Expert who helped New York City avoid bankruptcy in 1975 has some advice for California

NEW YORK — In 1975, New York City was teetering on the edge of bankruptcy and threatening to bring down the entire state. No state had gone bankrupt, but President Ford wanted to make New York an example to the rest of the country. His spokesman compared the city to "a wayward daughter hooked on heroin. You don't give her $100 a day to support her habit."

That spring, Felix Rohatyn, an investment banker, was called upon to advise Gov. Hugh Carey on New York's finances.

Over six months, Rohatyn helped engineer a plan that enabled the city to balance its budget and regain access to the credit markets. He later served as ambassador to France under President Clinton.

Rohatyn, 80, gave an interview this week in his 27th-floor Park Avenue office, and talked about whether his experience in New York has relevance to California now.

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California is in deep trouble, facing a whopping budget deficit and debt load as the economy is sinking. Did California fail to learn the lessons of New York?

I don't know if California is on the brink of bankruptcy. But if I believe what I read . . . it's certainly the last half of the ninth inning. I certainly don't recall a feeling of hopelessness here as I seem to sense there is about California's present situation. Maybe that's because we were able to put around the table a governor, Hugh Carey, who turned out to be spectacular. . . . We also had the good luck to have a terrific leader of the Senate in Albany. He was a Republican but he signed on with Carey, who was a Democrat, to work against bankruptcy. . . .

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You and Carey famously pulled stakeholders together and forced them to make sacrifices -- unions, banks, legislators, debt holders, community groups. The genius of that seemed to be the politics of getting everyone to make reciprocal concessions. Is Gov. Schwarzenegger up to that?

It's hard to say if California's political power structure is as resilient as ours was here in 1975. . . . Ultimately, the reason it worked here was because of the political leadership we had.

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What kind of leadership are you talking about?