Pluck intact, New York faces deep financial woe

A defiant optimism pervades city as it tries to surmount the worst fiscal crisis in 30 years.


Three months after the terrorist attack on lower Manhattan shut down Sal's Shoe Shop, the door is once again swinging open, bringing new customers every few minutes. "See this smile?" asks Salvatore Iacono, a.k.a Sal the Sole Man, as he points to his face. "This is how I feel now: optimistic."

Even though New York is facing its worst fiscal crisis in a quarter century, Sal's brand of determination seems to have gripped the city once better-known for its cynical sophistication. Like Mayor-elect Michael Bloomberg's optimism in the face of potentially catastrophic deficits, New Yorkers appear ready to take on the challenges of the next few years. Some call it denial, others a product of necessity.

There's no doubt that daunting challenges are ahead. The city is facing three years of budget deficits estimated in the billions of dollars. Tourism, a key revenue generator,

is down 14 percent and isn't expected to rebound to pre-Sept. 11 levels until 2003. The financial sector, the engine that stokes much of the city's revenue base, is reeling from the combined effects of the attacks and the recession. And then there are the tens of thousands of job losses, estimated now at almost 100,000 since Sept. 11.

Cultural and historical institutions are struggling as well. Broadway, which seemed to rebound in the weeks immediately after the attacks, is again facing a downturn in ticket sales, as much as 15 percent.

Museums report attendance down by 30 percent. And as the holidays approach, usually the peak giving season, nonprofit arts and cultural groups are eyeing their donors warily, worried the recession will crimp their generosity.

Still, few analysts believe New York's fiscal crisis will be as bad as that of the mid-1970s, when it teetered on the edge of bankruptcy, crime soared, libraries were closed all but two hours a day, and garbage sat uncollected on the streets. That's in part because of the fiscal safeguards put into place as a result of the earlier crisis.

"We're not rolling over in debt like we were back then," says Esther Fuchs, director of the Center for Urban Research and Policy at Barnard College in Manhattan. "There's no talk of bankruptcy now."

Bailout slow in coming

But there is plenty of talk about trouble and uncertainty. The promised federal bailout, still mired in politics, so far is a fraction of the $20 billion promised. Almost 70 percent of New York's $40 billion budget is made up of fixed costs, which leaves little room to cut.

Then there are tough negotiations ahead with city unions for teachers, firefighters, and police. They feel entitled to increases at the same time the new, largely untested mayor is talking about shared sacrifice.

"The [political] terrain in New York is very rough," says Fred Siegel, a professor at the Cooper Union for Science and Art in New York. "I do worry [Mr. Bloomberg] hasn't shown the wherewithal to deal with what's coming at him."

Like the rest of the nation, New York was facing an economic downturn even before the terrorists struck. While the events of Sept. 11 may have exacerbated the situation, economists maintain that the fundamental economic picture isn't all that different from early September. And that's where the optimists come back in.

"There are hard realities to face, but also exciting possibilities," says Alice Rivlin, an economist at the Brookings Institution in Washington.

Ms. Rivlin contends that New York's recovery depends heavily on "how quickly and how strongly the regional, national, and global economies get back to healthy growth." In the meantime, she says, the city has the opportunity to plan rebuilding with the future in mind.

As Professor Siegel notes, the World Trade Center towers fell at the same time that the US economy was undergoing a long-term structural shift. Technology and the Internet have been fueling a geographic decentralization of the business world. Financial firms have been slowly migrating away from Wall Street.

Sept. 11 simply exacerbated the movement. Rae Rosen, senior economist at the Federal Reserve Bank of New York, says as a result of Sept. 11, New Jersey got a "gift" of 18,000 New York jobs. Some firms, like Lehman Brothers, have decided to move uptown. But many others, like American Express, plan on staying, although it will be a very different downtown.

More parks by ground zero

With "quality of life" now key to attracting and keeping the much-sought-after, highly educated worker, planners are talking about a kinder landscape with more parks, housing, and retail space in and around ground zero.

"There's a certain cache New York has," says Siegel. "That's not an inconsiderable asset."

Even before Sept. 11, people in the downtown area were working on giving the place a makeover. The Conservancy for Historic Battery Park, a public-private partnership, was in the midst of a $6.6 million renovation of the park's waterfront.

In the immediate aftermath of the attacks, work was suspended. Battery Park was barricaded, guarded by armed soldiers and filled with Army tents, military trucks, and camouflaged troops. Today, the park is officially reopening with a new promenade and prime views of the harbor and the Statute of Liberty.

"Three months from the attack, we want the world to know New York is opening a new, rebuilt waterfront, and with that we start the renewal of downtown," says Warrie Price, president of the conservancy.

Ms. Price, like many other New Yorkers, seems determined to simply will the city to rebound. But, like others, she's also keenly aware of the challenges ahead. Some of conservancy's chief benefactors, like Lehman Brothers, have left the area.

Others are absorbing immense losses, in terms of both lives and finances.

Price has no idea what her fundraising will be like in the next few months. But she's not worrying about that right now.

"We don't really have a choice," she says. "This has happened, and if we don't rebuild better than we were before, we haven't really resurrected ourselves."

Like Sal in his shoe shop, she's focused on the immediate challenges. His store is a few blocks from ground zero. Three days after the terrorists struck, he returned to find it destroyed. Firefighters had ripped the door off so they could use it to help the injured. Everything inside was covered with thick, acrid dust.

Then vandals came in and ransacked his polishes and shoe dyes. They even pried open the register to steal what was there.

"That's what really scorched me. I didn't know whether to just shut down or do my best. I was confused," he says. "But I decided to do my best. And today, I can tell you that was the right decision."

New challenges since Sept. 11

City budget: Annual deficits to run in the billions of dollars over the next three years

Job losses: almost 100,000

Tourism: down 14 percent

Broadway ticket sales: down as much as 15 percent

Museum attendance: down 30 percent

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