Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Source Description
This file contains materials relating to a plan developed by New York officials and a possible scenario of events.
Scholar Source Context
Document identity
localId
1561519
label
New York City Financial Crisis
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
1561519
sourceUrl
contentType
document
title
New York City Financial Crisis
description
This file contains materials relating to a plan developed by New York officials and a possible scenario of events.
citationUrl
collections
Richard B. Cheney Files
Richard Cheney's General Subject Files
subjects
New York City financial crisis
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
1561519
coverageEndDate
logicalDate
1975-11-30
month
11
year
1975
coverageStartDate
logicalDate
1975-11-01
month
11
year
1975
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
358292fd13ed73cd
ocrText
The original documents are located in Box 9, folder "New York City Financial Crisis" of
the Richard B. Cheney 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 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States of America his copyrights in all of his unpublished writings in National Archives collections.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 9 of the Richard B. Cheney Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
November 19, 1975
R. has
year
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN SWS
SUBJECT:
New York Financial Situation:
Possible Scenario of Events
Discussions with Governor Carey, Mayor Beame, and Felix Rohatyn,
Chairman of MAC, suggest that the following represents the most
likely sequence of events:
Wednesday, November 19
MAC passes requirement that New York City pension funds be
reformed and that skimming by the city of the interest earned on the
pension funds be eliminated.
Friday, November 21
New York State Teachers Fund advances $100 million of the $250
million needed to meet the State's financial obligation to the city.
Notice to city note holders offering to exchange their notes for long-
term bonds is mailed out.
New York banks reconfirm their willingness to adjust their obligations
as outlined in their letters to MAC.
Saturday, November 22
Michigan defeats Ohio State at Ann Arbor. Great joy reverberates
across the land.
2
Monday, November 24
New York State Legislature enacts legislation authorizing additional
New York City taxes of $200 million.
Trustees of New York City Pension Fund commit to loan New York
City $2. 5 billion.
Tuesday, November 25
New York City Council enacts additional New York City taxes of
$200 million authorized by the State Legislature.
Wednesday, November 26
Administration affirms its support of legislation to meet seasonal
financing for essential city services.
Arthur Levitt agrees to use $150 million of New York State Pension
Funds to meet the remainder of the State's financial obligation to the
City.
Monday, December 1
Legislation introduced to provide for Federal assistance for seasonal
borrowing to meet essential services.
Friday, December 5
Legislation for seasonal borrowing loans or loan guarantees signed
by the President.
Saturday, December 6
New York State battles out how it will meet its financial obligations.
STATE OF NEW YORK
EXECUTIVE CHAMBER
ALBANY 12224
HUGH L. CAREY
GOVERNOR
November 14, 1975
Dear Mr. Secretary:
I am writing in keeping with our recent conversations
concerning the financial program presented by the New York
State Municipal Assistance Corporation to meet the severe
fiscal crisis facing New York City, as well as the proposals
put forth by State officials to meet the needs of the agencies
and underlying credit of New York State itself.
Today, you will receive from the Chairman of the Municipal
Assistance Corporation the documents prepared by the various
commercial banks and representatives of organized labor in
New York City. These documents should serve to fulfill the
stated Federal requirement that these elements of the MAC plan
have been brought to the level of a commitment to the extent
consistant with the legal and moral responsibilities of the
signatories.
For my part, as Governor of the State of New York, I have
sought to meet the Federal requirements as understood in our
conversations. Yesterday I called the State Legislature into
an Extraordinary Session to meet the fiscal problems of both
the State and City of New York.
In meeting with the Legislative Leaders I presented them
with a legislative package to accomplish for the State the
following:
-2-
First, every step necessary will be taken to close the
gap in the State's budget. The Comptroller of the State has
informed me and the Legislative Leaders that in his opinion,
and that of his staff, the State's current deficit will fall
between $600 and $700 million this fiscal year. Accordingly,
I am sending to the legislature a tax package that will raise
revenues sufficient to close that gap.
Secondly, I have informed the Legislative Leaders that
I shall seek the authority necessary to introduce further
economies in State expenditures. At the outset, I shall seek
a series of measures that the State and its' localities can
undertake in order to reduce social service, i.e. welfare,
and Medicaid expenditures in the coming year. By a series of
reductions in the scope and level of funding of our programs
I hope to achieve a Statewide savings of over $500 million.
Third, for the State "moral obligation" agencies, I will
present legislation to both stregthen their reserves as well
as to remove those few programs whose adequacy as to underlying
security and revenues might be questioned only under the most
rigorous review. This legislation will require an appropriation
of $130 million. For the moment, I am pleased that we have
succeeded in keeping the Housing Finance Agency from default for
another 30 day period, mainly through the investment of certain
funds under the custody of the State Comptroller.
Fourth, I shall introduce legislation that will have the
effect of freezing salary schedules for the period of one year
of all employees of New York State and its agencies.
To meet the fiscal problems facing the City of New York,
I shall do the following:
First, to accomplish the exchange of short-term City notes
in the hands of individual investors into long-term MAC bonds,
I shall introduce legislation that would place a 3-year mora-
torium on the claims of those who do not participate in the
exchange.
Secondly, I have informed the Legislative Leaders that
legislation will be introduced to increase the revenues raised
in, and available to, the City by $200 million.
-3-
Third, I shall introduce legislation necessary to accomplish
the increase in city employee contributions to the pension system
in the amount of $85 million -- an amount agreed to in documents
you have received today.
This is a program that has my full commitment as Governor.
We in New York State have, I believe, brought to bear every
resource at our command to find a solution in the face of an
extraordinary and historic financial crisis. There is still a
need, however, which can only be met by Federal assistance.
Sincerely,
Hugh L. Lary
Honorable William E. Simon
Secretary of the Treasury
Department of the Treasury
15th Street and Pennsylvania Avenue, N.W.
Washington, D. C. 20220
MUNICIPAL ASSISTANCE CORPORATION
FOR THE CITY OF NEW YORK
2 World Trade Center
New York, New York 10047
November 13, 1975
The Honorable William E. Simon
Secretary of the Treasury
Washington, D.C.
Dear Mr. Secretary:
Pursuant to your request to the Governor on November 12th,
I am pleased to enclose copies of conditional commitments
received to date from the various New York City banks, and
from the leadership of the various City unions, who have
been asked to participate substantially in the Three-Year
Financial Plan For New York City.
We are submitting the enclosed letters pursuant to your
request that, to the extent and as rapidly as possible, we
reduce to writing the commitments required from the various
participants in the Three-Year Financial Plan. As these
letters are reduced to final agreements, the legalities
may require changes in the form, but we hope not the sub-
stance, of the outlined transactions.
In view of the time constraints involved, these letters
are in the form of letters of intent rather than formal
legal commitments. They relate to the new cash investments
in the City, and the interest reductions and maturity
adjustments on oustanding City and MAC obligations, referred
to in the City financial section of the Three-Year Plan,
a copy of which is enclosed for your convenience.
We understand that the Governor will communicate with you
separately with respect to the fiscal and State Agency
portions of the Plan.
Page Two
The Governor has called the New York State Legislature
back into its continuing extraordinary session today in
order to consider and adopt the moritorium legislation
which we have discussed with you.
Pursuant to the proposed moritorium legislation, the
Municipal Assistance Corporation is currently readying
an Official Statement by which it plans to offer to
exchange its bonds for maturing notes of The City of
New York. The first of these exchange offers is scheduled
to commence on or about Tuesday, November 18th. A
preliminary Official Statement is enclosed.
As you will understand, the program referred to in the
enclosed materials is conditional upon the availability
of Federal governmental assistance and upon the completion
of the November financings. In this connection, you
should know that we have not yet received any commitment
with respect to the availability of $150,000,000 of the
State appropriation scheduled to be paid on November 21, 1975.
Thank you for your courtesy and helpfulness.
Respectfully submitted,
Chairman of the Board
FGR:ek
Enclosure
November 13, 1975
Mr. Felix G. Rohatyn
Chairman
Municipal Assistance Corporation
2 World Trade Center
New York, New York 10047
Dear Mr. Rohatyn:
The undersigned are aware that the Trustees of the Municipal
Employees Retirement Systems are presently considering the
investment of $2.5 billion in new securities as part of an
overall program to meet the needs of the City of New York
between now and the end of fiscal year 1977-78 and are
considering agreeing to a conversion of MAC securities
presently held by these systems to a new MAC issue of
6%, 10 year bonds and to a conversion of city notes held by
the systems for a new city issue of 6%, 10 year bonds.
The aggregate amount of securities to be converted is
$1.2 billion.
The undersigned agree to use their best efforts to cause
the Trustees to approve, in the exercise of their discretion,
the items referred to above.
The undersigned understand that the Federal and State
governments require that the ITHP portion of the City's
contribution to the systems be reduced by 50%. This will
increase the employees' annual contributions by $107 million.
The above commitments are subject to the completion of a
financial package assuring funding of the City government
through Fiscal Year 1977-78, including the Federal
guarantees of securities, or other Federal funding, required
to complete the financial package.
Victor Sincerely, Victor Gorbaum
Join E. Defury
JRUSUB.
John J. Delury
Executive Director, District Council 37
President, Uniformed
albert shanker, g.B.
Sanitationmen's
Albert Shanker, President
Association, Local 831
Local 2, United Federation of Teachers
I.B.T.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
23 WALL STREET, NEW YORK, N.Y. 10015
NewYork
November 13, 1975
ELLMORE C.PATTERSON
Chairman of the Board
Mr. Felix Rohatyn, Chairman
Municipal Assistance Corporation
for the City of New York
c/o Lazard Freres & Co.
1 Rockefeller Plaza
New York, N. Y.
Dear Mr. Rohatyn:
You asked for a response from this bank and the other
New York City Clearing House banks with respect to certain as-
pects of the Three-Year Financial Plan for New York City, New York
State Agencies and New York State dated November 10, 1975 (the
"Plan"), a copy of which was given to an officer of this bank last
evening. We have had the benefit of a meeting this morning with
you and the other Clearing House banks at which the Plan was dis-
cussed and specific requests were made of us.
In response to the specific requests, and subject to the
conditions listed below, I can advise you that this bank would be
prepared to convert its present holdings of MAC securities to 6 per-
cent MAC bonds maturing in 10 years, to extend our present holdings
of New York City notes to 10 years at 6 percent, and to participate in up
to $2.5 billion "seasonal" financing for the City of New York that
necessarily must be Federally guaranteed.
The following conditions are integral to this response:
1. Any securities of either MAC or New York City must,
satisfactorily to us, be approved as to legality and documentation.
2. We must reserve our right to reconsider our response if
at any time prior to or during the implementation of the Plan there
is any default on securities issued by the State, the City or a State
agency. We would not consider a moratorium on payment of prin-
cipal on City notes, so long as MAC bonds are offered in exchange,
as a default for this purpose.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
Mr. Felix Rohatyn, Chairman
Municipal Assistance Corporation
for the City of New York
- 2
November 13, 1975
3. All other members of the Clearing House respond affirm-
atively and participate in the Plan on substantially the same basis.
4. All parts of the Plan are committed to by the appropriate
parties, including the State executive and legislative leaders, the
City executive and legislative leaders, City union officials, and the
officials of MAC and the City Control Board. Federal executive and
legislative leaders indicate support of Federal guarantee of the financ-
ing of the City's "seasonal" borrowing needs. Appropriate concrete
actions at the appropriate City, State and Federal levels should accom-
pany any actual steps taken by this bank.
We understand that an essential part of the program is the
successful exchange of MAC securities for notes held by holders other than
Clearing House banks and City pension funds. We do think it preferable
that the banks and pension funds receive MAC bonds for City notes on the
same basis as other note holders and urge that serious consideration be
given to that possibility.
We would also like to express our concern about the need to
finance the estimated $2.5 billion State agency requirements in full, and
this bank's unwillingness to participate in any such financing except with
Federal guarantees or assistance. We also have concern about the approx-
imately $4 billion short-term financing requirements of the State itself in
the Spring and the desirability of prearranging the availability of that amount
of credit. It is our present belief that Federal assistance may well be
necessary for that purpose.
Very truly yours,
Ellma Putterson
MANUFACTURERS HANOVER TRUST COMPANY
M
350 PARK AVENUE, NEW YORK, N.Y. 10022
GABRIEL HAUGE
CHAIRMAN OF THE BOARD
November 13, 1975
Mr. Felix G. Rohatyn
Chairman of the Board
Municipal Assistance Corporation
c/o Lazard Freres & Co.
One Rockefeller Plaza
New York, New York
Dear Sir:
We have reviewed the document dated November 10,
1975 and entitled "Summary of Three-Year Financial Plan
for New York City, New York State Agencies and New York
State" prepared by you and delivered to us today. In
connection with the Financial Plan, we understand that
the member banks of the New York Clearing House Associa-
tion are being requested to agree in principle to the
following:
1. Conversion of present holdings of approx-
imately $1,050,000,000 MAC securities to 6% Bonds maturing
in 10 years.
2. Extension of approximately $550,000,000 of
New York City Notes to 10 years at 6%.
3. Providing New York City with up to $2,500,000,000
of "seasonal" financing.
This letter is to advise you that we are agreeable
in principle to the provisions of paragraphs1 and 2 above
on the following conditions:
Mr. Felix G. Rohatyn
-2-
November 13, 1975
(a) New York State, New York State Agencies
and New York City shall not be in default on any of their
respective obligations at the time these provisions of
the Financial Plan are implemented.
(b) State Agency financial needs referred to
in Paragraph B of Section II of the Financial Plan will be
provided without the assistance of this institution.
(c) This institution shall be satisfied as to
all legal, documentary and similar facets of the Financial
Plan prior to its implementation.
(d) The portions of the Financial Plan which
contemplate direct or indirect funding by organizations
other than the member banks of the New York Clearing House
Association are agreed to by such organizations and all
other steps relating to the improvement of the financial
and fiscal condition of New York State and New York City
referred to in the Financial Plan have been adopted by
the New York State Legislature.
(e) All member banks of the New York Clearing
House Association agree to participate in these portions of
the Financial Plan subject to conditions acceptable to such
banks.
With respect to paragraph 3 above, this is to
advise you that this institution would be willing to par-
ticipate in a syndicate consisting at a minimum of all
Mr. Felix G. Rohatyn
-3-
November 13, 1975
member banks of the New York Clearing House Association
organized for the purpose of providing New York City with
up to $2,500,000,000 of "seasonal" financing subject to
the condition that such financing be guaranteed by the
Federal Government.
Finally, we note that Paragraph B of Section III
of the Financial Plan entitled "Short-Term Financing Re-
quirements - State Fiscal Year 1976-77" indicates that
"it is only realistic to anticipate the need for some
Federal sponsorship for the New York State seasonal bor-
rowings early in 1976." We concur in this conclusion.
Sincerely yours,
Sabril Hange
UNITED STATES TRUST COMPANY
OF NEW YORK
45 WALL STREET NEW YORK, N.Y. 10005
212-425-4500
CHARLES W. BUEK
Chairman of the Board
and
President
November 13, 1975
Dear Mr. Rohatyn:
Re: Financial Plan Dated 11/13/75 Submitted to the
Member Banks of the New York Clearing House
In response to your request this morning for advice as to our
position on the above proposal, I am glad to give you our advice as to
the four principal requests as summarized on the first page of the
Financial Plan.
We point out that we believe it undesirable to consider making
plans for The City of New York alone as proposed in the first three
requests without making some provision for the New York State Housing
Finance Agency and other State agencies referred to in request four of
the Financial Plan, and we shall not participate in such request.
The Trust Company, as a member of the New York Clearing House,
agrees to participate in the first three requests set forth, subject to the
following conditions:
a.
Neither the State of New York, any of its agencies, nor the
City is in default on any of its obligations at the time the
Financial Plan is implemented.
b.
The proposal for financing New York State Agencies,
including item four of the Financial Plan, must be
provided by sources other than the New York Clearing
House Banks.
C.
We shall participate in the loans to meet the City's needs
for "seasonal" financing (currently estimated at two and
one-half billion dollars), but only if the Federal Government
guarantees all of such loans.
UNITED STATES TRUST COMPANY
OF NEW YORK
Mr. Felix G. Rohatyn
2
November 13, 1975
d.
The legality and documentation of all aspects of the
Financial Plan must be satisfactory to us and our
counsel.
e.
All the parties involved in the package constituting the
first three requests must agree to such package.
f.
Each other member bank of the New York Clearing House
shall have accepted the foregoing conditions.
Sincerely,
Chairman
United States Trust Company
of New York
Mr. Felix G. Rohatyn
Chairman
Municipal Assistance Corporation
for the City of New York
Lazard, Freres & Company
One Rockefeller Plaza
New York, New York 10020
National Bank
of North America
November 13, 1975
Mr. Felix G. Rohatyn, Chairman
Municipal Assistance Corporation
World Trade Center
New York, New York
Dear Mr. Rohatyn:
We are pleased to respond to the proposals
made by you in furtherance of the plans set forth in
the "Summary of Three Year Financial Plan for New
York City, New York State Agencies, and New York
State" dated November 10, 1975.
National Bank of North America would be
willing to convert its present holdings of Municipal
Assistance Corporation securities, amounting to
approximately $21,000,000, to 6% bonds of the Municipal
Assistance Corporation payable over a period of ten
years, and to extend the maturities of its present
holdings of New York City notes, amounting to approxi-
mately $8,000,000, to maturities of ten years, bearing
interest at 6% per annum. In addition, National Bank
of North America would be willing to assist in the
underwriting, during the next three years, of up to
$2,500,000,000 of short term New York City obligations,
provided such obligations are guaranteed by the federal
government.
Our willingness to move forward with the
proposals made by you, as outlined above, is subject
to the following conditions:
1. All of the other elements of the Summary
Wall Street Office
44 Wall Street, New York, New York 10005 (212) 623-4000
National Bank
of North America
Mr. Felix G. Rohatyn, Chairman
Municipal Assistance Corporation
2.
November 13, 1975
will be implemented prior to the time we are expected
to take the actions described above.
2. All of the other member banks of the
New York City Clearing House will join in the actions
we are to take.
3. Neither the State nor the City nor any
agency of the State will be in default in any of its
obligations at the time the plan is implemented.
4. The financial needs of State Agencies
described in the Summary will be provided for, including
the amount described as "Remainder to be Financed."
5. The Federal Government will agree to
guarantee financing for the seasonal needs of New
York City, up to $2,500,000,000, for the next three
years.
6. We and our counsel shall be satisfied
with the legality of, and documentation for, all of
the actions required for the plans described in the
Summary.
Very truly yours,
News
Walter E. Van der Waag
Vice Chairman of the Board
IRVING TRUST COMPANY
ONE WALL STREET
NEW YORK, N.Y. 10015
JOSEPH A. RICE
PRESIDENT
November 13, 1975
Mr. Felix Rohatyn
Lazard Freres & Co.
One Rockefeller Plaza
New York, New York 10020
Dear Mr. Rohatyn:
This letter responds to a proposal for participation
by the New York Clearing House Banks and others in the financial
plan set forth in a memorandum entitled "Summary of Three Year
Financial Plan for New York City, New York State Agencies,
and New York State" dated November 10, 1975.
We are prepared to:
(a) convert our present holdings of securities of
the Municipal Assistance Corporation to 6% bonds maturing in
ten years;
(b) extend to ten years the maturities of New York
City notes which we now hold, such extended notes (or equivalent
obligations) to bear interest at the annual rate of 6%; and
(c) consider participating in up to $2.5 billion of
"seasonal" financing to the City to bridge the gap between
incoming City revenues and payouts of salaries and other
obligations, but only if the City's obligations are guaranteed
as to principal and interest by the Federal government.
The foregoing is subject to the following conditions:
(a) neither the State, any State agency or the City
is in default at the time of any such conversion, extension
or participation in a seasonal financing;
IRVING TRUST COMPANY
-2-
(b) all parts of the financial plan set forth in the
memorandum referred to above must be agreed to by the various
interested parties;
(c) all of the other New York Clearing House banks
shall have agreed to conversions, extensions and participations
similar to those referred to above; and
(d) the conversions, extensions and participations
referred to above shall be legally satisfactory to us.
I wish to make clear that our agreement is limited
as set forth above and we are not undertaking to participate in
making loans to or purchasing securities of New York State or
any of its agencies.
Yours very truly,
CHIMICAL
20 Pine Street
Donald C. Platten
New York, NY 10005
Chairman
November 13, 1975
Felix Rohatyn, Esq.
Lazard Frères & Co.
1 Rockefeller Plaza
New York, N. Y. 10020
Dear Mr. Rohatyn:
Reference is made to the presentation made by you and your associates
today at the New York Clearing House, and specifically to the material presented
at that meeting entitled "Summary of Three-Year Financial Plan for New York
City, New York State Agencies and New York State".
On behalf of Chemical Bank, I wish to advise you as follows:
(1) Chemical Bank would be willing to convert its present holdings of
Municipal Assistance Corporation securities to 6% bonds maturing in level
payments over ten years.
(2) Chemical Bank would be agreeable to substitute for its existing
holdings of New York City Notes new New York City notes with a maturity of 10
years bearing an annual interest of 6%, with amortization commencing after
expiration of the so-called moratorium period.
(3) Chemical Bank would be willing to participate in a syndicate for
seasonal financing needs of the City of New York up to an aggregate amount not
in excess of $2-1/2 billion if, and only if, such borrowings by the State of New York
are guaranteed by the full faith and credit of the United States.
Chemical Bank's willingness to do the foregoing is conditioned as
follows:
(a) At the time of the implementation of such Financial Plan, there shall
exist no default in any obligations of the City of New York, any agency of the
City of New York, the State of New York or any agency of the State of New York.
(b) Recognition by all appropriate fiscal authorities that the refinancing
of maturing New York State agency obligations must be effected through sources
other than the New York Clearing House banks.
To: Felix Rohatyn, Esq.
#2
November 13, 1974
Lazard Frères & Co.
(c) Our satisfaction as to all legal matters incident to the implementation
of such Financial Plan (including, but not by way of limitation, the authority of
the City of New York to issue a 10-year note) and our satisfaction as to the documen-
tation to be executed and delivered in connection therewith.
(d) All other participants in such Financial Plan shall have agreed to the
matters being requested of them, as more fully set forth in such Financial Plan.
(e) Your receipt of substantially similar letters from each of the other
New York Clearing House banks.
Finally, we can not overemphasize our sincere belief and concurrence
in the statement contained in such Financial Plan that it is only realistic to
anticipate the need for Federal sponsorship for New York State's seasonal borrow-
ings during 1976. We believe that any contrary assumption would be unrealistic
at this time and that it is in the best interests of the capital markets and the
commercial banking system that provision should be made therefor at this time.
Very truly yours,
CHEMICAL BANK
By- Dued C have
Chairman of the Board
D.C.P.
Rush delivery.
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK FOUNDED 1784 BY ALEXANDER HAMILTON
48 WALL STREET, NEW YORK, N.Y. 10015
ELLIOTT AVERETT
CHAIRMAN OF THE BOARD
November 13, 1975
Mr. Felix Rohatyn, Chairman
The Municipal Assistance Corporation
for The City of New York,
Lazard Freres & Co.,
One Rockefeller Plaza
New York, New York 10020
Dear Mr. Rohatyn:
The Bank of New York is pleased to respond to the proposal that you
presented today to the member banks of The New York Clearing House Association.
This proposal is summarized in a document entitled "Summary of Three-Year
Financial Plan for New York City, New York State Agencies, and New York State",
dated November 10, 1975.
The Bank of New York would be willing to take the following three
actions, if the conditions hereinafter described are met to its satisfaction.
The Bank of New York would:
1.
Convert the securities issued by the Municipal Assistance Corporation
for The City of New York ("MAC") which we presently hold as principal
into new securities issued by MAC, bearing an interest rate of 6% per
annum, maturing in equal annual installments over a ten year period and
ranking pari passu with all other securities issued by MAC.
2. Extend the maturity of the New York City notes which we presently hold
as principal to a term of ten years and reduce the interest rate thereon
to 6% per annum, provided the long term notes contain an appropriate
cross default clause.
3. Participate proportionately with the other member banks of The New
York Clearing House Association and other commercial banks in providing
New York City with up to 2 1/2 billion dollars of "seasonal" financing,
if, but only if, all obligations in respect of this financing are
unconditionally guaranteed by the United States Government.
The conditions which we have in mind are the following:
A. At the time of our taking of any of such actions, none of the State
of New York, any agency of the State of New York, New York City or any
municipality with a population in excess of 100,000 shall be in default
in the payment of any of its obligations.
THE BANK OF NEW YORK
Page 2
November 13, 1975
B. In the description of the "Financing Requirements for State Agencies"
(Part II, B of the Summary), there is a reference to $650,000,000
as the "Remainder to the Financed". These funds must be furnished
from sources other than this Bank.
C. All the actions outlined in the Plan of "Fiscal Correction" for New
York City (Part I, A of the Summary) shall have been taken or
effectively committed to by all parties concerned, and each of the
other member banks of The New York Clearing House Association shall
have agreed to participate on terms substantially similar to those
contained in this letter.
D.
The legality of each of this Bank's proposed actions shall be
established to the satisfaction of our counsel, and all necessary
documents shall have been prepared to our satisfaction, prior to our
taking any such action.
Very truly yours,
Elliott averett
Chairman
BANKERS TRUST COMPANY
280 PARK AVENUE, NEW YORK
JOHN W. HANNON, JR., PRESIDENT
MAILING ADDRESS
TELEPHONE 212 692-3765
POST OFFICE BOX 318
CHURCH STREET STATION
NEW YORK, NEW YORK 10015
November 13, 1975
Mr. Felix G. Rohatyn, Chairman of the Board
Municipal Assistance Corporation for the City of New York
c/o Lazard Freres & Co.
1 Rockefeller Plaza
New York, N. Y. 10020
Dear Mr. Rohatyn:
This morning you outlined to the Clearing House banks, including
ourselves, a financial plan for New York City, New York State agencies
and New York State itself, and asked us to comment to you today on
certain aspects of that plan which directly involved the Clearing House
banks.
Subject to the conditions outlined below, we would be willing to
do the following as our part of the overall plan:
1. Convert our own present holdings of Municipal Assistance
Corporation for the City of New York ("MAC") securities to 6% serial
bonds of MAC, with a final maturity of 10 years and an average life of
approximately 6 years;
2. Extend our own present holdings of New York City notes to
maturities not in excess of 10 years at 6%; and
3. Use our best efforts to put together the necessary syndicates
of banks and other financial institutions to meet the "seasonal" financing
needs of New York City over the next 3 years, provided that such needs
never exce ed $2-1/2 billion and, most importantly, that such financings
be guaranteed by the Federal Government. It is our opinion that without
such Federal guarantee the "seasonal" financing needs could not be met.
Our willingness to participate in the proposal outlined to us this
morning is subject to the following conditions:
1. That at the time of any conversion or extension there is no
default by New York State, any of the New York State agencies, or
New York City;
-2-
2. That the State agencies' needs outlined this morning in your
proposed financial plan are to be taken care of from sources other than
the Clearing House banks;
3. That the Federal Government guarantee any New York City
"seasonal" financing;
4. That the transactions contemplated by the financial plan
outlined to us and by this letter are legal and proper for all of the
persons (including governmental units and other entities) involved or
contemplated to be involved, including ourselves, and that all governmental,
corporate or other authorizations necessary or appropriate be obtained,
and that all legal proceedings, including all documentation, in connection
with such transactions shall be satisfactory in form and substance to this
bank and our counsel;
5. That all of the persons and entities connected with the financial
plan outlined to us this morning both execute the necessary or appropriate
documents to indicate that they will perform as contemplated in accordance
with the plan outlined to us and that such performance is forthcoming at
the appropriate time, including financings from other sources and such
governmental and other acts as are necessary or appropriate under the
plan; and
6. That our willingness to convert all of our own holdings of MAC
securities, extend our own holdings of New York City notes and use our
best efforts to provide "seasonal" financing for New York City, as outlined
above, be matched by a willingness on the part of all of the other
Clearing House banks to do the same with their holdings and to use their
best efforts in connection with the "seasonal" financing for New York City.
As part of the proposed financial plan we understand you will
consider and use your best efforts to restructure the plan as outlined to us
to allow us to convert our New York City notes into MAC securities with
the same maturity and interest rate as proposed for the extended New York
City notes.
Very truly yours,
MARINE MIDLAND BANK
140 BROADWAY
NEW YORK, N. Y. 10015
(212) 797 4000
November 13, 1975
Mr. Felix Rohatyn, Chairman
Municipal Assistance Corporation
One Rockefeller Plaza
New York, New York 10020
Dear Mr. Rohatyn:
In accordance with your request today to the representatives of the
New York Clearing House banks for an indication of willingness by each of
such banks to participate in a proposed Financial Plan for New York City,
New York State and New York State Agencies (herein called the "Plan", a
copy of which is annexed hereto), this is to advise you that, subject to
the conditions set forth below, Marine Midland Bank-New York will, upon
consummation of the Plan:
1. Convert Municipal Assistance Corporation ("MAC")
securities held in this Bank's own portfolio to
MAC bonds, amortized over ten years, bearing in-
terest at 6% per annum, and ranking pari passu
with all other MAC obligations;
2. Extend the maturity of New York City notes held
by this Bank in its own portfolio to ten years
and agree to a reduction in the interest rate on
such notes to 6% per annum;
3. Assist in the underwriting or syndication of a
portion of an issue of New York City securities
of up to $2.5 billion for "seasonal" financing
needs, provided that such securities are guar-
anteed by the full faith and credit of the United
States of America.
Our agreement to the foregoing and our continued participation in the
Plan are subject to the following:
1. Neither New York City, New York State nor any
New York State Agency shall be in default in
any respect on any of their respective securities
issues;
NEW YORK
Mr. Felix Robatyn, Chairman
Municipal Assistance Corporation
November 13, 1975
Page 2
2. With respect to the $650 million additional
financing (or any other additional financing)
set forth in the Plan as required for New York
State Agencies, sources other than this bank
will provide such funds.
3. The definitive terms and the legality of the
various new or extended securities to be issued
in accordance with the Plan, as well as the doc-
umentation in connection therewith, shall be
satisfactory to us and our counsel. All legal
matters shall be satisfactory to us and our counsel.
4. All parts of the proposed Plan shall be consummated,
each of the institutions and purchasers of securities
as set forth therein shall agree to and perform their
respective obligations as contemplated by the Plan
and each of the member banks of the New York Clearing
House Association shall participate in the Plan.
Very truly yours,
MARINE MIDLAND BANK-NEW YORK
By: Krisch
Russell H. Knisel
Vice Chairman of
the Board
NATIONAL
NEW
YORK
FIRST NATIONAL CITY BANK
WILLIAM 1. SPENCER
399 PARK AVENUE, NEW YORK, N. Y. 10022
PRESIDENT
November 13, 1975
Mr. Felix G. Rohatyn, Chairman
Municipal Assistance Corporation
for the City of New York
c/o Lazard Freres
Rockefeller Center
New York, New York
Dear Mr. Rohatyn:
We are writing to respond to your request that we participate in certain
transactions forming part of the three-year Financial Plan proposed for New
York City, New York State Agencies and New York State (the "Plan"). We have
been furnished with a memorandum dated today outlining such transactions
together with a summary of the Plan dated November 10, 1975.
Prior to receipt of the Plan we discussed with you our conviction that
the financial and other problems confronting New York City are closely
related to similar problems affecting New York State and its Agencies and that
a piecemeal approach which seeks only to prevent a City default is not an
adequate response to the total situation. While we believe the general approach
of the Plan is appropriate, we wish to record our view that it does not meet the
financing requirements of the State Agencies and political subdivisions other than
New York City. For example, we do not believe that the indicated remainder
of Agency needs to be financed of $650 million can be obtained from sources
within the banking system. In our view the success of the Plan will depend on
the identification of additional financial support for Agencies and other
subdivisions.
You have asked us to consider: (1) Converting our holdings of MAC bonds
of various series into MAC bonds of a new series under the existing bond
resolution bearing interest at 6% per annum and maturing in 10 years. Such new
bonds would be amortized on a level debt basis.
(2) Extending the maturity of our holdings of New York City notes to 10
years. Such extended notes would bear interest at 6% per annum.
(3) Participating in the provision of "seasonal" financing for New York
City during the three year period of the Plan in an amount not to exceed $2 1/2
billion at any one time outstanding.
Mr. Felix G. Rohatyn, Chairman
November 13, 1975
We are willing to negotiate our participation in the above described
transactions on the following basis:
a) At the time of our participation there shall be no default in the
payment of debt for borrowed money on the part of New York City, New York
State or any Agency or political subdivision of the State.
b) All New York Clearing House member banks and all pension funds
for City employees shall be participating in (1) and (2) above on the same
basis as we.
c) Prior to our participation we shall be satisfied that there is a
reasonable prospect of obtaining commitments for $650 million to fund the
unfinanced requirements of the State Agencies. If any of the sources of
funding for Agencies outlined in the Plan prove to be unavailable in the
required amounts, such amounts will be added to the $650 million
commitments.
d) Commitments shall have been obtained for the aggregate amount of
the "seasonal" financing at the time required by the City and borrowings under
such commitments shall be unconditionally guaranteed by the United States.
e) All other aspects of the Plan shall have been implemented, or shall
be the subject of satisfactory commitments, substantially as outlined in the
Plan.
f) We shall be satisfied with all legal aspects of the transactions and
agreements involved in carrying out the Plan and with the form and substance
of the documents involved.
We recognize that under certain circumstances the City securities to
be issued under (2) above may not be available. We would be willing to
negotiate our participation in (2) on the basis of substituting MAC bonds in
place of such City securities.
In accordance with our discussions today, we expect to communicate
separately with representatives of the State concerning proposals for financing
the requirements of the New York State Housing Finance Agency on
November 14.
Very truly yours,
of P Spencer
THE CHASE MANHATTAN BANK
National Association
1 Chase Manhattan Plaza, New York, New York 10015
DAVID ROCKEFELLER Chairman of the Board
November 13, 1975
Mr. Felix G. Rohatyn, Chairman
Municipal Assistance Corporation for
the City of New York
New York, New York
Dear Felix:
At the meeting of the New York Clearing House banks with
you this morning, you asked that each of the banks
indicate whether it would agree to participate in the
financial plan for New York City, New York State agencies
and New York State which you and Mr. Gould described.
The anticipated participation by the New York Clearing
House banks is described in Items 3 and 4 of Part I. of
the "Summary of Three-Year Financial Plan for New York
City, New York State Agencies and New York State", dated
November 10, 1975 (the "Summary"), a copy of which was
distributed.
Before responding to your inquiry, I should set forth
certain assumptions and comments upon which our response
is based:
1. New York State, New York State agencies and
New York City will not be in default in the
payment of their obligations at the time the
plan is implemented.
2. Part II. of the Summary relating to State
agencies will be implemented using sources of
funds other than commercial banks. We believe
that it is of vital importance to the reopening
of the securities markets to New York State,
its agencies and the City that the credit of
the State agencies be strengthened and that
default in the payment of their obligations be
avoided.
Mr. Felix G. Rohatyn, Chairman
THE CHASE MANHATTAN BANK, N.A.
To
Municipal Assistance Corporation
Page No.
2
for the City of New York
3. Seasonal financing for New York City, estimated
in the amount of $2.3 billion per fiscal year ($1.5
billion for the balance of the fiscal year ending
June 30, 1976), will be provided. We will be
willing to participate in an underwriting syndicate
of New York Clearing House banks to underwrite such
seasonal financing but only if the City's obligations
are appropriately guaranteed by the Federal
Government.
4. Seasonal borrowing requirements of New York
State will be satisfied, it being our view that
Federal guaranty assistance will be necessary.
5. All legal and documentary requirements relative
to the conversion of the New York City short-term
notes (including, particularly, TANs and RANs) held
by the Clearing House banks into long-term obligations
will be satisfied. In this connection, as you know,
bank counsel have expressed concern as to the avail-
ability of bonding authorization and as to the use
of bond proceeds to retire TANs and RANs.
6. The total legislative, budgetary and financial
plan (certain elements of which are described in the
Summary) will be implemented concurrently with the
requested participation by the Clearing House banks.
7. All Clearing House banks will participate in the
plan as contemplated by Items 3 and 4 of Part I.A.
of the Summary.
Subject to these assumptions, we intend to participate in
the plan by accepting the contemplated interest reduction
and lengthening of maturities on the New York City notes
held by us for our own account as described in the Summary
and as discussed by you at the Clearing House this morning.
In this connection, since it is contemplated that the New
York City short-term notes will be exchanged for New York
City obligations with a ten-year maturity, we suggest that
it is appropriate that the ten-year obligations contain
provision for acceleration in the event of any default by
the City in the payment of its obligations. On the same
basis, we, also, intend to accept extension of the maturity
Mr. Felix G. Rohatyn, Chairman
THE CHASE MANHATTAN BANK. N.A.
To
Municipal Assistance Corporation
Page No. 3
for the City of New York
of the MAC obligations held by us for our own account and
the interest reduction as contemplated by Part I.A. of
the Summary and our discussion this morning.
Very truly yours,
Dan't Redufully
1
DR:jt
1. Definitions. The words and phrases used in this
Act
section have the following meanings:
(a) The term "Federal Payments" mean those
amounts authorized and appropriated for the Fiscal Year
beginning July 1, 1975 which the City of New York is en-
titled to receive, assuming compliance with the relevant
statutory criteria, from the United States prior to Sep-
tember 30, 1976 pursuant to the following statutes:
(b) The term "Due Date" means the time when a
Federal Payment becomes due and payable by the United States
to the City of New York.
(c) The term "Composite Treasury Bill Rate' means
(d) The term "Secretary" means the Secretary of
the Treasury.
2. Advances of Federal Payments. Upon written request
from the City of New York, the Secretary may make payment to
the City prior to the Due Date of amounts of Federal Payments
estimated by the Secretary to come due prior to September 30,
1976 in an amount not to exceed in the aggregate $1,500,000,000.
Each such advance shall be accompanied by a written statement
-describing the particular Federal Payment or Payments being
advanced, the estimated amount thereof, and the Due Date.
3. Interest on Advances. Each advance pursuant to section
2 shall bear interest from the date of the advance to the Due
Date at an annual rate equal to the Composite Treasury Bill
Rate determined at the time the advance is paid plus an
additional one per centum per annum. Interest shall be pay-
able on the Due Date with respect to each Federal Payment
advanced.
4. Adjustments.
(a) In the event the aggregate advances exceed
the amount of Federal Payments ultimately determined to be due
to the City of New York, the Secretary shall withhold such
amounts from future payments due the City of New York from
the United States and offset such withheld amounts against
any such excess advances, including any unpaid interest thereon.
(b) In the event the aggregate advances are less
than the amount of Federal Payments ultimately determined to
be due to the City of New York from the United States, the
Secretary shall remit to the City of New York the amount by
which such Federal Payments exceed the aggregate advances and
any unpaid interest thereon.
- 2 -
1. Definitions. The words and phrases used in this
Act have the following meanings:
(a) The term "Federal Payments" means those
amounts authorized and appropriated for the Fiscal Year
beginning July 1, 1975 which the City of New York is or
will become entitled to receive but which have not been
remitted to the City prior to the issuance of any Notes
Secured by Federal Payments, assuming compliance with the
relevant statutory criteria, from the United States prior
to September 30, 1976 pursuant to the following statutes:
(b) The term "Notes Secured by Federal Payments"
means debt obligations of the City of New York: (i) authorized
and approved by the Secretary pursuant to section 3 of this
Act; (ii) due and payable in full no later than June 30, 1976;
(iii) the interest on which qualifies for exemption from
taxation under section 103 of the Internal Revenue Code of
1954 as amended; (iv) which are valid and binding general
obligations of the City of New York, and (v) which state on
their face a day certain when the interest on and the
principal amount of such Notes is payable.
(c) The term "Secretary" means the Secretary of
the Treasury.
(d) The term "default" with respect to Notes Se-
cured by Federal Payments means the failure of the City of
New York to make timely payment of any installment of in-
terest on or of the principal amount of such Notes on the
date or dates specified on the face of such Notes.
2. Application. The City of New York, if first
specifically authorized by the State of New York to issue
Notes Secured by Federal Payments, may apply to the Secretary
for authority to issue Notes Secured by Federal Payments in
an aggregate amount not to exceed $1,500,000,000. Such
application shall include: (a) a proposed schedule of
borrowing showing the proposed dates of issuance and maturity
of such Notes; (b) a statement that the funds to be obtained
through the issuance of Notes Secured by Federal Payments
cannot otherwise be raised by the City of New York; (c) a
projected statement of receipts and disbursements by the City
of New York demonstrating the City's ability to pay the prin-
cipal and interest on the Notes Secured by Federal Payments
as such payments become due; and (d) an agreement that the
City agrees to be bound by the provision of this Act.
3. Secretary to Approve Application. The Secretary
shall approve the application of the City of New York and
authorize the City to issue Notes Secured by Federal Pay-
ments if he determines that (a) the funds to be obtained
through the issuance of Notes Secured by Federal Payments
- 2 -
cannot otherwise be raised by the City of New York; (b) there
is a reasonable probability that the City of New York will be
able to pay the principal and interest on the Notes Secured
by Federal Payments as such Notes mature and (c) the esti-
mated amount of Federal payments is sufficient to provide for
redemation
the retention of the Notes (including all accrued interest)
at maturity.
4. Endorsement of Approved Notes. Notes Secured by
Federal Payments which have been approved and authorized by
the Secretary shall bear on their face a conspicuous legend
that "The Payment of the Principal Amount of and Interest on
this Obligation is Secured by a Lien on Certain Funds to
become Due to the City of New York from the United States,"
and shall be endorsed by the Secretary.
5. Duty of Secretary to Redeem Notes.
(a) In the event that
(i) the City of New York defaults, or
(ii) the Secretary determines that it is
likely that the City of New York will default,
with respect to any Notes Secured by Federal Payments, the
Secretary shall withhold payment to the City of New York of
an amount of Federal Payments equal to the principal amount
and unpaid interest (determined as of the date of maturity)
of all outstanding Notes Secured by Federal Payments and
- 3 -
shall set such sum aside in a special fund (the "Special Fund")
for the purpose of redeeming Notes Secured by Federal Pay-
ments (including all unpaid interest due thereon) as such
Notes mature.
(b) In the event that the City of New York defaults
with respect to any Notes Secured by Federal Payments, the
holders of such Notes shall have the right to demand payment
by the Secretary from the Special Fund of the unpaid principal
amounts of such Notes and the interest thereon to the date
of maturity. No person other than the United States, a holder
of a Note Secured by Federal Payments (but only to the extent
of the unpaid principal amount and interest due on such Note),
or the City of New York (but only in the absence of a default
with respect to Notes Secured by Federal Payments) shall have
any right or interest in the Special Fund or shall have the
right to attach, garnish, levy upon or otherwise seek any
payment from the Special Fund or seek to prohibit or inter-
fere with payments by the Secretary from the Special Fund.
No payment from the Special Fund pursuant to this Act shall
be deemed a voidable preference under the Bankruptcy Laws or
under any state or local law.
(c) If the Secretary has established a Special
Fund pursuant to section (a) (ii) of this Act and it sub-
sequently appears to the satisfaction of the Secretary that
- 4 -
the City will not default with respect to the Notes Secured
by Federal Payments, the Secretary shall forthwith remit
the balance in the Special Fund to the City of New York.
(d) In the event of default with respect to the
Notes Secured by Federal Payments, if the Secretary of the
Treasury determines that the Special Fund will be inadequate
for the purpose of making timely redemption upon maturity
of all Notes Secured by Federal Payments he shall cause
such Special Fund to issue to the Department of the Treasury
obligations in an amount necessary to enable the Special Fund
to redeem upon maturity all Notes Secured by Federal Payments
and the Department of the Treasury shall purchase such obli-
gations. Such obligations shall bear interest at a rate
determined by the Secretary of the Treasury taking into con-
sideration the current average yield on outstanding market-
able obligations of the United States of comparable maturity.
For the purpose of purchasing the obligations of the Special
Fund described herein, the Secretary of the Treasury is
authorized to use as a public debt transaction the proceeds
from the sale of any securities hereafter issued under the
Second Liberty Bond Act, and the purposes for which securities
may be issued under the Second Liberty Bond Act are extended
to include such purchases. In such case, the Secretary shall
- 5 -
withhold and continue to pay into the Special Fund all Federal
Payments (or, if necessary, payments which would be Federal
Payments but for the time limitations in section (1) (a) of
this Act) until the Special Fund shall have sufficient assets
to redeem all Notes Secured by Federal Payments and all
obligations of the Special Fund held by the Department of
the Treasury, including all interest thereon
(e) Notwithstanding any contrary provision of
law, payments made by the Secretary pursuant to subsection
(b) shall be deemed in full satisfaction
by
the City of New York to the Federal Payments
...located to
redeem such Notes or the obligations of the
Fund issued
pursuant to subsection (d) of this section.
FORD & GERALD LIBRARY
NEW YORK CITY CASH FLOW NEEDS
(dollars in millions)
Fiscal Year
Fiscal Year
1976-1977
1977-1978
July
1218
1079
August
480
410
September
(148)
(138)
October
505
94
November
146
70
December
566
392
January
116
56
February
72
(14)
March
270
387
April
(475)
(587)
May
(308)
(335)
June
(823)
(907)
Total
1619¹/
5072/
1/ Excludes $164 million financed from debt service payments
to pension funds.
2/ Excludes $274 million financed from debt service payments
to pension funds.
NOTE: These figures have been provided by New York
officials. Treasury believes they do not provide
an accurate picture as yet.
OF
DEPARTMENT THE TREASURY
THE
THE SECRETARY OF THE TREASURY
WASHINGTON 20220
1789
November 14, 1975
MEMORANDUM FOR THE PRESIDENT
Subject: New York Plan
Governor Carey; Felix Rohatyn, Chairman of MAC; Stanley
Steingut, Speaker of the State Assembly; Warren Anderson,
Majority Leader of the State Senate; and other New York officials
presented the outlines of a plan designed to meet the financial
needs of New York City, New York State, and the New York State
agencies.
(1) Summary of the Plan
The plan involves measures to:
(a) Force a restructuring of New York City's short-term
debt.
(b) Generate $200 million of new city tax revenues.
(c) Provide $2.5 billion in new loans to the City from the
city pension funds.
(d) Reduce City contributions to employee pension funds by
requiring contributions from the employees, thus reducing
by $85 million City expenditures; and restructure the
employee pension plans.
(e) Generate sufficient State tax revenues (estimated by
Governor Carey at $600-700 million) to balance the
State's budget.
(f) Provide State funding for the Housing Finance Agency
to strengthen its financial condition.
(g) Force a balancing of New York City's budget by fiscal
year 1978.
(h) Reduce welfare and social service costs.
- 2 -
(2) Proposed Federal Role
The Federal Government has been asked to provide seasonal
financing on a short-term, self-liquidating basis. For FY 1976,
approximately $1.3 billion would be required during the period
December 1975 - March 1976, to be repaid by June 30, 1976. For
FY 1977 and FY 1978 the need in the July-March period would peak
at $2.3 billion in March. In each of these fiscal years, the
entire amount would be repaid by June 30.
(3) Discussion of the Plan
(a) New York City
The key elements of the plan are a restructuring of New York
City's short-term debt and substantial commitments of new cash from
the union pension funds. The debt restructuring is in two parts.
First, the banks and other institutional investors have agreed
to exchange their short-term New York City notes for ten-year
City bonds carrying an interest rate of six percent. Secondly,
they have agreed to refinance their holdings of MAC bonds to
reduce the cash flow drain on the City. These understandings
are contained in letters to MAC from the major New York banks
and certain union leaders.
Individual holders of short-term City notes (who hold
$1.6 billion) will be offered a long-term (10-15 year) MAC
bond, carrying an 8-9 percent interest rate. Holders who do not
accept the exchange will be subject, pursuant to new legislation
the Governor is introducing, to a three-year moratorium on their
right to enforce the terms of notes: that is, their ability to
collect principal and interest at maturity. This approach is
modeled on the anti-mortgage foreclosure legislation used by
New York and other States during the depression.
New loans of $2.5 billion through FY 1978 will be provided
from the city employee pension funds. This commitment, as well
as a commitment to restructure their existing holdings of MAC
securities and City notes, is reflected in a letter to MAC signed
by the heads of the Teachers, Municipal Employee, and Sanitation-
men's unions.
The plan also includes legislation for new City taxes of $200
million and changes in certain pension fund arrangements relieving
the City of $85 million in contribution obligations.
- 3 -
(b) New York State
The key aspect of the State plan is new state taxes to
eliminate the $700 million deficit estimated for the fiscal year
ending March 31, 1976. At our meeting, Governor Carey was not
specific as to what types of tax measures might be taken.
Moreover - - and perhaps more importantly -- Senate Majority
Leader Anderson refused to accept the $700 million figure and
was extremely vague as to whether he would support new taxes as
opposed to expenditure cuts. The problem with the expenditure
cut approach over the short term is that it easily lends itself
to gimmickry, such as merely deferring certain outlays into the
following fiscal year.
The Governor also indicated that he will seek to achieve
reductions in the welfare and social services area. He was vague
as to whether these reductions would come through legislation,
administrative actions or both.
The State has no concrete plans for meeting the $4 billion
seasonal borrowing requirement it faces in April-June 1976.
However, if the overall plan were put in place, it would appear
likely that the State would have access to the market to meet
this need. And as a fallback, the $11-plus billion in State
employee pension plans could be tapped.
(c) State Agencies
Two major steps are being taken with respect to the agencies.
First, no new projects will be undertaken. Second, the Governor
is proposing legislation of the type requested by the banking
community to bolster the finances of the Housing Finance Agency.
Even if the legislation is adopted, however, the banks have not
agreed to meet the agencies' financing needs, which amount to
approximately $2.5 billion over the next two years. The state has
tentatively identified sources (pension funds, etc.) for approxi-
mately $1.8 billion; it hopes to persuade the banks to take the
rest.
Evaluation of Plan
With respect to the City portion, the plan is basically
the Administration's bankruptcy proposal by another name. Like
our proposal, short-term noteholders will not be paid in cash,
but will get long-term bonds (or the equivalent) instead. As
would have been the case under our plan, the Emergency Financial
Control Board will run the City.
- 4 -
Whether the plan succeeds largely depends on two factors.
First, if any element of the legislation is whittled back by the
Legislature -- e.g., fudging on the amount of the State's deficit
or the amount of new taxes - - the existing commitments may not be
kept and, more importantly, the market -- essential for the State
in April -- may not be persuaded that the State has in fact done
what is necessary.
Equally important is the public's perception -- over the
next six months -- of how the State and City are being managed.
If reforms continue at their current pace, the problem may be
solved. If not, the problem may be as great by April or May as
fears return that the State will have to commit more of its
credit toward helping the City.
Timetable
We were asked for an answer by Monday but they have been
advised that we will give them an answer as soon as possible.
As a practical matter, time is of the essence: (1) The U.S.
Congress, which may need to act on this matter is planning to
recess November 21; and, (2) The restructuring of the short-
term debt must be accomplished by December 10. Because of the
complexity of the restructuring arrangment, at least two weeks
will be required for this to take place.
We have made a summary of the plan without any policy comment
and distributed it to Congressional leaders for their review over
the weekend. We would secure their reaction on Monday while you
are in Europe. When you return, you would then have the oppor-
tunity to consult with the Congress on Tuesday and could then
announce a decision if you wish.
Options
Option One. To turn down the request for federal assistance
and recommend that actions be taken at the state
or local level.
Option Two. Agree to support legislation (copy attached)
authorizing federal assistance to meet seasonal
borrowing needs with any or all of the following
conditions and any others to be determined:
(a) That it is limited to $1.5 billion with
broad authority to revoke assistance if
state and city action fails to meet
specified conditions.
- 5 -
(b) That the Governor of New York provides us
with written assurance that no further
requests for assistance for the City, State,
or for any of its agencies will be forth-
coming.
(c) That the substance of such a letter be
embodied in a resolution of the state
legislature.
Option Three. Seek agreement from private financial institutions
to provide financing for City's seasonal needs
and support legislation (copy attached) enabling
us to secure such financing with future Federal
payments otherwise due the State and City.
These are three basic options available to you. If you are
considering Option Two, you have various alternatives with respect
to timing. You could:
(a) Indicate that you will not consider any form of assistance
until the State Legislature has acted.
(b) Describe the kind of Federal assistance you will consider,
but state that you will not reach a decision until after
the State Legislature has acted.
(c) Announce you have decided to provide assistance as
described above if the Legislature acts in accordance
with the plan.
Attached are the following background material:
Tab A. Letters from the Governor, MAC, Union Leaders and
Financial Institutions.
Tab B. Draft legislation to provide direct federal assistance.
Tab C. Draft legislation to secure loans by private institutions.
Tab D. Additional cash flow requirements, subject to further
refinement.
Stephen S. Gardner