If US cuts aid, hard times ahead for Northeast cities

The financial problems of many of the nation's Northeastern cities are growing, despite new efforts to cut services and raise taxes. New York, Philadelphia, Cleveland, Newark, N.J., and other cities have seen their fiscal equilibrium shattered in the past year by a combination of inflation, revenue shortfalls, and their inability to keep their payrolls in line with their tight budgets.

As the recession deepens with inflation still at a double-digit pace, many of these "frostbelt" cities "will be faced with widening budget gaps and greater and greater social strains," says Felix G. Rohatyn, chairman of the New York State Municipal Assistance Corporation. Known simply as "Big Mac," the state agency has been trying to shepherd New York's recovery from its serious flirtation with bankruptcy in 1975 and 1976.

Mr. Rohatyn is also a fiscal consultant to Cleveland, Chicago, Philadelphia, and other older US cities.

Added to the double-edged sword of recession and inflation is the anticipated loss of city revenues from federal aid cutbacks proposed by the Carter administration. The administration has proposed the elimination of $2.3 billion in the states' share of general revenue sharing. A lion's portion of these funds to states usually winds up in big cities.

To help compensate, the administration proposed increasing the cities' direct share of revenue sharing by $500 million, but this legislation faces rough sledding in an austerity- minded Congress. A proposal to add $500 million to revenue sharing, with an eye on aiding older cities, was offered in the Senate by Daniel P. Moynihan (D) of New York. It was defeated 54 to 40 on May 7. Last week, President Carter supported an unsuccessful attempt by liberals in the House to add $500 million for revenue sharing.

In the meantime, cities are retrenching, and doing everything they can to balance their strained budgets:

* New York City, still in the worst fiscal shape of any major US city, will be unable to eliminate its deficit in the year beginning July 1, 1981, as now required by New York State law, because of federal cutbacks in revenue sharing and other factors, according to that city's latest budget projections.

The city's fiscal situation could go from bad to worse in wake of labor settlements between the fire, police, sanitation, and other municipal unions after their contract expires this June 30. Mayor Edward I. Koch says the city cannot afford pay raises equal to the 9 percent salary increase a year won recently by the city's bus and subway workers, who are state employees. Municipal union leaders are demanding at least 16 percent a year raises for the next two years.

"In many ways we [in New York City] are facing a challenge as brutal and difficult as we did in 1975," Mr. Rohatyn laments. "Whether the city can successfully close its budget gap and remain viable is an open question. . . . The city, since 1975, has taken significant action to reduce its work force; how much more it is able to do and deliver an acceptable level of service is open to question."

* Philadelphia. The "City of Brotherly Love" faces an $118 million budget deficit in fiscal year 1981, which begins on July 1, after living with a much smaller one in the current fiscal year. Mayor William Green has proposed higher real estate taxes to help reduce the projected deficit, but the President's tremendous cutback in CETA (the Comprehensive Employment and Training program) jobs and revenue-sharing losses will make it extremely difficult. One "hidden" culprit which has helped push Philadelphia, as well as other Northeastern cities , toward insolvency is the skyrocketing cost of energy.

* Cleveland. Partly because of a new spirit of cooperation rather than confrontation between city government and private industry, Cleveland faces a much smaller deficit in fiscal 1981, which begins at the start of the calendar year. According to budget director Phillip Allen, the projected deficit for that year is $8,164,000 and $11,561,000 the following year. "The deficits have to be dealt with," Mr. Allen told the Monitor, and the administration will be proposing an income tax increase of one-half percent. If necessary, there will be more layoffs even though "it would be tramatic," he says.

* Newark, N.J. New Jersey has a state law saying that its cities must balance their budgets every year. And every year, it's getting harder for the state's biggest city to do so without a further erosion of middle-class citizens who balk at paying spiraling real estate taxes. Already this year, 633 CETA workers have lost their jobs and many of them have reverted to being a burden on taxpayers. Having a legally balanced budget "doesn't mean things are not tight here. It doesn't mean there is not a pinch," says one high-ranking city employee who asked not to be named. Others say the loss of state revenue-sharing money this year will be "catastrophic."

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