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Show Page Ten National Enterprise, May 19, 1976 Will NYCs Legal System Preclude Recovery? continued from page Three it cannot be replaced. Nor does it seem to be possible to replace the welfare system with a straightforward cash grant system, even though a vast number of governmental employees (and their salaries) could be dispensed w'ith. Nor does it seem to be possible to arrest the rapid decay of the citys housing stock by repeal of the rent control law. This last problem deserves detailed attention. The effect of rent control on the state of a city's housing stock is absolutely predictable. If rents are controlled at the owner saves maintenance expenses and, under rent will not lose any prices, and revenue. This brings a clear there is no low-comethod of gain to the landlord. landthe then The decay has been going law, evading lords will have more potential on for a considerable period of tenants at the controlled time but the storm hit in prices than they require. One response to increases in the effective method of allocating price of oil. The cost of apartments is by letting the operating an apartment buildbuildings decay until the numing rose dramatically, but the ber of potential tenants just right to raise the rent enough equals the number required to to offset this increase in New fill the building. If the York is costly to obtain. So building is allowed to decay. costly, indeed, that owners below-mark- control, have simply abandoned their buildings to the mercies of arsonists. et st Security Brokers, Dealers, Corporate Officials, Attorneys. Fairweather Friends restoration of its financial reputation. The decay of the housing stock could be stopped by abolishing rent control. Expenditures for public services could be easily reduced This brings us to the role of the capital market. New York City discovered long ago that a promise of future tax receipts is readily marketable. Buyers in the capital market have been quite willing to trade cash for this promise of future by replacing government management with private provision of city services such as trash disposal and by substituting cash payments for payments in the form of the services of social workers. A system of tuition revenue at very favorable loanscholarship assistance rates because, in part, munici- could be designed to replace pal bonds are exempt from the "free tuition at the City Federal income tax, and, in University. There seems to part, because it was believed me absolutely no doubt that that these bonds are a first the city w'ould do very w'ell to lien on the tax receipts. follow David Friedmans Political entrepreneurs disadvice: sell its activities in covered long ago that by small pieces. The next time regularly marketing such garbagemen go out on strike, promises of future tax receipts the city could sell its garbage collection facilities to a large they could raise the probabilnumber of private firms. ity of their election by increasNote well: each of these ing the standard of living of various groups. This access to proposals would abolish rights the capital markets is impor- acquired by individuals tant, because if the political through the existing legal tried to system. For example, under entrepreneurs increase the standard of living current rent control law, the of these groups at the direct present tenants have a right to expense of other groups in the occupancy at the controlled rent. If they were forced to city, the victims of this redisleave their apartments, they tribution could simply leave. The capital market abanwould be forced to move to howdoned New York City, apartever when the magnitude of ments or to buy from someone the housing decay and the the right, de facto, to occuconsequent future reduction in pancy at the controlled rent. property-ta- x revenue, as well Say the controlled rent is $125 as the magnitude of the debts a month, but the price which New York City had contracted, other individuals would be became clear. Not only were willing to pay to rent this there billions in bonds to be apartment is $200 a month. eventually paid off, but also The landlord cannot raise the unknown billions in pensions rent of the existing tenant or contracted to municipal replace the existing tenant. employees. It took a while, The tenant has a right, worth but the capital market finally $75 a month, to continue was able to see that the city occupancy at $125 a month. If was operating a Ponzi scheme. rent control were abolished, The revenue to pay off the this valuable right w'ould be bonds cannot be raised by abolished. increasing taxes over the long Similarly, city employees run, since the victims would have acquired a de facto right move out and lose any liability to continued employment at for New York Citys debts. It an above-markwage. Abolidoes not seem as if revenue tion of this right by recontractcan be raised by wholesale ing for city services would The again result in a real loss to governmental reform. right to fire government individual employees. A posiemployees comes, at a very tive tuition would, of course, considerable cost. It does not be a tax on middle and upper appear that revenue can be income students who w'ould raised by encouraging new not receive offsetting grants. business activity. Indeed, the new securities-transfe- r tax Insuperable Obstacles? domination end the may city's of the financial community. It Hence, it is not at all clear does not appear that the that there exists a feasible revenue can be raised by path inside the New York City encouraging an increase in the legal system by which 'it can housing stock by repeal of rent restore a semblance of financontrol. Many New York cial stability. The obvious, citizens have become very dramatic remedies require attached to the right to prohibi that a considerable number of bit a rent increase. So. where individuals take a financial had the city planned to acquire bath. It is equally obvious that the revenue to pay off the a considerable number of bonds? Why, by selling more individuals will stoutly resist bonds. Paying off the first such a fate. Presumably, the in" with the revenue from the citizens of the city w ill have to "last in" is the defining convince themselves that the characteristic of a Ponzi gain from the restoration of scheme. stability will be worth the cost of attaining it. One of the tempting aspects Shaping Up New York City of a formal default is that the It is not difficult to write decisions would be made for down a set of prescriptions for New York City outside its legal New York City that, if effected system, probably in the Fed- would bring about the desired Continued on Page Twelve public-assistan- ed hand for sweaty palms A helping Juristics Securities Law Seminars help you avoid problems under securities regulations. Theyre education on tape to protect you and your clients. Complete, current, concise seminars covering the field of Securities Law, you learn at your leisure from experts. Listen and learn while you commute to the office, while you have lunch, in the evenings as you relax at home. Nrf et 12 Cassette Seminars in handsome album with compendium the small investment of only $1 00.00. Any one of the 1 2 sessions could save you many times its modest cost. All for JURISTICS Send for your Juristics Securities Law Seminars now. 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