THERE IS LITTLE in the Securities and Exchange Commission staff report that was not either known or suspected about the fiscal crisis of New York City. The city's top elected officials and its bankers and underwriters knew - or should have known - just how precarious its financial position was long before the whistle was blown in 1975. The report demonstrates that they did know and that they concealed their knowledge from investors as well as voters. Whether this concealment involves criminal or civil violations is a matter best left just now to the SEC and the Department of Justice. But the political and public policy implications are something else again.
The SEC's staff findings will obviously be the centerpiece of the New York City primary election campaign until the voting on Sept. 7. Mayor Beame immediately denounced the report as a "shameless political document." Some of his opponents immediately began to use it against him. No one should have expected the mayor to take any other course; the report cuts him up badly and he had either to fight back or just sit and lose quietly. Nevertheless, the report is none of the things Major Beame says it is. If the SEC had remained silent until the September primary had taken place, it could have been faulted - and rightly so - for depriving voters of vital information about the records of men seeking reelection. Mayor Beame has a complaint only if the facts and conclusions drawn by the SEC staff are wrong. Although he contends they are, we think, on the contrary, they are close to the mark.
The fundamental difference between the way the SEC investigators and Mayor Beame looked at New York City's financial mess tells a good deal about what went wrong. The SEC report, concerned about investors, asserts that the mayor, among others, had an obligation to tell those who might buy bonds that the city's finances were crumbling. The mayor, concerned about voters, says his obligations were to ensure that the city had police and fire protection, clean streets and other vital municipal services. Both are right, of course. Yet both miss the most crucial part of the New York debacle - the failure of anyone to make clear to the city's taxpayers that their government does have a responsiblity to provide for the general welfare, as Mayor Beame says it has. But it also has a responsibility to raise the money to pay for the services it provides. The disservice done to the city's taxpayers by the concealment of the true state of the city's finances is far greater than the disservice done to investors.
We know of no way to force a local government to face reality and tell its citizens what it is really doing, especially when there is little political opposition and the budget at issue is so complex that few can understand it. But the federal government, by acting to protect investors, could protect voters and taxpayers as well. It should require cities and other units of local government to make full disclosures when they want to borrow money, by applying to them the same standards - and the same civil and criminal sanctions - that apply to corporations that enter the money markets. This would protect investors from the kind of corner-cutting practices that the banks and bond underwriters turned to in New York. And it would also serve as a kind of political insurance, not only for the taxpayer, but also for political leaders like Mayor Beame who wouldn't feel obliged to cover up the true dimension of their cities' troubles.