Planet Money The year NYC went broke
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Oct 15, 2025 
Donna Shalala, a former U.S. Secretary of Health and Human Services and politics professor, shares her insights on the 1975 New York City fiscal crisis. She discusses how decades of financial mismanagement led to the brink of bankruptcy, causing chaos in public services like sanitation and fire departments. Shalala details the role of the Municipal Assistance Corporation in rescuing the city, the skepticism of investors, and the infamous federal response, encapsulating a historic struggle to stabilize NYC's finances.
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Short-Term IOUs Masked Long-Term Risk
- New York used short-term IOUs to move future tax revenue into the present to pay recurring expenses.
- That practice hid cash shortfalls and created repeating rollover risk that eventually collapsed trust.
A Hippie's Wake-Up Call To City Hall
- Steve Clifford dug through city financial records and discovered years of accounting gimmicks that produced paper revenue but not cash.
- He concluded the city had about $3 billion in debt created by these maneuvers and warned the controller it was effectively bankrupt.
The Day No One Bought The IOUs
- At an auction in February 1975, zero banks bid on the city's IOUs, signaling a sudden loss of market trust.
- Without buyers, the city only had a month or two of cash left to keep services running.