History backs up Fitch’s decision. Everybody knows the New York Daily News headline “FORD TO CITY: DROP DEAD,” and New York’s 1975 fiscal crisis is now remembered as a near-bankruptcy. But this legend is wrong. A month after the Snooze’s page 1 howler, President Gerald Ford did deliver federal assistance to New York. Around the same time, the state government allowed the city a three-year moratorium on bond payments. Although the Empire State’s Supreme Court ultimately reversed that moratorium, the city’s creditors took a massive loss in the meantime. The Big Apple defaulted in all but name.
As you may have noticed, New York survived and ultimately prospered, as did Orange County. Vallejo—having renegotiated city worker pay and health benefits in bankruptcy—is also doing comparatively well these days.
Government employee compensation, mostly for health and retirement, is at the heart of nearly all the current and looming municipal bankruptcies across the country. Whether the economy is truly recovering or not, getting out of these obligations is essential for future fiscal sanity. Leaving aside the gross unfairness of putting taxpayers on the hook for these debts, it’s just not possible to raise taxes high enough to cover the country’s $3 trillion pension hole. That leaves bankruptcy as the most viable option.