Business & Finance: Hegira Halted

Governor Lehman of New York took to his bed with a sharp pain in his side late last week—sub-acute appendicitis—but not before he had helped rid his State of an acute pain in the pocket book. All week in his Manhattan apartment he had continued conferences between the city’s bankers, officials of the New York Stock Exchange and prognathous Mayor John Patrick O’Brien. The last, counseled by orchid-wearing old Samuel Untermyer, persisted stubbornly in his proposal to pile a city tax on top of the Federal and State taxes on stock transfers, and a 5% tax on brokers’ gross incomes on top of that (TIME, Oct. 2). The brokers, suddenly awakened to the weight of their State taxes and determined not to bear the Mayor’s imposts, were going swiftly ahead with their plans to move across the Hudson River to tax-free Jersey City and Newark. Carpenters and electricians were working overtime to make ready Newark’s Centre Market as the Stock Exchange’s main trading floor. Upon the brokers’ exodus, the State would stand to lose perhaps $30,000,000 in annual taxes. Worse, the bankers were wringing their hands over what would happen to downtown realty values. The grass that Herbert Hoover had predicted under a Democratic Administration could now almost be seen sprouting in Wall Street.

The city’s credit being at dead low ebb, Mayor O’Brien badly needed the bankers’ goodwill. Governor Lehman’s pressure was gentle but firm. And this interesting item came to light: Among Counsel Samuel Untermyer’s realty investments is a second mortgage of $2,050,000 on No. 42 Broadway, recorded in the names of two sons, Alvin and Irwin. No. 42’s tenants include such big brokerages as DeCoppet & Doremus, J. S. Bache & Co., Hornblower & Weeks, Logan & Bryan.

When Counsel Untermyer discovered in what deadly earnest the brokers’ hegira was going forward, and realized what it would do to realty values, he reconsidered his advice to the Mayor. Perhaps their taxes would be disastrous, after all. The Mayor’s massive countenance clouded as he vetoed the taxes and rumbled resignedly: “I am confronted with a sitiation beyond my control, wherein serious and pressing conclusions must be made.”

So the flight of the brokers ceased as suddenly as it began. And while Wall Street jubilantly referred to it as the “modern Boston Tea Party,” New Jersey realtors plummeted into gloom. President Whitney of the Stock Exchange halted his workmen and negotiated a settlement with Newark’s Mayor Ellenstein. The brokers’ gesture had cost them some $100,000, but this they could easily meet with $100 initiation fees collected from the 1,300 applicants for membership in the proposed Jersey exchange.

Meantime the bankers still had Mayor O’Brien on the carpet at Governor Lehman’s Park Avenue home. They had already loaned the city of New York $200,000,000 in short term obligations and they were determined to see that that was safe before they dished out any more. Day before the city would have defaulted on its payroll, Mayor O’Brien capitulated to a comprehensive four-year financing program :

1) All taxes in arrears are to be segregated as collected to pay off revenue bills (tax anticipation warrants) held by banks and the public. 2) For all future revenue bills specific taxes must be pledged. 3) Real estate taxes may not be raised during the next four years except to meet increased debt charges. 4) Each of the next four yearly budgets must provide a reserve against delinquent taxes of a maximum of $50,000,000. 5) The penalty for delinquent taxes will be lowered immediately from 7% to 6%, then jumped to 10% after the year end.

In return the bankers agreed to refund $131,000,000 of outstanding revenue bills at lower interest rates and to finance the city’s current cash requirements. Mayor O’Brien agreed to drop his proposed taxes on savings banks and insurance companies if they would buy $70,000,000 of relief bonds. For the time being at least the first city of the land was saved from the stigma of default but John Patrick O’Brien had had to hock its income to do it.