Yet, a strong economy and a sound fiscal position at least provide the means to devote resources to help address these ongoing problems. This turnaround of New York City illustrates that reviving a city in trouble is indeed possible. There are some useful lessons from New York City’s experience. First, it is often darkest before the dawn. Cities in fiscal distress are like individuals suffering from addiction: they often have to hit bottom and reach out to others for help before they can begin to recover. New York City hit bottom in 1975, and that created the impetus for reform. Second, in such situations, cities often have to give up fiscal control for a time. Accepting a Control Board and operating under its mandates was a painful, but necessary, step toward rebuilding the city’s fiscal health and regaining access to financial markets. Third, when sound reforms are implemented it still takes a long time to achieve fruitful results, so it is important to stay the course. Fourth, although a strong economy, good fiscal position and transparency in government will not automatically solve every problem, they provide a strong foundation. So, what does the future hold for New York City? An important aspect of a city’s vitality is the ability of its residents to develop the skills necessary to be successful and to achieve their dreams. A big asset for the city is its access to affordable education.
At the end of 1975, New York City faced perhaps its darkest moment and greatest challenge of the modern era when it ran out of money to pay for basic services. The city’s persistent deficits caused the financial sector to lose confidence in the city’s ability to repay its debts, and the city lost its ability to borrow. Yet, this moment—when the outlook appeared bleakest—turned out to be an historic turning point for the city. The reforms that were subsequently imposed by the state and federal governments through the Emergency Financial Control Board were quite tough in many ways. There was plenty of pain to go around, and just about every stakeholder―including city officials, lenders, city workers and residents, to name just a few―shared in the sacrifice. The city’s extraordinarily large level of short-term debt was refinanced into long-term debt owed to the newly formed Municipal Assistance Corporation (MAC). To make this debt marketable to the public, MAC was given control over the city’s sales tax. Revenues from that tax were 2/5  BIS central bankers' speeches  dedicated to repayment of the MAC debt, and the city could keep only what was left over. Fundamental to the deal was the creation of the Emergency Financial Control Board, which was empowered to monitor proposed city budgets to ensure that they were in balance. This change alone was very consequential: taxes increased and spending fell sharply over the latter half of the 1970s.