Insights Blog

When Unions Saved New York City From Bankruptcy

June 28, 2023

The death of New York’s Richard Ravitch, a legendary civic and economic expert and problem solver, prompted the New York Times’ Ginia Bellafante to recall the city’s brush with bankruptcy in the 1970s. Noting Ravitch’s role in bringing unions into the city’s financial rescue, Bellafante wonders “could such an alliance happen today?” Sadly, probably not.

In fact, the fiscal crisis may have been the maximum point of union influence. Although union pension fund investments (especially the American Federation of Teachers [AFT] led by the combative Albert Shanker) kept the city from entering formal bankruptcy, subsequent mayors attacked unions as a principal cause of New York’s financial and operational challenges.

In October 1975, New York was literally one day away from formal bankruptcy. But in frantic last-minute negotiations, detailed by Bellafante, Ravitch persuaded Shanker to invest union pension funds in city bonds, staving off bankruptcy.

This was the famous “matzo summit” in Ravitch’s apartment (so-called because there wasn’t any other food in the house.) Shanker and the AFT were taking a big risk, as there were no state or federal guarantees on the bonds.

But it wasn’t just altruism. The AFT had won substantial benefits for its members, and Shanker feared formal bankruptcy might reverse those gains, along with adding restrictions on future collective bargaining.

As I discuss in my book Unequal Cities, New York’s public and private sector unions had pushed the city to become what historian Joshua Freeman called “the standard-bearer for urban liberalism and the idea of a welfare state.” Their political power led Victor Gotbaum, head of the municipal workers’ DC 37 union, to say “we (unions) have the ability, in a sense, to elect our own boss.”

 (This article initially appeared in a Forbes column authored by SCEPA Senior Fellow Richard McGahey)

Read the rest of Richard McGahey's column in Forbes.