Rohatyn warns against leases of public assets

The investment banking veteran who helped New York City avoid bankruptcy in 1975 told Infrastructure Investor magazine that leasing out a public asset in an effort to avoid bankruptcy is 'at best, a zero-sum game'.

US states and cities hoping to ease the pain of the financial crisis on their budgets should think twice about leasing out their infrastructure assets to the highest bidder, according to a senior investment banker who helped New York City avoid bankruptcy in 1975.

“If you do it, you’re taking an asset away from the city in order to allow it to service the needs of some other entity,” longtime Lazard banker Felix Rohatyn said in the May cover story of Infrastructure Investor magazine. “That’s just, at best, a zero-sum game.”

Felix Rohatyn

But it’s a game that many cities and states are tempted to at least contemplate these days. Battered by the worst economic meltdown since the Great Depression, cities and states all across the US are facing more than a trillion dollars in budgetary and pension deficits, according to the Pew Center on the States. Their fiscal condition isn’t as bad yet as New York’s was in 1975, Rohatyn said. But he cautioned that “it’s damn near there”.

Rohatyn, who called his role in helping New York avert bankruptcy “the most marvellous experience of my life”, said that no one back then suggested the idea of leasing a big-ticket infrastructure asset as a way to repair its finances. “If they did, they were doing it as a joke.”

Instead, the city overcame its problems, caused by inappropriate accounting and over-borrowing to meet short-term budget needs, by forging a “bipartisan solution” that “really included all of the various pieces of the city,” Rohatyn said. 

I think noby really lost sight of the objective at any time throughout this. I mean anybody who participated in this believed that there was no better alternative than what we were doing

Felix Rohatyn


President Ford, embarrassed by a headline that accused him of telling the city to “Drop dead” when he had earlier refused federal help, agreed to a $2.3 billion loan to help the city balance its budget. Unions agreed to job cuts and wage freezes and the city’s bankers agreed to restructure their debt.

“I think nobody really lost sight of the objective at any time throughout this. I mean anybody who participated in this believed that there was no better alternative than what we were doing. I think they were right,” Rohatyn said.

Even today, he said, he would not advise a concession on a city-owned asset as an alternative to help avoid a similar fate.

“Not if it’s to be used as a long-time shot to get you another six months or another year in a sort of hopeless kind of game,” he said.

To read more of our interview with Felix Rohatyn, please see the May issue of Infrastructure Investor magazine.