Why ‘debt service’ must be stopped

If an unemployed worker steals a loaf of bread, she or he goes to jail. Bankers who have stolen New York City, however, go home to their mansions. The banks’ “legal” robbery is responsible for unemployment, poverty and the deprivation of our children. Their culpability needs to be exposed and challenged.

We hear over and over in the big-business media that the city can’t meet its budget and that the Metropolitan Transit Authority has no money. The real truth is shocking.

The city’s direct budget is $59 billion a year. This enormous wealth is created by the workers, not the bankers who stuff their vaults through usury and federal bailouts. Most of the revenue comes from Jane and Joe Taxpayer, with corporations getting tax breaks and even refunds.

Who gets the $59 billion? Twenty percent of that goes to tax-free debt service. Debt service is mostly interest paid to banks that bought municipal bonds. Twenty percent comes to $11.8 billion a year, tax-free.

Every year the amount of debt service grows. Alan Hevesi, former New York state comptroller, said in a 2005 report that “debt is projected to grow at an average annual rate of 9.5 percent.” As revenues fall because of the economic crisis, the debt service continues to grow, as does its percentage of the total budget.

Add to this the tax-free interest paid to banks through back-door borrowing (BDB). The website of the state comptroller describes BDB: “This is debt issued by public authorities (public benefit corporations) without voter approval. The State has authorized numerous authorities to issue debt which the State is contractually obligated to pay for the interest and principal. This debt is not approved by the voters but tax dollars are used to repay the debt. ... [This debt] makes up 93 percent of outstanding State funded debt ... and increased 40 percent from 2000 to 2006.”

Not just corruption—it’s capitalism

It’s not just tax dollars from the city and state that go to the banks. Take the MTA, which is the fifth-largest debtor in the United States. Its debt service—tax-free interest paid to the banks—comes to $1.5 billion a year, or 13 percent of the MTA’s budget. In four years it will rise to $2 billion, or 16.5 percent of its budget. That’s enough to roll fares back and increase service dramatically.

Had enough? Wait. BDB was used to fund the gentrification project called Hudson Yards. It cost $4 billion, all from borrowed money. The New York City comptroller’s office admits that the interest over 40 years on that loan will be $10 billion.

This shell game goes on and on. It seems every year a new shadow entity—like the Transitional Finance Authority—is set up. It issues bonds. The city pays it back.

There are plenty of other examples: Water and Sewer, Sports Authority, Bridge and Tunnel, etc. Feel ripped off? Wait again. There are also state interest payments. Throw in the interest on loans, mortgages or rent and your credit card—there is no law limiting interest rates on credit cards—and much of your income goes to the banks in interest.

Can we forget the federal debt service and the recent outright giveaway to the banks of more than $2 trillion in tax money?

Emergency measures needed

If an official issues a contract to a friend using public funds, it’s considered criminal corruption. What is it called when politicians get government to take out loans from bankers who fund their campaigns? Business as usual. And the exorbitant payments to the banks for these loans go on, year after year. It doesn’t matter if schools or hospitals close—the bankers must be paid. In fact, the New York City Charter says that before one glass of milk is bought for a school child, debt service must be paid.

Unemployment is skyrocketing in New York City. In some African-American communities it is 60 percent. Transit fares are going up so high many people can’t afford to even look for a job. Rents are insane. If this is not a bona-fide emergency, what is?

The city should declare a state of emergency and declare a moratorium on debt service payments to the banks. Even a partial moratorium would help. Just $3.5 billion could create 100,000 useful jobs at $30,000 a year with health insurance.

“Repudiation” is a legal term for acknowledging a contract or debt and refusing to pay it. In the 1840s, after the capitalist economic panics of 1837 and 1839, nine states actually repudiated part or all of their debt because of a bona-fide emergency with legitimate social conflicts. The demand for a moratorium just means putting a stop to paying interest to the banks so those billions could be used for jobs and other critical needs.

A moratorium on debt service is logical and just, as is the demand for a moratorium on foreclosures and layoffs. Yet it won’t happen without a mass movement to demand it. The bankers will get hysterical between sips of their $1,000-a-bottle wine as they fly to and from their numerous mansions. Yet such a measure would help save the lives and livelihoods of millions of people. We can do it!