Thirty-three years ago, the biggest default story in America was not the federal government but New York City. A House Democrat majority proposed a bailout that could have cost taxpayers $2 billion. The crisis, which could very well have cascaded across the country, was averted when one freshman conservative Republican senator from Middle America shocked everyone with the courage and imagination to craft a solution that fully protected federal taxpayers.
Now that same Republican is being castigated for this very political courage and creativity that have exemplified his career. A paid television commercial strangely takes this act of fiscal conservatism and leadership and turns it upside down, claiming that the senator has been part of the Washington bailout problem and that "he even voted to bail out New York City."
The senator is Republican Dick Lugar and the charge is simply wrong. Now more than ever we need senators who know how to force government to operate both effectively and within its means.
A little history:
In 1978, as New York City lurched toward defaulting on its debt, national credit markets began to respond nervously. The state of New York -- with its own problems and a relatively small budget itself -- could not step in, creating even greater concern as to the consequences of default by the largest city in America.
With Democrats controlling both Houses of Congress and the White House, the only issue was how much and under what terms would New York City receive help.
Lugar did not support the initial legislation. Although concerned about the impact of bankruptcy on the country, he had three principal objections:
The loan guarantees did not force financial discipline. If New York City had too much debt, how would giving it more debt be helpful?
Federal and Hoosier taxpayers were not protected. If New York City defaulted on the federally guaranteed debt, the U.S. taxpayer took the loss.
Without imposing any restrictions on open-ended guarantees, every city would follow along asking for federal assistance.
Despite his status as a freshman with less than two years in the Senate, he chose to confront the president, leaders of the Senate such as Jacob Javits and Daniel Patrick Moynihan, and the Democrat supermajority. He did so not for political gain (few Hoosier voters would care) but because the bill did not protect taxpayers.
The current ad seems to suggest the country would have been better had he given a fiery speech in opposition and then voted against a bad bill that would have passed. In private meetings, in speeches and in the media, he persuaded the Senate, and ultimately the House, that President Carter's bill would not, in the end, save New York, and the U.S. taxpayers would lose $2 billion.
His effort confused friend and foe alike. Why would Dick Lugar get involved? With no political upside, the junior senator from Indiana could have skated. His involvement and courage corrected a flawed bill and protected U.S. taxpayers.
The final bill, which contained almost all of Lugar's suggested improvements, passed with significant Republican support and required the state of New York to take a high degree of responsibility. It required elimination of spending and budgetary excesses joined with shared sacrifice by the citizens, city vendors, workers and officials. And it contained stringent repayment provisions to ensure that the federal loans were repaid on time and expeditiously.
In the end, New York City repaired its budget and repaid its debt, and the U.S. government made a profit. And no other city has ever sought federal loan guarantees.
In 1978, and as he has throughout his Senate career, Dick Lugar did not take the politically expedient road or the easy vote to make a political point. He took a politically risky road to make a difference. The New York prescription stands out sharply as a fiscally responsible example of political courage, the very opposite of the ad's political claim.
I'm not sure why Lugar's campaign would seek the assistance of Goldsmith. He is thoroughly despised by many Republicans in Indiana, who are frankly glad he now living and working in New York. Goldsmith's dirty hands, however, were all over many of the corrupt deals that have taken place under the administration of Mayor Greg Ballard the past four years.
The story of New York's debt woes actually preceded Lugar's election to the Senate. Then-President Gerald Ford turned down an initial request by New York to bail it out in 1975. The New York Daily News responded with this headline: "Ford To New York: Drop Dead." Ford eventually cowered and agreed to go along with a $2.3 billion loan to New York. It didn't help him much politically. He lost the state and the election to Jimmy Carter. In 1978, Congress passed and Lugar supported a federal loan guarantee for $1.65 billion. Most Republican senators voted against the loan guarantee in the Senate, which was overwhelmingly controlled by the Democrats.
Factcheck.org has also weighed in on Lugar's side in the debate over whether he supported the NYC bailout. The Club for Growth ad cited a $9.4 billion bailout Lugar supposedly supported for the city. Factcheck explains what he actually supported and that it wound up costing federal taxpayers nothing:
Lugar not only voted for the bill, but guided its passage and proposed an amendment that changed the initial $2 billion loan guarantee limit to $1.5 billion. (Later it was increased to $1.65 billion at the Senate-House conference meeting.)
But Lugar had nothing to do with the 1975 bailout. He was then the mayor of Indianapolis. He was not elected to the Senate until 1976. Also, it's worth noting, even this bailout didn't cost the federal government anything in the end. Pro Publica, a nonprofit investigative website, reports that "all the loans, loan premiums and fees have since been repaid."
Right or wrong, the Club for Growth ad is probably a net loss for Lugar. He is forced to defend a vote he made more than 30 years ago, reminding voters just how long he's been in the Senate. It has also forced Lugar to take to the airwaves ten months before next year's primary election to defend his record. I'm not sure why Club for Growth is hitting Lugar so hard with his votes. If the Lugar's friends in the media are to be believed, conservatives are not impressed with his challenger, Indiana State Treasurer Richard Mourdock. Reports claim Mourdock floundered badly during an earlier appearance before Club for Growth this year. Nonetheless, the group is dropping big bucks early in the race aimed at weakening Lugar.