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New York City, May - October 1975 (5)
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New York City, May - October 1975 (5)
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William Seidman's Economic Policy Board Subject Files
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The original documents are located in Box 78, folder "New York City, May - October
1975 (5)" of the L. William Seidman Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 78 of the L. William Seidman Files at the Gerald R. Ford Presidential Library
[10-75;
DECISION MEMORANDUM
Subject: Submission of Amendment to Bankruptcy Act to
Facilitate Filing by New York City
This Memorandum discusses the question whether the
Administration should support new legislation providing for
the orderly restructuring of municipal debt in the event
of a default. Rod Hills and Nino Scalia have drafted such
legislation. OMB is circulating it to interested agencies
for comment.
Financial Status
On September 29, the New York Court of Appeals held
unconstitutional the provisions of the new state legislation
which mandated purchases of MAC bonds by certain state
employee pension plans. If, on the basis of this decision,
the remaining pension plans covered by the legislation refuse
to purchase MAC securities, there is a strong possibility
that the financial package designed to get New York City
through December 1 may collapse. In that event, New York
City may run out of cash as early as October 7 and would
default on $453 million of notes on October 17.
Over the longer term, New York City faces a large cash
shortage during the December - March period. This is not a
problem of overspending, but rather one of the timing of
receipts. While waiting for April tax payments, the City
must borrow to pay its expenses for December - March.
GERALD
- 2 -
Mayor Beame has estimated the shortage at $1 billion.
Treasury is trying to obtain data to confirm this estimate
but, since only city officials have the figures, Treasury
has been experiencing delay. They do expect to receive it
shortly.
Background
When any large entity is perceived to be in financial
difficulties, all creditors -- security holders, other lenders,
vendors, employees -- strive to maximize their opportunities
for payment. When the difficulties reach the point of giving
rise to legal causes of action -- i.e. default -- creditors
pursue their claims in court. In addition to demanding payment
in cash, such lawsuits would also seek an injunction pending
the outcome of the litigation against the payment by the debtor
of other claims. Since more than one court will normally have
jurisdiction to hear such claims, the debtor is likely to
be faced with conflicting injunctions and in effect be prohibited
from paying anyone. This quandary is particularly serious
in the case of a municipal default, where such an injunction
could well prohibit payments for essential services: police,
fire protection, and the like.
GERALD FORD (TRRART
- 3 -
Under our legal system, protection for the debtor is provided
by the bankruptcy laws. The Constitution gives the Federal
government the sole power to provide for bankruptcy and
Congress has exercised that power by enacting a comprehensive
set of laws, each of which, in the final analysis, confer upon
a single Federal judge the authority to determine how the
debtor's resources will be apportioned among creditors. Through
this mechanism, all creditors can be treated fairly and the
essential needs of the debtor preserved.
Existing Municipal Bankruptcy Law
Existing law governing municipal bankruptcies is, as a
practical matter, of no value to any but the smallest municipal
governments. The fundamental flaw in the law is that
it in effect requires that the debtor - - the city and its
creditors - - the security holders - - resolve the ultimate
issue before coming to court. It does so by requiring as a
condition to the filing of a petition in bankruptcy (the event
which establishes Federal court jurisdiction), the concurrent
filing of a plan of debt reorganization and assents to such a plan
by a majority in interest of the creditors. In short, existing
law fails to provide a mechanism for re-ordering the relation-
ships between the city and its creditors.
- 4 -
These infirmities have been widely recognized. The
Commission on the Reform of the Bankruptcy Laws of the
United States, created in 1970, recommended elimination
of the prior assent requirement and other improvements.
These recommendations are embodied in S. 235 and H.R. 32,
now pending in Congress.
The Hills/Scalia Proposal
The Hills/Scalia proposal is substantively the same as
this pending legislation. It was prepared as a separate bill
because the pending bills effect a comprehensive reform of
all bankruptcy laws and will undoubtedly be the subject of
extended consideration. Further to minimize interference with
Congress' comprehensive review, the proposal leaves the
existing municipal bankruptcy provisions intact, instead
taking the form of a separate chapter of the laws, applicable
only to cities with population in excess of 1,000,000.
Functionally, the proposal has three operative provisions:
1. A municipal government (of the appropriate
size) could enter bankruptcy by filing a
petition alleging that it was unable to
meet its obligations as they mature;
2. The filing of such a petition would
confer plenary jurisdiction on the
court in which it was filed and effect
an automatic stay of all lawsuits brought
by creditors against the city;
5 -
3.
During the proceeding, with the approval
of the court for good cause, the city would
be authorized to borrow additional funds
and assign a first priority of payment to
the notes issues in consideration. (This
provision is important with respect to the
New York City cash shortage problem
discussed above.)
Pros and Cons
Pros
-- - Would provide Federal. assistance in dealing with
New York City's problems with no current or
future financial commitment.
-- Would avoid conflicting litigation, thus assuring
the flow of revenues for essential services.
- - Would allow for an orderly restructuring of the in
City's short term debt.
-- - Would provide a vehicle for temporary borrowing
to smooth out cash flow imbalances.
- - Would reflect Administration concern with the
problem and a willingness to take action in
appropriate areas.
Cons
- - Could be interpreted as favoring default.
-- Could be interpreted as callous in that it
reinforces USG unwillingness to provide
financial assistance.
- 6 -
Questions Presented
Two questions are presented:
1. Whether the Administration should support such
legislation, and
2. If so, whether the Administration should take
the lead in introducing the legislation and seeking
its immediate enactment.
The Yeo/Dunham/Hills/Scalia/Collier group believes that
such legislation is necessary and recommends Administration
support. They have no recommendation on the degree of Admini-
stration leadership.
Decision
1. Whether to support legislation.
Support
Do Not Support
Other
2. Whether to take lead on pressing legislation.
Take Lead
Do Not Take Lead
Other
TURARY
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
October 3, 1975
MEMORANDUM FOR WILLIAM SEIDMAN
FROM:
CALVIN J. COLLIER
SUBJECT:
Provisions of Federal Bankruptcy Law for
Municipalities: New York City
In his September 24th prepared testimony before the Joint
Economic Committee, Secretary Simon said, "We have pre-
pared, and will shortly submit to the Congress, legislation
amending Chapter 9 of the Federal Bankruptcy Act to
facilitate use of the protections of that Act by New York
City. In addition, we are also studying the feasibility
of a Chapter 11 type reorganization procedure as an
alternative mechanism."
The House Judiciary Committee, having noticed this state-
ment, has called hearings for Monday, October 6, and has
invited the Justice Department to testify. During the last
week, OMB has coordinated the clearance of draft legislation
prepared by Justice. Over this weekend, the legislation
will be finalized.
Justice now seeks guidance with respect to the proper approach
for its testimony. There are two options:
-- Option 1. Submit a cleared bill and explain its
provisions in prepared testimony. This option de-
livers on Secretary Simon's commitment and probably
would be most helpful to the Committee in their
deliberations. Its primary disadvantage is that it
might heighten criticism of the Administration for
neglecting the problems of New York City.
-- Option 2. Testify about the specific shortcomings
of existing law, indicate a willingness to work at
the staff level with the Committee, share with
the Committee our current "draft" of a bill, but
FORD is LIBRARY GERALD
2
do not formally transmit the legislative proposal.
This approach would be helpful to the Committee,
but would probably generate resentment that the
Administration is vacillatory. Moreover, the
Justice witness would undoubtedly be faced with the
question of when the Administration would actually
transmit a proposal.
Since the Justice Department (Assistant Attorney General
Antonin Scalia) must prepare testimony tomorrow for delivery
on Monday, prompt guidance is necessary.
CC: James T. Lynn
FORD is LIBRARY GERALD
Nye
THE WHITE HOUSE
WASHINGTON
October C, 1975
ADMINISTRATIVELY CONFIDENTIAL
MEMORANDUM FOR:
L. WILLIAM SEIDMAN
FROM:
Provision of Federal Bankruptcy and
JAMES E. CONNOR
SUBJECT:
Municipalities: New York City
Confirming phone call to your office today, the President reviewed
your memorandum of October 4 on the above subject and approved
the following option:
Option 2 - Testify about the specific shortcomings of
existing law, indicate a willingness to work
at the staff level with the Committee, share
with the Committee our current "draft'of a bill,
but do not formally transmit the legislative
proposal.
Please follow-up with appropriate action.
CC: Don Rumsfeld
GERALD LIBRARY
10/17/75
The City of New York was unable to raise sufficient
funds to meet $449 million in obligations due today. The
City, after a number of valiant efforts to avoid it, is
now in technical default of some of its obligations.
It's apparent that payments by the City on its debt
obligations will have to be deferred, as the fiscal belt-
tightening now underway leads to the eventual restoration
of the. credit of the City of New York.
I will submit to Congress on Monday, the day they
reconvene, proposed legislation that will provide for a
voluntary petition of bankruptcy for the City to be
accepted in the appropriate Federal Court. This legislation
will provide a means for the reconstitution of the
outstanding debt of New York City.
It is important to recognize what today's default means,
but most importantly, what it does not mean.
It means that if my proposals are accepted a
number of investors in New York City securities will not be
paid immediately, but as financial reforms proceed, will
be paid eventually
It means that the deficit spending of the City must,
as quickly as possible, be eliminated. This will call for
sacrifices and some pain by many city residents and
employees as well as the investors in City securities
-2-
The default does not mean that the City of New York,
our greatest city, our center of finance and trade will,
as some have irresponsibly stated, go down the drain. The
life of the City will go on. Its talented citizens will
continue to make their great contributions to our country
and to the rest of the world and the throbbing urban life
of the metropolis will continue undaunted.
I expect New Yorkers to pull together to get over
this time of difficulty. I have heard many doomsayers claim
that the "special interests" within the City will each push
for their own selfish ends. There are some who believe
that some of the municipal unions will tie up the City with
strikes if any attempts are made to curtail the City's
payrolls or reduce some less than urgent City services.
This, in my view, does a discredit to the citizens of
New York City. They have shown great creativeness and
ingenuity in the past and I firmly believe that as we all
look back at this unfortunate period in New York City's
brilliant history that the citizens of New York and those
of the Nation as a whole will be proud of the way New York
handled its problems.
IC
10-17-75
2nd Draft
The City of New York was unable to raise sufficient funds
to meet $449 million in obligations due today. The City, after
a number of repeated efforts to avoid it, is now in technical
default of some of its obligations.
It is apparent that payments by the City on its debt obliga-
tions will have to be deferred, as the fiscal belt-tightening
now underway leads to the eventual restoration of the credit
of the City of New York.
The Justice Department. has been working with the staff of the
House Judiciary Committee in preparing for prompt introduction of
legislation to
provide for a voluntary petition of bank-
ruptcy for the City to be filed
in the appropriate Federal
Court. This legislation will provide a means for the reconsti-
tution of the outstanding debt of New York City - a means need-
ed in addition to the State legislation which has already been
passed. This new legislation should be passed promptly by the
Congress.
It is important to recognize what today's default means,
and perhaps more importantly, what it does not mean.
It means that, if the legislation I have described is
promptly enacted, a number of investors in New York City secur-
ities will not be paid immediately, but as financial reforms
proceed, can be paid eventually.
It means that the deficit spending of the City must, as
quickly as possible, be eliminated. This will call for sac-
rifices and some inconveniences by many city residents and
2
GENALD LIDRARY
employees.
-- With appropriate bankruptcy legislation, it need not
mean that the flow of essential governmental services will be
interrupted.
The default does not mean that the City of New York, as
some have feared, will go down the drain. The life of the City
will go on. Its talented citizens will continue to make their
great contributions to our country and to the rest of the world
and the throbbing urban life of the metropolis will continue
unabated.
We continue to believe that the financial effects of this
default can be contained and limited to those who hold New York
City securities.
I expect New Yorkers to pull together to get through this
time of difficulty. I have heard many doomsayers claim that
the "special interests" within the City will each push for their
own selfish ends. There are some who believe that some of the
municipal unions will tie up the City with strikes if any at-
tempts are made to curtail the City's payrolls or reduce some
less than urgent City services.
This, in my view, does a discredit to the citizens of New
York City. They have shown great creativeness and ingenuity in
the past and I firmly believe that, as we all look back at this
unfortunate period in New York City's brilliant history, that
the citizens of New York and those of the Nation as a whole will
be proud of the way New York handled its problems.
U.S. House of Representatives
WASHINGTON. D.C. 20515
PUBLIC DOCUMENT
m.Micec
OFFICIAL BUSINESS
M.C.
Mr. Seidman, per your request. Sorry
it took SO long to get a copy.
Jan Ireland
Personal Secy.
ARKANSAS.
94TH CONGRESS
1ST SESSION
H.R. 10221
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 20, 1975
Mr. MILLS introduced the following bill; which was referred to the Com-
mittee on Government Operations
A BILL
To provide additional fiscal assistance to local governments and
to extend revenue sharing for local governmental units for
four additional years.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled.
3 That (a) SO much of the State and Local Fiscal Assistance
GERALD
FORD is LIBRARY
I
94TH CONGRESS
1st SESSION
H. R. 10221
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 20, 1975
Mr. MILLS introduced the following bill; which was referred to the Com-
mittee on Government Operations
A BILL
To provide additional fiscal assistance to local governments and
to extend revenue sharing for local governmental units for
four additional years.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 That (a) SO much of the State and Local Fiscal Assistance
ORD
I
GERALD
LIBRARY
2
1 Act of 1972 as precedes section 103 thereof is amended to
2 read as follows:
3
"TITLE I-FISCAL ASSISTANCE
4
TO LOCAL GOVERNMENTS
5
"Subtitle A-Allocation and Payment
6
of Funds
7 "SEC. 101. SHORT TITLE.
8
"This title may be cited as the 'Local Fiscal Assistance
9 Act of 1975"
10 "SEC. 102. PAYMENTS TO LOCAL GOVERNMENTS.
11
"Except as otherwise provided in this title, the Secre-
12 tary shall, for each entitlement period, pay out of the Trust
13 Fund to each unit of local government a total amount equal
14 to the entitlement of such unit determined under section 108
15 for such period. Such payments shall be made in install-
16 ments, but not less often than once for each quarter, and
17 shall be paid not later than 5 days after the close of each
18 quarter. Such payments for any entitlement period may be
19 initially made on the basis of estimates. Proper adjustment
20 shall be made in the amount of any payment to a unit of
21 local government to the extent that the payments previously
22 made to such government under this subtitle were in excess
23 of or less than the amounts required to be paid.".
24
(b) Sections 104 and 105 of such Act are amended to
25 read as follows:
GERALD FORD LIBRARY
3
1 "SEC. 104. PROHIBITION ON USE AS MATCHING FUNDS BY
2
LOCAL GOVERNMENTS.
3
"(a) IN GENERAL.-No unit of local government may
4 use, directly or indirectly, any part of the funds it receives
5 under this subtitle as a contribution for the purpose of ob-
6 taining Federal funds under any law of the United States
7 which requires such government to make a contribution in
8 order to receive Federal funds.
9
"(b) DETERMINATIONS BY SECRETARY OF THE
10 TREASURY.-If the Secretary has reason to believe that a
11 unit of local government has used funds received under this
12 subtitle in violation of subsection (a), he shall give reason-
13 able notice and opportunity for hearing to such government.
14 If, thereafter, the Secretary of the Treasury determines that
15 such government has used funds in violation of subsection
16 (a), he shall notify such government of his determination
17 and shall request repayment to the United States of an
18 amount equal to the funds SO used. To the extent that such
19 government fails to repay such amount, the Secretary shall
20 withhold from subsequent payments to such government
21 under this subtitle an amount equal to the funds SO used.
22
"(c) INCREASED LOCAL GOVERNMENT REVENUES.-
23 No unit of local government shall be determined to have
24 used funds in violation of subsection (a) with respect to any
FORD i LIBRARY GERALD
25 funds received for any entitlement period to the extent that
4
1 the net revenues received by it from its own sources during
2 such period exceed the net revenues received by it from its
3 own sources during the one-year period beginning July 1,
4 1971 (or one-half of such net revenues, in the case of an
5 entitlement period of 6 months).
6
"(d) DEPOSITS AND TRANSFERS TO GENERAL
7 FUND.-Any amount repaid by a unit of local government
8 under subsection (b) shall be deposited in the general fund of
9 the Treasury. An amount equal to the reduction in payments
10 to any State government or unit of local government which
11 results from the application of this section (after any ju-
12 dicial review under section 143) shall be transferred from
13 the Trust Fund to the general fund of the Treasury on the
14 day on which such reduction becomes final.
15
"(e) CERTIFICATES BY LOCAL GOVERNMENTS.-The
16 Secretary is authorized to accept a certification by the chief
17 executive officer of a unit of local goverment that the State
18 government or unit of local government has not used any
19 funds received by it under this subtitle for an entitlement
20 period in violation of subsection (a), unless he determines
21 that such certification is not sufficiently reliable to enable him
22 to carry out his duties under this title.
23
"SEC. 105. CREATION OF TRUST FUND; APPROPRIATIONS.
24
"(a) TRUST FUND.-
25
"(1) IN GENERAL.-There is hereby established
GERALD R. FORD
5
1
on the books of the Treasury of the United States a
2
trust fund to be known as the 'Local Government Fiscal
3
Assistance Trust Fund' (referred to in this subtitle as the
4
"Trust Fund'). The Trust Fund shall remain available
5
without fiscal year limitation and shall consist of such
6
amounts as may be appropriated to it and deposited in
7
it as provided in subsection (b). Except as provided in
8
this title, amounts in the Trust Fund may be used only
9
for the payments to local governments provided by this
10
subtitle.
11
"(2) TRUSTEE.-The Secretary of the Treasury
12
shall be the trustee of the Trust Fund and shall report
13
to the Congress not later than March 1 of each year on
14
the operation and status of the Trust Fund during the
15
preceding fiscal year.
16
"(b) APPROPRIATIONS.-
17
"(1) IN GENERAL.-There is appropriated to the
18
Trust Fund, out of amounts in the general fund of the
19
Treasury attributable to the collections of the Federal
20
individual income taxes not otherwise appropriated-
21
"(A) for the fiscal year beginning July 1,
22
1976, $6,500,000,000;
23
((B) for the fiscal year beginning July 1,
24
1977, $6,650,000,000;
FORD is GERALD BRARY
6
1
(C) for the fiscal year beginning July 1,
2
1978, $6,800,000,000;
3
"(D) for the fiscal year beginning July 1,
4
1979, $6,950,000,000; and
5
'(E) for the period beginning July 1, 1980,
6
and ending December 31, 1980, $3,550,000,000.
7
(2) NONCONTIGUOUS STATES ADJUSTMENT
8
AMOUNTS.-There is appropriated to the Trust Fund,
9
out of amounts in the general fund of the Treasury
10
attributable to the collections of the Federal individual
11
income taxes not otherwise appropriated-
12
"(A) for each of the fiscal years beginning
13
July 1, 1976, July 1, 1977, July 1, 1978, and
14
July 1, 1979, $4,780,000; and
15
"(B) for the period beginning July 1, 1980,
16
and ending December 31, 1980, $2,390,000.
17
"(3) DEPOSITS.-Amounts appropriated by para-
18
graph (1) or (2) for any fiscal year or other period
19
shall be deposited in the Trust Fund on the later of (A)
20
the first day of such year or period, or (B) the day after
21
the date of enactment of this Act.
22
'(c) TRANSFERS FROM TRUST FUND TO GENERAL
23 FUND.-The Secretary shall from time to time transfer from
BERALD FORD LIBRARY
7
11 the Trust Fund to the general fund of the Treasury any
2 moneys in the Trust Fund which he determines will not be
3 needed to make payments to State governments and units of
4 local government under this subtitle.
5
"(d) AMOUNTS To COVER DRAWING RIGHTS OF
6 Local GOVERNMENTAL UNITS.-There is authorized to be
7 appropriated from time to time to the Trust Fund, out of
S amounts in the general fund of the Treasury attributable to
9 the collections of the Federal individual income taxes not
10 otherwise appropriated, such amounts as may be necessary
11 to carry out the provisions of section 110.".
12
(c) Section 107 of such Act is amended to read as
13 follows:
14 "SEC. 107. STATE'S ALLOCATION TO BE ALLOCATED
15
AMONG LOCAL UNITS.
16
"Each State's allocation shall be allocated among the
17 units of local government of that State as provided in sec-
18 tion 108.".
19
(d) Section 108 (c) (1) (C) of such Act is amended by
20 striking out "1976" and inserting in lieu thereof "1980".
21
(e) Subtitle A of such Act is amended by adding at the
22 end thereof the following new section:
GERALD FORD LIBRARY
8
1 "SEC. 110. AUTHORITY FOR LOCAL GOVERNMENTAL UNITS
2
TO ISSUE 'SPECIAL REVENUE SHARING
3
BONDS' GUARANTEED BY THE UNITED
4
-STATES GOVERNMENT IN CASE OF CRITICAL
5
NEED.
6
(a) APPLICATION.-The chief executive officer of any
7 unit of local government may apply under this section for
8 debt obligation guarantees from the United States in amounts
9 and upon conditions set forth in this section, such guaranteed
10 obligations to be known as Special Revenue Sharing Bonds.
11
(b) SECRETARY TO APPROVE APPLICATION.-If the
12 Secretary of the Treasury determines that the unit of local
13 government has a critical need for immediate funds, he shall
14 approve the application of such unit upon the meeting of the
15 following conditions:
16
"(1) Debt obligations qualifying for guarantees
17
under this section shall be obligations of the unit of local
18
government the interest on which qualifies for exemption
19
from taxation under section 103 of the Internal Revenue
20
Code of 1954 as amended; and
21
"(2) Debt obligations guaranteed under this section
22
shall not exceed in total amount outstanding at any time
23
the total amount to which such issuing unit of local
24
government shall become entitled under the provisions
25
of this Act; and
FORD is LIBRARY GERALD
9
1
(3) Such debt obligations qualifying for guaran-
2
tees under this section shall mature in accordance with
3
the schedule of payments under the provisions of this
4
Act in such manner that at no time shall amounts of
5
obligations guaranteed under this section exceed amounts
6
which shall become due under this Act but which have
7
not at such time become due and payable; and
8
"(+) Provided, however, That no such debt obliga-
9
tions shall be guaranteed under this section unless the
10
State government of which the local government is a unit
11
thereof shall guarantee the interest to become due and
12
payable thereon. Guarantees of interest by an agency,
13
corporation, or instrumentality of the State government
14
shall be accepted in lieu of the State's guarantee where
15
the Secretary certifies that such agency, corporation, or
16
instrumentality has legal authority to provide such guar-
17
antee and would insure payment of such interest should
18
the unit of local government issuing such bonds default
19
on such interest payments.
20
"(c) SPECIAL REVENUE SHARING Bonds.-Debt
21 obligations guaranteed by the Federal Government under the
22 provisions of this section shall bear on their face the endorse-
23 ment 'Special Revenue Sharing Bonds'; and further "The
24 Principal Amount of This Obligation Guaranteed by the
25 United States'.
FORD & LionaRY GERALD
H.R. 10221-2
10
1
"(d) BONDS To CONTAIN SECRETARY'S ENDORSE-
2 MENT.-Bonds issued under the provisions of this section
3 shall upon certification by the Secretary that all provisions
4 of this section have been met be endorsed by the Secretary
5 of the Treasury.
6
"(1) Such certification shall be made only upon a
7
showing by the unit of local government that the gov-
8
ernment has a critical need for such funds; and
9
"(2) Only upon a showing that such bonds are
10
endorsed on their face with language insuring the State
11
government's guarantee of the interest to become due
12
and payable on such obligations; and
13
"(3) Only upon a showing that a trust fund for the
14
deposit of the proceeds of such obligations has been
15
created as required under section 123 (a) (1) of this
16
Act and that the additional requirements of that section
17
have been met to the satisfaction of the Secretary.
18
"(e) AUTHORITY OF THE SECRETARY To WITHHOLD
19 PAYMENTS AND To REDEEM SPECIAL REVENUE SHARING
20 Bonds.-The Secretary or his delegate shall promulgate
21 regulations under this section providing for sufficient assur-
FORD & LIBRARY GERALD
22 ance that the provisions of this section relating to amounts
23 of guaranteed obligations under this section do not exceed
24 allowable amounts and to insure that no entitlement under
25 this Act shall be paid unless and until obligations maturing
11
1 at the date of such entitlement have been discharged inclusive
2 of interest due and payable. In promulgating the regulations
3
under this subparagraph, the Secretary shall-
1
(1) provide for withholding of payments to such
5
issuing unit of local government until such time as
6
such government has established that maturing obli-
7
gations and interest payments due and payable have
8
been discharged in full; and
9
(2) provide that at no time shall such guar-
10
anteed obligations exceed the total amount of funds
11
under this Act which have not been dispersed to the
12
issuing unit of local government; and
13
(3) provide that when it appears to the Secre-
14
tary or his delegate that such payments on maturing
15
obligations are in default or likely to be in default,
16
the Secretary, on his own initiative, or at the request
17
of the chief executive officer of the unit of local govern-
18
ment shall pay directly to the holders of such guaran-
19
teed obligations amounts then due and payable in dis-
20
charge of the Federal guarantee, such amounts being
21
drawn from the then current entitlement of the default-
22
ing unit of local government.".
23
(f) Sections 121, 122, and 123 of such Act are amended
24
to read as follows:
GERALD
12
1 "SEC. 121. REPORTS ON USE OF FUNDS; PUBLICATION.
2
(a) REPORTS ON USE OF FUNDS.-Each unit of local
3 government which receives funds under subtitle A shall, after
4 the close of each entitlement period, submit a report to the
5 Secretary setting forth the amounts and purposes for which
6 funds received during such period have been spent or obli-
7 gated. Such reports shall be in such form and detail and
8 shall be submitted at such time as the Secretary may pre-
9 scribe.
10
(b) REPORTS ON PLANNED USE OF FUNDS.-Each
11 unit of local government which expects to receive funds
12 under subtitle A for any entitlement period shall submit a
13 report to the Secretary setting forth the amounts and pur-
14 poses for which it plans to spend or obligate the funds which
15 it expects to receive during such period. Such reports shall
16 be in such form and detail as the Secretary may prescribe
17 and shall be submitted at such time before the beginning of
18 the entitlement period as the Secretary may prescribe.
19
(c) PUBLICATION AND PUBLICITY OF REPORTS.-
20 Each unit of local government shall have a copy of each re-
21 port submitted by it under subsection (a) or (b) published
22 in a newspaper which is published within the State and has
23 general circulation within the geographic area of that gov-
24 ernment. Each unit of local government shall advise the news
GERALD
13
1 media of the publication of its reports pursuant to this sub-
2 section.
3 "SEC. 122. NONDISCRIMINATION PROVISION.
4
" (a) IN GENERAL.-No person in the United States
5 shall on the ground of race, color, national origin, or sex
6 be excluded from participation in, be denied the benefits of,
7 or be subjected to discrimination under any program or
8 activity funded in whole or in part with funds made avail-
9 able under subtitle A.
10
(b) AUTHORITY OF SECRETARY.-Whenever the
11 Secretary determines that a unit of local government has
12 failed to comply with subsection (a) or an applicable regu-
13 lation, he shall notify the Governor of the State in which
14 the unit of local government is located of the noncompliance
15 and shall request the Governor to secure compliance. If
16 within a reasonable period of time the Governor fails or
17 refuses to secure compliance, the Secretary is authorized (1)
18 to refer the matter to the Attorney General with a recom-
19 mendation that an appropriate civil action be instituted; (2)
20 to exercise the powers and functions provided by title VI
21 of the Civil Rights Act of 1964 (42 U.S.C. 2000d) ; or (3)
22 to take such other action as may be provided by law.
23
" (c) AUTHORITY OF ATTORNEY GENERAL.-When a
24 matter is referred to the Attorney General pursuant to sub-
14
1 section (b), or whenever he has reason to believe that a
2 unit of local government is engaged in a pattern or practice
3 in violation of the provisions of this section, the Attorney
4. General may bring a civil action in any appropriate United
5 States district court for such relief as may be appropriate,
6 including injunctive relief.
7 "SEC. 123. MISCELLANEOUS PROVISIONS.
8
"(a) ASSURANCES TO THE SECRETARY.-In order
9 to qualify for any payment under subtitle A for any entitle-
10 ment period, a unit of local government must establish (in
11 accordance with regulations prescribed by the Secretary, and,
12 after an opportunity for review and comment by the Gov-
13 ernor of the State in which the unit of local government is
14 located, to the satisfaction of the Secrcetary that-
15
'(1) it will establish a trust fund in which it will
16
deposit all payments it receives under subtitle A;
17
(2) it will use amounts in such trust fund (in-
18
cluding any interest earned thereon while in such trust
19
fund) during such reasonable period or periods as may
20
be provided in such regulations;
21
(3) it will use amounts in such trust fund (includ-
22
ing any interest earned thereon while in such trust fund)
23
only for priority expenditures (as defined in section
FORD LIBRARY
24
103 (a)), and will pay over to the Secretary (for de-
25
posit in the general fund of the Treasury) an amount
15
1
equal to 110 percent of any amount expended out of such
2
trust fund in violation of this paragraph, unless such
3
amount is promptly repaid to such trust fund (or the vio-
4
lation is otherwise corrected) after notice and oppor-
5
tunity for corrective action;
6
"(4) it will provide for the expenditure of amounts
7
received under subtitle A only in accordance with the
8
laws and procedures applicable to the expenditure of
9
its own revenues;
10
(5) it will-
11
"(A) use fiscal, accounting, and audit pro-
12
cedures which conform to guidelines established
13
therefor by the Secretary (after consultation with
14
the Comptroller General of the United States) ;
15
((B) provide to the Secretary (and to the
16
Comptroller General of the United States), on
17
reasonable notice, access to, and the right to ex-
18
amine, such books, documents, papers, or records
19
as the Secretary may reasonably require for pur-
20
poses of reviewing compliance with this title (or,
21
in the case of the Comptroller General, as the Comp-
22
troller General may reasonably require for purposes
23
of reviewing compliance and operations under sub-
24
section (c) (2) ; and
FORD is LIBRARY GERALD
25
" (C) make such annual and interim reports
16
1
(other than reports required by section 121)
2
to the Secretary as he may reasonably require;
3
(6) all laborers and mechanics employed by con-
4
tractors or subcontractors in the performance of work on
5
any construction project, 25 percent or more of the costs
6
of which project are paid out of its trust fund established
7
under paragraph (1), will be paid wages at rates not
8
less than those prevailing on similar construction in the
9
locality as determined by the Secretary of Labor in ac-
10
cordance with the Davis-Bacon Act, as amended (40
11
U.S.C. 276a-276a-5), and that with respect to the la-
12
bor standards specified in this paragraph the Secretary
13
of Labor shall act in accordance with Reorganization
14
Plan Numbered 14 of 1950 (15 F.R. 3176; 64 Stat.
15
1267) and section 2 of the Act of June 13, 1934, as
16
amended (40 U.S.C. 276c) ;
17
"(7) individuals employed by it whose wages are
18
paid in whole or in part out of its trust fund established
19
under paragraph (1) will be paid wages which are not
20
lower than the prevailing rates of pay for persons em-
21
ployed in similar public occupations by the same em-
22
ployer; and
23
' (8) in the case of a unit of local government as de-
24
fined in the second sentence of section 108 (d) (1) (re-
in
FORD
25
lating to governments of Indian tribes and Alaskan na-
GERALD
17
1
tive villages), it will expend funds received by it under
2
subtitle A for the benefit of members of the tribe or
3
village residing in the county area from the allocation
4
of which funds are allocated to it under section 108
5
(b) (4).
6 Paragraph (7) shall apply with respect to employees in any
7 category only if 25 percent or more of the wages of all em-
8 ployees of the unit of local government in such category are
9 paid from the trust fund established by it under paragraph
10 (1).
11
"(b) WITHHOLDING OF PAYMENTS.-If the Secretary
12 determines that a unit of local government has failed to
13 comply substantially with any provision of subsection (a) or
14 any regulations prescribed thereunder, after giving reason-
15 able notice and opportunity for a hearing to the chief execu-
16 tive officer of the unit of local government, he shall notify the
17 unit of local government that if it fails to take corrective ac-
18 tion within 60 days from the date of receipt of such notifica-
19 tion further payments to it will be withheld for the remainder
20 of the entitlement period and for any subsequent entitlement
21 period until such time as the Secretary is satisfied that ap-
22 propriate corrective action has been taken and that there
23 will no longer be any failure to comply. Until he is satisfied,
24 the Secretary shall make no further payments of such
FORD & LIBRARY GERALD
25 amounts.
18
1
"(c) ACCOUNTING, AUDITING, AND EVALUATION.-
2
'(1) IN GENERAL-The Secretary shall provide
3
for such accounting and auditing procedures, evaluations,
4
and reviews as may be necessary to insure that the ex-
5
penditures of funds received under subtitle A by units
6
of local government comply fully with the requirements
7
of this title. The Secretary is authorized to accept an
8
audit by a State of such expenditures of a unit of local
9
government if he determines that such audit and the
10
audit procedures of that State are sufficiently reliable to
11
enable him to carry out his duties under this title.
12
"(2) COMPTROLLER GENERAL SHALL REVIEW
13
COMPLIANCE.-The Comptroller General of the United
14
States shall make such reviews of the work as done by
15
the Secretary, the State governments, and the units of
16
local government as may be necessary for the Congress
17
to evaluate compliance and operations under this title.".
18
(g) Subsection (b) of section 141 of such Act is
19 amended to read as follows:
20
"(b) ENTITLEMENT PERIOD.-For purposes of this
21 title, the term 'entitlement period' means—
22
"(1) The one-year periods beginning on July 1 of
23
1976, 1977, 1978, and 1979.
24
"(2) The period beginning July 1, 1980, and end-
25
ing December 31, 1980.".
FORD is LIBRARY GERALD
19
1
(h) Subsection (a) of section 143 of such Act is
2 amended-
3
(1) by striking out "State which receives a notice
4
of reduction in entitlement. under section 107 (b), and
5
any State or"; and
6
(2) by striking out "State or".
7
(i) Section 145 of such Act is amended by striking
8
out "State government or" each place it appears.
9
SEC. 2. The amendments made by this Act shall apply
10 to entitlement periods (within the meaning of section 141
11
(b) of the Local Fiscal Assistance Act of 1974) beginning
12
on or after January 1, 1976.
FORD in LIBRARY GERALD
94TH CONGRESS
1ST SESSION
H. R. 10221
A BILL
To provide additional fiscal assistance to local
governments and to extend revenue sharing
for local governmental units for four addi-
tional years.
By Mr. MILLS
OCTOBER 20, 1975
Referred to the Committee on Government Operations
BERALD
FORMS LIBRARY
October 20, 1975
WHEREAS, the City of New York has -- pursuant to Section 8 of the
New York State Financial Emergency Act for the City of New York --
submitted on October 15, 1975 to the Emergency Financial Control
Board a Financial Plan for the City and covered organizations
for the fiscal years of the City ending June 30, 1976, June 30,
1977, and June 30, 1978; and
WHEREAS, the members of the Board and -- at their direction - - the
Special Deputy Comptroller for the City of New York and the
State Budget Director have reviewed the Financial Plan submitted
by the City; and
WHEREAS, upon request of the Board the City has modified its
Financial Plan with respect to capital expenditures; and
WHEREAS, the City has modified its Financial Plan as originally
submitted, in accordance with the assumptions in the attached
Statement;
NOW THEREFORE, the Board hereby
RESOLVES, that pursuant to Section 8 of the New York State
Financial Emergency Act for the City of New York, the
Financial Plan submitted by the City on October 15, 1975,
as subsecuently modified, is approved to be effective
October 20, 1975.
FORD & LIBRARY GERALD
SECTION I
INTRODUCTION AND ASSUMPTIONS
Introduction
This document presents a summary of the joint City-
Emergency Financial Control Board three-year financial
plan developed pursuant to the requirements of Chapter 868
of the Laws of 1975, as amended. The plan demonstrates
a feasible path from the City's present state of fiscal
imbalance to a balanced budget for the fiscal year com-
mencing on July 1, 1977, and relies on several essential
assumptions as outlined below. In particular, it assumes
that there will be available a Federal guarantee for
taxable notes at an interest rate of eight and one-half
percent in a principal amount of approximately $6 billion.
A key feature of the financial plan is that it prescribes
a system of reports and milestones to assist the City, the
EFCB, and other interested parties to monitor the execution
of the plan, the complete details of which, respecting the
expenditure plan and the capital plan, will be provided
within fifteen days. More details on the expenditure
programs of covered organizations over which the City has
no control and their impact on the Financial Plan will also
be required.
On the basis of the Board's review to date, cash
reductions in the City's capital budget by approximately
$390 million over the period to June 30, 1978, have already
been included in the plan. As part of an ongoing review,
all capital projects will be reevaluated to determine the
extent to which they should be discontinued or stretched
out in view of the urgent cash shortage.
The monitoring system will provide guidance regarding
possible modifications which may be required in light of
experience over the period of the plan. This monitoring
system will be supported by the conversion of the City's
financial reporting system to the State Comptroller's
uniform system of accounts for municipalities, as modified
FORD
for New York City.
There have been many recommendations from public and
GERALD
LIBRARY
private groups regarding areas and functions which may
be particularly susceptible to cost reductions or elimina-
tions. At the request of the Board, the City will be asked
to comment on these suggestions and implement them when
practical.
-2- -
Assumptions
1. Revenues: 2. City revenues are estimated in accordance
with those delivered by the EFCB as of
September 30, 1975, with some modifica-
tions concerning real property tax changes
required by alternative debt service
assumptions.
b. On a cash basis, it is assumed that the
State will repeat its advances of
various State aid funds in the final
quarter of the City fiscal year. In
City fiscal year 1974-75, such advances
totaled $785 million.
2. Expenses: a. It is assumed that there will be no wage
increases for municipal employees for
the duration of the plan above the 1975-
76 levels as described in the City's
submission, Schedule A.
b. It is assumed that the City's cost for
welfare and medicaid programs will remain
constant throughout the plan period.
C. The plan does not address the questions
concerning accrual and funding of the
City's pension plans, pending recommen-
dations from the Mayor's Management
Advisory Board headed by Richard Shinn.
Pension surplus reversion to the City
and certain covered organizations is
assumed at $104.6 million for City fiscal
year 1975-76, and approximately $135
million for fiscal year 1976-77 and
$165 million for 1977-78.
GERALD FORD LIBRARY
-3-
3.
Reductions:
a. Some of the cost reductions proposed
by the City in practice may not be
implemented in the exact manner cen-
templated in the City plan. In some
cases, the City will have to be
prepared to implement these reductions
to the same dollar amount through
alternative means.
b.
Covered organizations will be required
to comply with expenditure limitations
2s contained in the City's submission
or as subsequently modified by the
City with the approval of the EFCB.
The City will be asked to bear primary
responsibility for monitoring compli-
ance with the plan on behalf of the
Board, and the Board will use its
authority to assure such compliance.
C. The Board notes that the City's
Financial Plan provides that operating
items in the capital budget will be
reduced by $30 million on a cash basis
in the current City fiscal year and by
$50 million in each of the succeeding
years resulting in a cumulative total
of $80 million in 1976-77 and $130
million in 1977-78.
4. Financing:
a.
The success of the Plan rests on the
assumption that over the life of the
Plan there will be available approxi-
mately $6 billion in principal amount
of Federally guaranteed, taxable notes,
bearing 8 1/2% annual interest. It is
assumed that an entity authorized by
law to issue such notes will be issuer
thereof.
GERALA FORD
SECTION II
FINANCIAL PLAN
The revenues and expenses in the attached schedules
agree with the City's financial plan except that the adopted
new capital budget levels, and adopted financing option
assumptions have affected debt service charges and real
property tax revenues.
GERALD
TABLE #
SUMMARY OF FINANCIAL PLAN
(in Millions of Dollars)
City Fiscal Year
1975-76 (a)
1976-77
1977-78
A 1. REVENUES
2.
Real Estate Taxes
2,081
3,265
3,234
3.
General Fund (b.) !b
3,471
4,197
4,422
4.
State and Federal Aid
2,606
4,258
4,369
5.
Other Revenues
234
272
26.0
S.
Total Revenues
8.392
11.992
12,204
B 7. EXPENSES (excluding debt
service)
8.
Expense Budget
7,479
10,634
10,697
9.
Reserve for Overrun
- -
100
100
7,479
10,734
10,797
10.
MINUS Reductions
- 92
- 462
- 724
11.
Total Expenses
7,387
10,272
10.073
C 12. NET SURPLUS BEFORE DEBT
SERVICE t capital expenditures 1,005
1,720
2,221
(line 6 minus line 11)
Capital expenditures
1147
1100
930
D 13. NEEDED FOR DEBT SERVICE "
(See Table B)
1,669
2,190
2,191
E 14. SURPLUS OR (DEFICIT)
(line 12 minus line 13)
(664)
(470)
30
GERALD FORD VIBRARY
(a) October - June only.
(b) City submission shows MAC debt service deducted from General Fund.
*Assumptions contained in Section I, Introduction.
CAPITAL BUDGET
(Cash Outlay in Millions of Dollars)
City Fiscal Year
1975-76
1976-77
1977-78
Expense Items
1.
Personal Service
$ 237.1
$ 217.5
$ 197.9
2.
Other than Personal Service
111.1
101.9
92.7
3.
Fringe Benefits
42.6
39.1
35.6
:
Lease of Facilities
92.7
92.7
92.7
5.
Vocational Education
174.9
160.4
145.9
5.
Manpower Training
38.6
35.4
32.2
Total
$ 697.0
$ 647.0
$ 597.0
Mitchell-Lama Housing
$ 209.9
-0-
-0-
Construction
Transit Authority
181.1
169.2
138.1
Environmental Protection
152.9
151.9
126.4
Municipal Services
86.2
35.7
18.8
Education
165.4
75.1
37.9
Other
267.8
156.3
106.6
Total
$ 853.4
$ 588.2
$ 427.8
APITAL BUDGET TOTAL
$1,760.3
$1,235.2
$1,024.8
ffects of Reduction
Expense Items
677.0
605.2
555.2
Construction Items
875.8
481.2
339.3
Plus Reserve
46.3
13.6
34.5
EVISED CAPITAL BUDGET TOTAL
$1,600.0
$1,100.0
$ 930.0
R.
FORD
GERALD
LIBRARY
CAPITAL BUDGET
(Cash Outlay in Millions of Dollars)
City Fiscal Year
1975-76
1976-77
1977-78
Expense Items
1. Personal Service
$ 237.1
$ 217.5
$ 197.9
2. Other than Personal Service
111.1
101.9
92.7
3. Fringe Benefits
42.6
39.1
35.6
1. Lease of Facilities
92.7
92.7
92.7
). Vocational Education
174.9
160.4
145.9
5. Manpower Training
38.6
35.4
32.2
Total
$ 697.0
$ 647.0
$ 597.0
itchell-Lama Housing
$ 209.9
-0-
-0-
Construction
Transit Authority
181.1
169.2
138.1
Environmental Protection
152.9
151.9
126.4
Municipal Services
86.2
35.7
18.8
Education
165.4
75.1
37.9
Other
267.8
156.3
106.6
Total
$ 853.4
$ 588.2
$ 427.8
APITAL BUDGET TOTAL
$1,760.3
$1,235.2
$1,024.8
ffects of Reduction
Expense Items
677.0
605.2
555.2
Construction Items
875.8
481.2
339.3
Plus Reserve
46.3
13.6
34.5
EVISED CAPITAL BUDGET TOTAL
$1,600.0
$1,100.0
$ 930.0
:-
FORD
GERALD
LIBRARY
EYES ONLY/CONFIDENTIAL
October 22, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
SUBJECT: New York Financial Situation
In accordance with your request, I have talked to Charle
Walker about his views.
His definite view is that the risk of the consequences of
default are too high to allow the City to go under. His
concern now is that a good bill come to your desk. His
proposal is an RFC type lending organization with a
flinty-eyed banker in command (Ed Yes, possibly).
He thinks that as soon as Lud Ashley's committee has
completed its hearings we should meet with him to try to
construct a sound bill. He offered to work on our behalf
if so requested. He does not think that any bill will pass
unless the Administration supports such action.
CC: Mr. Rumsfeld
bec: Mr. Rumsfeld
LWS:rmk
rbp;tto;chron
EYES, ONLY/CONFIDENTIAL
Determined to be Administrative Marking
Date 2/24/83 By Sp
FORD is LIBRARY GERALD
10/23/75
NYC
OUTLINE OF HOW A PROCEEDING FOR THE ADJUSTMENT
OF DEBTS OF A MAJOR MUNICIPALITY
WOULD PROGRESS
The city would file a petition under a proposed new Chapter XVI
of the Bankruptcy Act. The petition would state that the petitioner is
insolvent or unable to pay its debts as they mature and that the city
desires to work out an adjustment of its debts with its creditors.
With the filing of the petition, the statute would provide for an
automatic stay of suits by creditors so that the essential functions of
the city would not be disrupted. This stay, essentially an injunction,
would continue until the proceeding is terminated unless the United
States district court for good cause altered or amended the stay as to
certain creditors.
All creditors identified by the petitioner would be given notice
of the initiation of the proceeding. The petitioner would file lists
of its debts and the creditors. Unless a particular creditor's claim
is disputed, the listing would serve to establish the claim so the court
would not be burdened with the filing by creditors of countless proofs
of claim. The creditor whose claim is disputed would file a proof of
claim and would have to establish it to the court's satisfaction.
The petitioning city would endeavor to work out a compromise with
creditors. This might take the form of payment in full but over a longer
GERALD
SARARY
- 2 -
period of time, or it might involve compromise for less than the full
amount due the creditors, or a combination.
While the city is negotiating with its creditors and trying to work
out a compromise with them essential governmental functions would continue.
The statute would provide authority for the city to borrow money. Because
the city might have trouble borrowing, the legislation would authorize
the court to provide that such loans to the city would be paid ahead of
other creditors. While the court could not, under the Constitution as
interpreted by the Supreme Court, interfere with essential Governmental
or political functions of the city, it could withhold approval of borrow-
ings which are for nonessentials.
As soon as the city comes up with a plan of compromise the terms of
the compromise proposal would be sent to all creditors and they could vote
to approve or disapprove the compromise. Votes would be counted by classes
of creditors and any class of creditors disapproving the plan could be
dealt with by the court by providing for payment of the value of their
claims in another way. Thus the court would provide for some method of
payment which would give these particular creditors the true value of
their claims and this would not necessarily be the face value of the
claims.
There would be opportunity for contest before the court as to whether
a particular plan of compromise should be finally approved by the court.
However, the plan, if approved, would be binding on all persons and cre-
ditors and all debts of the city dealt with by the plan would be wiped
- 3 -
out except to the extent saved by the plan. The city would be obligated
to abide by the plan and deposit new bonds, cash or property in accordance
with the court-approved proposal and see that its terms are carried out.
The court would retain jurisdiction until it was satisfied that the terms
of the plan were being met satisfactorily by the city and that further
court supervision was not required.
GERAID JanaRy
10/23/75
Nye
OUTLINE OF HOW A PROCEEDING FOR THE ADJUSTMENT
OF DEBTS OF A MAJOR MUNICIPALITY
WOULD PROGRESS
The city would file a petition under a proposed new Chapter XVI
of the Bankruptcy Act. The petition would state that the petitioner is
insolvent or unable to pay its debts as they nature and that the city
desires to work out an adjustment of its debts with its creditors.
With the filing of the petition, the statute would provide for an
automatic stay of suits by creditors so that the essential functions of
the city would not be disrupted. This stay, essentially an injunction,
would continue until the proceeding is terminated unless the United
States district court for good cause altered or amended the stay as to
certain creditors.
All creditors identified by the petitioner would be given notice
of the initiation of the preceeding. The petitioner would file lists
of its debts and the creditors. Unless a particular creditor's claim
is disputed, the listing would serve to establish the claim so the court
would not be burdened with the filing by creditors of countless proofs
of claim. The creditor whose claim is disputed would file a proof of
claim and would have to establish it to the court's satisfaction.
The petitioning city would endeavor to work out a compromise with
crediters. This might take the form of payment in full but over a longer
FORD i LIBRARY GERALD
- 2 -
period of time, or it might involve compromise for less than the full
amount due the creditors, or a combination.
While the city is negotiating with its creditors and trying to work
out a compromise with them essential governmental functions would continue.
The statute would provide authority for the city to borrow money. Because
the city might have trouble borrowing, the legislation would authorise
the court to provide that such loans to the city would be paid ahead of
other creditors. While the court could not, under the Constitution as
interpreted by the Supreme Court, interfere with essential Governmental
or political functions of the city, it could withhold approval of borrow-
ings which are for nonessentials.
As soon as the city comes up with a plan of compromise the terms of
the compromise proposal would be sent to all creditors and they could vote
to approve or disapprove the compromise. Votes would be counted by classes
of creditors and any class of creditors disapproving the plan could be
dealt with by the court by providing for payment of the value of their
claims in another way. Thus the court would provide for some method of
payment which would give these particular creditors the true value of
their claims and this would not necessarily be the face value of the
claims.
There would be opportunity for contest before the court as to whether
a particular plan of compremise should be finally approved by the court.
However, the plan, if approved, would be binding on all persons and cre-
ditors and all debts of the city dealt with by the plan would be wiped
FORD & LIBRARY GERALD
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out except to the extent saved by the plan. The city would be obligated
to abide by the plan and deposit new bends, cash or property in accordance
with the court-approved proposal and see that its terms are carried out.
The court would retain jurisdiction until it was satisfied that the terms
of the plan were being met satisfactorily by the city and that further
court supervision was not required.
FORD is LIBRARY GERALD