The Militant (logo)  
   Vol.66/No.35           September 23, 2002  
New York rulers use bonds
to reap profits while they
slash wages, services
When New York City mayor Michael Bloomberg presented a $41.4 billion budget plan earlier this year he proposed slashing funds to the Administration for Childrenís Services by nearly 18 percent and services for workers who are homeless by 17 percent. Programs for the elderly were to meet a similar fate.

The mayor is seeking to eliminate $225 million in pension and health benefits owed to city workers and plans to scale back the building of new schools by 20 percent. And his administration has raised taxes on cigarettes, which now cost $7.50 a pack.

Demonstrating his heartfelt concern for working people who have been pushed out of their homes, the billionaire resident of Gracie Mansion opened up an old prison with lead paint on the walls for a rapidly rising number of homeless families to sleep in.

Bloomberg has cast his plans to slash social entitlements in terms of the need for "fiscal responsibility." He claims he has no choice but to make cuts that hit working people the hardest in order to make up for a "budget deficit."

In response to these attacks, a series of labor struggles have taken place in recent months. More than 5,000 transit workers rallied April 24 to defend their health-care benefits, and workers struck the bus lines in Queens for two months this past summer around the same issue.

School teachers organized a number of protests for pay increases after having been without a contract since November 2000.

Many involved in these struggles do not buy City Hallís argument that working people must be the ones to put their heads on the chopping block. They know what Bloomberg is not saying: some people wonít be "sharing the pain" or "making the sacrifices."  
Municipal bonds
The wealthy rulers work hard to cover up the class realities of their system of exploitation, including how city governments operate to serve the interests of the billionaire minority. Municipal bonds are one of the main vehicles they use to expand the wealth of the ruling rich at the expense of working people.

New York City, like many cities in the United States, is always in debt. It does not raise enough funds through taxes to cover its expenses. That shortfall is made up by issuing bonds--a source of easy profits for the parasitic ruling families.

Issuing a bond is similar to taking out a loan. For example, the Port Authority of New York and New Jersey issued $934 million in bonds in 1997 to finance the construction of a new terminal at JFK International Airport. It sold coupons to the financial houses Lehman Brothers and Citicorp, which are middlemen that turn around and sell the bonds to the capitalist families. The Port Authority agreed to pay an average of 6.2 percent interest a year on a variety of bonds.

Written on each bond are the words, "Full faith and credit," meaning the government body that issues them guarantees they will be paid. And the guarantee is that bondholders will always be at the head of the line when it comes to the city budget. They are never on the list of those who must "share the pain," as Bloomberg prescribed for working people. When a city builds up a deficit, itís the wages and benefits of city employees, as well as city services and public education that working people rely on, that take a back seat. This dirty little secret is never explained in the daily barrage of articles by the big-business press on the "budget crisis."

State comptroller Carl McCall, now the Democratic Party candidate for governor, said that since 1998 in New York City, "stopgap measures have substituted for the hard-choice changes that must be made if capital programs are to succeed," signaling deeper cuts in social services and other programs.

Municipal bonds, together with U.S. Treasury bills, are the prerogative of the very rich. They are not sold directly to the public, but through registered broker dealers. Each coupon sells for tens of thousands of dollars, putting them well out of the reach of working people and many in the middle class. Billionaire ex-presidential candidate Ross Perot, for instance, is one of the biggest individual holders of municipal bonds in the United States.  
Rising cost of debt service
New York City owes $42 billion to bondholders, which would translate into some $5,000 "owed" by each city resident. This figure has more than doubled during the "boom years" of the 1990s. A large portion of the city budget goes toward paying off these obligations. In 2002 the city will spend one out of every five tax dollars to pay debt service--principal and interest--straight into the coffers of these billionaire coupon clippers.

In the state budget, debt service costs are the fastest-growing categories of spending. Some $4.4 billion dollars was turned over to bondholders in the last fiscal year, a 47 percent increase from 1997. New Yorkís $1,948 in debt per person is more than double the national average and ranks fourth highest among the states in tax-supported debt per person.

Just how much do the city and state governments combined pay each year in debt service to the superwealthy minority? Some $8 billion, not counting "independent" public agencies whose debt and interest payments far exceed both the city and state.

To top it off, municipal bonds are tax free. The wealthy holders of state and local debt do not have to pay any federal, state, or local taxes on the interest they rake in.

Because New York City is constrained by the state constitution to issuing only general obligation bonds with a cap on how much debt the city can incur, the rulers have set up a host of different corporations to sell bonds. These include the Municipal Water Authority, the Health and Hospitals Corporation, the Dormitory Authority of the State of New York, the Transitional Finance Authority, and the Tobacco Settlement Asset Securitization Corporation.

The city issued tobacco bonds in 1999, and is considering doing so again. It is selling coupons backed by promised funds from a national lawsuit settlement with tobacco companies, which are to pay the money over a 25-year period.

The cash up front does not come free. Because of the extra risk involved, the city is paying a premium to those who buy the tobacco bonds. Interest rates for these bonds generally run 40 basis points (1 basis point equals 0.01 percent) higher than debt backed by income tax revenues and 30 basis points higher than general obligation debt paid out from general revenues.

Another agency, the Port Authority of New York and New Jersey, owns and operates the regionís three major airports, New York/New Jersey bridge and tunnel crossings, port districts, and the PATH commuter rail system.

To pay for bonds issued on a $9 billion five-year capital program, the Port Authority jacked up fares and tolls in 2001. Tolls at bridges and tunnels went from $4 to $6 and fares on the PATH train rose from $1 to a $1.50.

Port Authority Chief Operating Officer Ernesto Butcher claimed, "The new toll and fare structure is a well-reasoned plan that will address traffic congestion by providing travelers with an incentive to change their commuting habits to off-peak hours, and by encouraging the use of mass transit."

In fact, the increases are another form of taxation of working people and the middle class.

The Port Authority runs a $4.5 billion annual budget. Of that, $500 million a year is handed over to bondholders for payments on interest and principal.

The rulers donít leave to chance who will oversee these massive financial operations. For example, the chairman of the Metropolitan Transit Authority (MTA), Peter Kalikow, is president of H.J. Kalikow & Co., one of New York Cityís largest real estate firms. He is also the governor of the Real Estate Board of New York and former owner and publisher of the New York Post. Although the MTA does not post its profits, it collects fares from more than 2.3 billion subway, bus, and commuter rail riders each year; and tolls on the bridges and tunnels from 300 million drivers a year.

In addition to New York Stateís $38 billion debt, the total debt at the end of 2000 for public corporations such as the MTA and the Port Authority stood at $65.8 billion. Added together, the serviceable debt from the New York City government, state government, and state-backed agencies comes to more than $145 billion--a virtually endless trough for the capitalist class.

That is why city workers are right when they reject the "budget deficit" argument used by big-business politicians to justify their austerity demands. For the labor movement, the needs of working people--not the employers and wealthy coupon-clippers--must come first.

Jack Willey is the Socialist Workers candidate for New York State comptroller.  
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