city.

Picking up from my more recent City Journal chronicle, once the crisis hit:

[W]hile New Yorkers endured years of real and visible cuts in city services, the municipal workforce took only a temporary hit. Base pay was never cut, and longevity raises and cost-of-living increases continued. While the city cut 60,000 positions from its enormous payroll, the reduction was accomplished mostly through attrition and a permanent shift of some jobs to the state ledger. After a two-year base-pay freeze, unions negotiated for raises again starting in 1978. Over the next four years, salaries and wages in the city budget grew by a compounded rate of 26 percent.

By the end of the decade, the city economy had begun a turnaround. Carey sharply reduced state income taxes, and President Ronald Reagan’s federal tax cuts, starting in 1981, freed up more private capital, fueling one of the strongest bull markets in Wall Street history.

Mayor Edward Koch, who took office in 1978, spent much of his first term engaged in a tug-of-war with unions; but as the economy improved, fiscal pressures eased. The city produced its first truly balanced budget in 1981, a year ahead of the mandated schedule. Koch ultimately added 57,000 full-time positions to Gotham’s payroll, more than offsetting the job cuts instituted during the crisis. Between 1980 and 1989, the city budget nearly doubled, increasing almost as rapidly as it had in the 1960s.

The legacy of the fiscal crisis is the state Financial Emergency Act of 1975, which created the state Financial Control Board and laid out the most rigorous accounting standards and financial planning process followed by any major American city. To be sure, this by itself is no guarantee that the city will not spend beyond it means—as it has done repeatedly since the 1980s, only to retrench during recessionary periods, as it did in the 1990s, and in both the early and mid-2000s.

Could New York City ever go broke again? As New York approaches an election in which the frontrunner is a Democratic Socialist who proposes the most massively expensive agenda the city has ever seen, the question is being raised with fresh urgency in many quarters. From my City Journal article:

The answer is no—or at least, not in the same way as it did in the 1970s, because of financial guardrails set up by the reforms of that era. The prosperity that lifted New York out of virtual bankruptcy, however, also seeded new versions of the political impulses that gave rise to the crisis in the first place. The elected officials who nowadays dominate city hall and Albany exude a sense of fiscal entitlement and economic invulnerability, an aversion to any suggestion of limits on government ambitions, strikingly reminiscent of the Wagner and Lindsay eras. The city’s sprawling network of tax-subsidized nonprofits—a political force that didn’t exist a half-century ago—lobbies relentlessly for higher spending while serving as an organizational network for progressive activists and politicians. Nearly one-quarter of New York’s private-sector employment—twice the share of 30 years ago—is now concentrated in the publicly subsidized health-care and social-assistance sector, which accounts for all the city’s post-pandemic job growth. The municipal labor unions are as powerful as ever, if not more so.

Meanwhile, it seems people will never stop dusting off a certain Daily News headline.

Treasury Secretary Scott Bessent warned [Sept. 24] that if Zohran Mamdani carries out his socialist economic plans as mayor, New York City will come begging Washington for a bailout – and he won’t give them one.

“I guarantee you, and there’re not a lot of things in life that are sure, but New York City will be coming to the federal government for a bailout if Mamdani’s plans are implemented,” Bessent told FOX Business’ Maria Bartiromo.

“And are you going to give them that bailout?” asked Bartiromo.

“It will be the same thing that Gerald Ford said. Drop dead,” Bessent said.

1. The President’s own reading copy of the speech is posted at the Ford Presidential Library website.

2. Ford in later years repeatedly expressed great resentment over the Daily News headline and said he believed it had cost him New York, and by extension the presidency.

3. Counting Independent Harry F. Byrd, who conferenced with Democrats.

4. New York’s own DC delegation was more mixed at the time. Its senators were both Republicans: liberal Jacob Javits, who had won his fourth term in 1974, and conservative James Buckley (dubbed “the sainted junior senator” by his brother, columnist William F. Buckley), who had been elected in 1970 to what would turn out to be his only term. New York’s House delegation consisted of just 12 Republicans and 27 Democrats, some of whom were well known (such Shirley Chisolm of Brooklyn, the first black female member of Congress, and Bella Abzug of Manhattan, the nation’s most outspoken feminist pol), but none of whom wielded much clout in the majority as a whole.