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New York City, May - October 1975 (1)
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The original documents are located in Box 78, folder "New York City, May - October
1975 (1)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
THE
WHITE
HOUSE
TO:
Roger Rog WASHINGTON Date 5/15
FROM: John G. Carlson
attached is
the info. on
n.y. you requested
FORD & LIBRARY GERALD
5-15
MAY 12, 1975
SUBJECT:
SIMON REJECTS CITY OF NEW YORK'S
REQUEST FOR FINANCIAL AID
Secretary Simon has issued a statement rejecting Federal aid
to the City of New York stating that such aid "would not be
appropriate" and added that the solution to the City's financial
problems does not lie at the Federal level.
Why has the President rejected giving financial aid to the City
of New York?
GUIDANCE: There is very little that the Executive Branch can
do to meet the current fiscal crisis of the City of
New York. The President does not have the legal
authority to borrow funds for the City or lend funds
to the City.
The only Federal assistance that can be undertaken,
other than specific legislation, is by virtue of
action taken by the Federal Reserve Board. The
Federal Reserve can, whenever disruption of financial
markets might occur; they do have the authority to
move in and shore up bank credit by guaranteeing loans.
What would you suggest that the City of New York do in the short
term to meet its financial problems?
GUIDANCE: It is my understanding that the State's credit is
excellent as evidenced by recent sale of bonds and
notes by the State of New York. The State will give
aid to the City in the next fiscal year of appro-
ximately $4 billion. With legislation, the State
could accelerate this aid.
In the short term, the City will probably try to
or have to try to refinance the current notes which
come due before June 30. Of course, the City can
appeal to the Federal Reserve Board or can go to
Congress for legislation.
What can the City of New York do in the long term to improve
its financial situation?
GUIDANCE: I'm not sure that I should be up here saying what
the City of New York should do to solve some of its
financial problems, but on background I might go
over a few things they could possibly do in regards
their fiscal years 75 and 76 budgets.
PAGE 2
SIMON REJECTS CITY OF NEW YORK'S
REQUEST FOR FINANCIAL AID
GUIDANCE (continued) :
1. It is my understanding that New York City is the
only city in the country with a free higher
education system. If they would end the free
tuition policy at the City University, and
just establish the State University tuition
rate, for those who could afford it, it would
bring in about $60 million annually.
2. If the subway fare was raised 5¢ from 35¢ to 40¢,
this would bring an additional $50 million
annually.
3. By imposing a toll on the East River Bridges,
this could bring in about $50 million annually.
4. I am told by some that the City University salaries
are higher than those at Harvard, Yale and Prince-
ton, and if these salaries were reduced just to
the State University salary schedules, this would
bring in an additional $10 million annually.
re
5. If the employee contracts were/negotiated to
require them to make partial contribution to
the retirement fund, this would bring in $200
million a year. At the present time, the employees
make no contribution toward their retirement.
6. It is my understanding that the employees will
receive an 8% salary increase in the next fiscal
year. The President has proposed that all Federal
salaries be capped at 5%, and if the City of New
York went along with this and the employees went
along with this, each 1% saving would bring in $50
million or a total of $150 million would be saved.
There are a multitude of things the City of New York
could do to improve its financial situation in the
long run, but this will take some strong, stringent
measures by Mayor Beame and the City of New York.
I might point out that the City of New York's current
fiscal problems are nothing new. They have been
documented time and time again, as recently as October
1973, the State's Study Commission for New York City
issued a report listing their financial problems, and
in September 1974, the State's Charter Revision
Commission issued a lengthy report on this same subject.
(More)
PAGE 3
SIMON REJECTS NY FINANCIAL AID
If the Federal Government can bail out Lockheed and the Penn
Central, why can't the Federal Government help the second largest
government in the United States?
GUIDANCE: The two are not analagous. In both cases, legislation
was enacted.
In addition, talking about Lockheed, the dimensions
are obviously greater in the City of New York.
For the City of New York, we are talking about 3-1/2
billion dollars versus $250 million for Lockheed.
In addition, with the Penn Central, the company
went into receivership and Federal assistance was
not to meet the default conditions of the railroad,
but to keep the railroad running. In other words,
the Federal Government went in after default, not
before.
I might just point out what the Charter Commission said in
its recommendations report on the City Budget:
"The stark reality is that the City can no longer
afford to supply an unparalleled range of services
The City's revenue base is simply inadequate to support
all of its existing programs.
The City, on its own, must begin to review and prior-
itize its service commitments in light of limited
resources. Some extremely tough choices are required.
Perhaps the City can afford a subsidized transit
system, or expansion of the university system, or
perhaps a mammoth municipal hospital system or large
housing, durg abuse and social service programs, but
it cannot afford them all." "
LIBRARY
JGC
May 9, 1975
SUBJECT:
SIMON ADVISES NEW YORK OFFICIALS
NOT TO EXPECT FEDERAL BAILOUT
Secretary Simon, Chairman Burns, and other Administration
officials met Tuesday with Governor Carey, Mayor Beame,
and other New York officials to discuss the cash flow
problems of the city of New York. The meeting was a con-
tinuation of a series of staff meetings held over the past
several months.
What are the problems facing the city of New York, and what
were the New York officials asking the Federal Government to do?
GUIDANCE: It is my understanding that the city of New York,
in order to meet all its outstanding financial
obligations, will need about $1.5 billion between
now and the end. of June. They originally and
ordinarily would plan to go to the debt market
to raise the necessary capital through issuance
of bonds and notes, but because of a lack of
confidence by the banks and the investment
community in the city of New York, there is no
market for New York City's bonds. Therefore,
they have asked the Federal Government to purchase
those bonds which are not picked up in the market
place, thus meaning virtually picking up the entire
$1.5 billion in bonds.
What was the Administration's response to Governor Carey and
Mayor Beame?
GUIDANCE: I am told that Mr. Simon talked with New York
officials yesterday and told them that the only
solution available would require legislation,
and such legislation would be inconsistent with
our thoughts, and feel the responsibility lies
with the city and state of New York. Any Federal
bail-out of New York City would greatly interfere
with programs of fiscal responsibility now under
way throughout the country. They were advised
that it would not be fair to the taxpayers of the
49 states and the other cities of the United States
to provide assistance to the city of New York to
get them out of ten years of fiscal irresponsibility.
(More)
GCRAIL FORD LIBRARY
PAGE 2
SIMON ADVISES NEW YORK OFFICIALS
What have you advised New York to do?
GUIDANCE: I would like to point out that at the senior
staff level of the Administration, people at
the White House, the Treasury, and other Depart-
ments have been working for several months with
city and state officials of New York and the
financial community of New York trying to help
resolve these problems.
We hope that the city of New York will now take
the kind of strong, stringent measures which
reflect the financial condition of the city.
This means they must take decisive action to
cut back spending in order to demonstrate to
the bankers and to the financial community that
they are serious about curing the previous
ills which represent over ten years of fiscal
irresponsibility.
FYI: New York has $750 million in notes due
next week with an additional $750 million
due on June 11. This brings to $1.5 billion
they will need in the very near future.
Since they cannot sell bonds on the market
to raise cash, they are asking for Government
loans. END FYI.
JGC
LIBRARY
NY city
STATEMENT BY WILLIAM E. SIMON
Treasury Secretary William E. Simon announced today
that the Federal Government had decided not to provide the
special financial assistance which had been
requeste the City of New York. New York City Mayor
Abraham
were informed
Department
of the à to, Bill Seidman
of the Treasury
sted a meeting
with the
Assistant Secretary
uch a meeting
(Trade, Energy, and
will tal
5/12
Financial Resources
room,
date.
Policy Coordination)
Sec
onse to a
request
3 Washington
F.Y.I.
We issued the attached
meeting
rman Arthur
last Saturday night.
Burns 0
enior Adminis-
tration
Gerry Gerry Parsky
, Secretary
Simon S
ation to the
City's
nths. Treasury
Under
in
government
offici
leserve have
met fr.
Gerald L. Parsky
and with members
room 3321
of the
ext. 5164
meetings and
our own internal evaluation, we have
1 that not only
is the Federal Government's legal authority to provide
financial assistance limited, but also that such assistance
would not be appropriate. The fundamental solution to the
City's financial problems does not lie at the Federal level. "
STATEMENT BY WILLIAM E. SIMON
Treasury Secretary William E. Simon announced today
that the Federal Government had decided not to provide the
special financial assistance which had been
requested for the City of New York. New York City Mayor
Abraham Beame and New York Governor Hugh Carey were informed
of the decision Thursday, May 8, 1975 and requested a meeting
with the President to discuss this decision. Such a meeting
will take place on Tuesday May 13, 1975.
Secretary Simon's announcement came in response to a
request made by the Governor and the Mayor at a Washington
meeting Tuesday May 6 with the Secretary, Chairman Arthur
Burns of the Federal Reserve Board and other senior Adminis-
tration officials. Commenting on the decision, Secretary
Simon stated: "We have given careful consideration to the
City's financial situation for the past two months. Treasury
Under Secretary Jack F. Bennett, other senior government
officials and representatives of the Federal Reserve have
met frequently with City and State officials and with members
of the financial community. Based upon these meetings and
our own internal evaluation, we have concluded that not only
is the Federal Government's legal authority to provide
financial assistance limited, but also that such assistance
would not be appropriate. The fundamental solution to the
City's financial problems does not lie at the Federal level. 11
BERALD
ayaty
Principal Options for the Executive Branch Relative to
the Current Financing Problems of the City of New York
1. Inform the City promptly and definitively that additional
aid will not be forthcoming from the Administration.
2. Accelerate the timetable of available payments to states
and localities of some forms of federal assistance:
a) by offering Medicaid payments on the same estimated
outlay basis as Medicare payments. (The effect for
the City would probably be $75 million federal plus
a matching $37.5 million of state permanent assistance.
It is reported that the state may also be in a posi-
tion to advance $100 million of additional payments of
this type. Nationwide federal cost could be as high
as $.5 billion) And/or
b) by advancing the scheduled July 7 general revenue
sharing payments. (The total temporary advance
by the federal government would be about $1.3 billion,
of which the city would receive S64 million directly
and presumably, $57 million through the state.)
3. Join with New York officials in urging immediate passage by
the Congress of legislation authorizing the Treasury or the
Federal Financing Bank to lend to cities. (The bill proposed
by the city would authorize up to $5 billion.)
4. Urge the Federal Reserve to offer emergency loan assistance
to cities, including New York.
GERALD FORD LIBRARY
911119
Alan Holmes
Possible market consequences
The possible consequences of a default by New York City
on its note or bond obligations are difficult to predict, but it
seems reasonable to anticipate that general effects on the credit
markets would be confined to New York City's own issues and to
other issues regarded as having relatively weak credit standings.
It is not anticipated that there would be a widespread collapse of
the markets in State and local issues generally. A major unknown
in this analysis is the possible secondary effect that might stem
from a significant weakening of confidence in the large New York
City banks. The major banks hold sizable amounts of New York
City obligations and depositors could be fearful of the consequences
of the City banks facing large losses or significant liquidity problems.
While this result is a risk, it is by no means a foregone conclusion
or even a likelihood. Available information on the exposure of large
New York City banks does not suggest that such exposure is a major
proportion of capital. On the other hand, one cannot entirely dismiss
the possibility of "irrational reactions" in the financial community.
The immediate impact of a default on New York City would
be a further accentuation of the quality upgrading that has already
been in process, in the wake of continued discussions in the press
and financial community about New York City financial problems.
GERALE FORD LIBRARY
Upgrading of this type was very clear after the UDC's failure to
pay off maturing notes in February. The immediate impact then
was a sharp drop in prices of UDC obligations, other "moral
obligations" of New York State, and to some extent, New York
City obligations. On the other hand, New York State general
obligations were not affected; nor wcre the general obligations of
other well-regarded issuers. New York City general obligations
were affected adversely by UDC's experience because New York
City was another issuer that investors had come to regard with
scepticism.
Clearly, a default on a New York City obligation would
sharply cut prices on all New York City debt. Other cities that
are known to have financial problems such as Newark, Detroit,
Philadelphia--would also come under pressure. However, the
ability of well-regarded issuers to sell debt probably would not be
impaired. Demand for very high grade issues probably would
increase.
FORDO is LIBRARY
5/7/75
J.C. Partee
Possible economic consequences
A default on its note issues by New York City probably would
not have significantly adverse effects on the national economy, assuming
that the City is permitted to continue to meet payrolls and other current
expenses. An austerity program undoubtedly would be forced upon New York
City, and the resultant cutbacks over time in current activities would
tend to increase the already substantial unemployment problem in that
area. Some other hard-pressed communities and governmental entities,
adversely affected by increased investor sensitivity to the risk factor
in tax exempt securities, might also be compelled to curtail some activities
for lack of financing. But the scale of these direct impacts would be
very small relative to the overall economy.
Potentially more damaging to the economy would be the possible
psychological effects of a New York City default. Banks and other lenders
might tighten up on their credit standards generally. Consumers, confronted
with this new evidence of weakness in the financial structure of the
country, could become even more cautious in their spending behavior.
Markets for stocks and corporate bonds could suffer a reaction, with
selective declines in those issues judged to be of doubtful or marginal
quality. Such a reaction, if it developed, would obviously weaken the
prospects for recovery in business capital spending, construction, and
postponable consumer expenditures.
On balance, though, these adverse responses seem unlikely to
develop on any appreciable scale. The problems of New York City finances
GERALE FORD
-2-
1
have come to be increasingly widely recognized over recent weeks and
months, so that a default would come as no great surprise. The supply
of credit is generally abundant and liquidity is available through the
banks--and, if necessary, through the Federal Reserve- to cushion shocks
in particular markets that might occur. Reassuring statements could be
issued regarding the limited exposure to ultimate loss that banks and
other. institutionsal investors are likely to face with respect to this
and other municipal security holdings. Altogether, it should be possible
to make it rather quickly apparent to the public that the financial problem
of New York City is a localized one, without significant implications
for the health of the U.S. economy as a whole.
FORD di LIBRARY GERALD
5/7/75
J.C. Partee
Possible economic consequences
A default on its note issues by New York City probably would
not have significantly adverse effects on the national economy, assuming
that the City is permitted to continue to meet payrolls and other current
expenses. An austerity program undoubtedly would be forced upon New York
City, and the resultant cutbacks over time in current activities would
tend to increase the already substantial unemployment problem in that
area. Some other hard-pressed communities and governmental entities,
adversely affected by increased investor sensitivity to the risk factor
in tax exempt securities, might also be compelled to curtail some activities
for lack of financing. But the scale of these direct impacts would be
very small relative to the overall economy.
Potentially more damaging to the economy would be the possible
psychological effects of a New York City default. Banks and other lenders
might tighten up on their credit standards generally. Consumers, confronted
with this new evidence of weakness in the financial structure of the
country, could become even more cautious in their spending behavior.
Markets for stocks and corporate bonds could suffer a reaction, with
selective declines in those issues judged to be of doubtful or marginal
quality. Such a reaction, if it developed, would obviously weaken the
prospects for recovery in business capital spending, construction, and
postponable consumer expenditures.
On balance, though, these adverse responses seem unlikely to
develop on any appreciable scale. The problems of New York City finances
FORD : LIBRARY 93
E
-2-
1
have come to be increasingly widely recognized over recent weeks and
months, so that a default would come as no great surprise. The supply
of credit is generally abundant and liquidity is available through the
banks--and, if necessary, through the Federal Reserve- to cushion shocks
in particular markets that might occur. Reassuring statements could be
issued regarding the limited exposure to ultimate loss that banks and
other institutionsal investors are likely to face with respect to this
and other municipal security holdings. Altogether, it should be possible
to make it rather quickly apparent to the public that the financial problem
of New York City is a localized one, without significant implications
for the health of the U.S. economy as a whole.
FORD LIBRARY
New York City
Cash Account Data
I. Simplified Income Statement for Period May 8, 1975 -
June 30, 1975
Revenues (without borrowing)
Expenditures
Real Estate Tax
$64 MM
Payroll
$671 MM
General Taxes
381 MM
Welfare & other Social
Services
362 MM
Shared Taxes
& State Revenue
Hospitals & other
Sharing
649 MM
Agency Payments
130 MM
Welfare Payment
Benefits (pension)
102 MM
Reimbursements
323 MM
Debt Service
1,677 MM
Aid to Education
488 MM
Capital Projects
197 MM
Other State &
Vendor Payments
163 MM
Federal Aid.
25 MM
Total
$3,302 MM
Miscellaneous
15 MM
Total
$1,945 MM * / Total less Debt Service $1,625 MM
Total less Debt Service,
Capital Projects &
Vendor Payments
$1,265 MM
* As & technical legal matter, approximately $1 Billion of
this amount should be "segregated" -- i.e. escrowed -- for
retirement of short term debt issued in anticipation of
welfare, education and other revenues. However, to the
extent the City decides to deal with its problem by
suspending debt service payments, there is little reason
for it to continue segregating.
FORD LIBRARY
II.
Selected Major Expenditure Events
(not all inclusive)
Date
Purpose
Amount
May 23
Payroll - General
$90 MM
27
Welfare & Soc. Services
16 MM
28
Welfare & Soc. Services
5 MM
30
BAN Maturity
234 MM
30
Payroll, - Weekly
7 MM
June 2
Payroll - Teachers
97 MM
6
Payroll
90 MM
8
Payroll
6 MM
9
Payroll
41 MM
11
Note Maturities
792 MM
13
Pavroll
8 MM
15
Bond Debt Service
2 MM
16
Payroll
38 MM
20
Payroll
128 MM
F FORD FIBRARY
III. Effect of Suspending Certain Payments
1. If, as of May 8, NYC suspended debt service,
payments to vendors and contractors, and segregation
of revenues (including return to general fund of
amounts segregated to date) NYC could operate
without borrowing well into July.
2. If (1) were implemented in full on May 20,
NYC would run out of cash about July 1.
FORD & LIBRARY GERALD
Mr. Seidwan
THE WHITE HOUSE
comments please by 2:30
WASHINGTON
R.Dualam
May 12, 1975
MEMORANDUM CONCERNING NEW YORK CITY FINANCIAL CRISIS
The President will meet with Governor Carey and Mayor Beame
on Tuesday, May 13, 1975, concerning the possible insolvency
of New York City which could occur on or before May 23.
PROBLEM
The insolvency will occur unless the City can borrow on a
rolls, BAN maturities and other expenses.
short term basis by May 20 about $750 million mett to various pay-
Three major N.Y.C. banks have notified Mayor Beame, Governor
Carey and Secretary Simon that they cannot market New York
City short or long term debts in the amounts required over
the next 4 months.
BACKGROUND
There are three elements to the problem and the solution to
the short term financing problem lies in a credible and
realistic solution to the other two.
These are:
1. The City needs to borrow on a short term basis
about $3.5 billion before the end of August. wouldh used
These Tax anticipation notes to primarily finance the loves
City's cash flow until property or other payments
are received in major amounts in the Fall.
2. The City must adopt by July 1, a 1975-76 Budget
that is in balance. Mayor Beame states that
there is a gap of 600-800 million between estimated
expenditures and estimated income that must be
covered by new taxes, increased state or Federal
aid or city service cuts.
3. There is a long term imbalance between revenues and
expenses which lie at the heart of the problem.
GERALD FORD Johney
-2-
Over the last five years, City revenues (excluding State
and Federal aid) have grown at an average rate of about 8
percent. During the same period, however, expenditure
growth has averaged 15 percent.
This differential between revenues and expenditures has
been funded through the use of one time revenues, accounting
changes such as capitalizing current expenses, and increased
short term borrowing.
See Tab A for a description of the types of methods used
over the last few years which have caused the current lack
of confidence in City financial paper. Most of these methods
are well documented and in the public domain.
SOLUTION
Long Term
The solution to the short term financing problem is
to restore confidence in the integrity of and long
term balance of City revenues and expenditures.
The confidence of the financial community can probably
only be restored by extensive fiscal reform, a cut
back in the current level of services and expenditures,
and a long term demonstration of willingness on the
part of the City administration to live within the
available revenues.
See Tab B for an illustrative list of possible
current reductions.
See Tab C for a possible program to accomplish the
long term restoration of confidence, balance, and
reform.
Short Term
A reduction in City expenses for the 1975-76 fiscal
year and the adoption of a longer term solution can-
not realistically be accomplished within the next
two weeks.
It is unlikely that a program containing elements
of the above and possible some tax increases could
be accomplished much before June 30.
GERALD FORD LIBRARY
-3-
This leaves a cash need of the City for:
By May 15
$650 - 750 Million
By June 11
$750 - 850 Million
Total through June 30 $1.5 Billion
These short term funds will probably have to be provided
through:
A. Increased use of New York State credit.
bythe banks
B. Refinancing of current notes - $234 Million BAN's
and $792 Million of TAN's.
C. Or appeals to the Federal Reserve Board.
FURD JERANA
SOME COMMENTS ON THE CITY'S FISCAL SITUATION
The current fiscal imbalance situation has not developed
overnight but rather results from a series of decisions
made by both the Lindsay and Beame Administrations. The
central theme of these decisions has been the provision of
new and expanded services without regard to the present or
future ability of the City to finance them. In addition,
the ability of the City's powerful unions to extract ex-
orbitant wage settlements, coupled with ineffective lower
and middle management have contributed significantly to
the situation in which the City finds itself.
Some of the more significant fiscal practices which have
contributed to the City's predicament are outlined below.
1. Capitalization of operating expenses
An estimated $715 million of operating expenses are contained
in the City's $1.7 billion capital budget for 1974-75. The
City uses this device to reduce the need for tax levy monies
in a given fiscal year. This practice, however, has grown
to the point where it seriously erodes the City's ability to
finance needed capital improvements to its aging and deterior-
ating physical plant (e.g. housing). Further, this practice,
while legal, inevitably costs the taxpayer about 15 to 20
percent more over time because of the interest payments on
the borrowed funds. Examples in 1973-74 budget, the entire
cost of the vocational education program (estimated at $148
million) was transferred from the operating budget to the
capital budget through a technical loophole in the law.
2. Rapid growth of debt service
Indicative of the City's growing reliance on both long and
short term borrowings to achieve a "balanced" budget, the
City's debt service payments will consume an estimated 16
percent or $1.8 billion of the expense budget for 1974-75
(up from 11.2 percent or $1.2 billion 1973-74). The
magnitude of these payments impedes the City's ability to
provide essential services and contribute to the use of
fiscal gimmicks to balance the budget.
GERALD FORD CIBRARY
- 2 -
3. Underfunding pension cost
A series of articles in the New York Daily News last spring
(3/25/74), indicated that the City may be seriously under-
funding its entire pension program. The analysis noted that
many of the actuarial assumptions have not been modified
since they were made in 1917. This practice, coupled with
the lucrative pension benefits agreed to by City officials
and increases in the City's labor force have caused pension
payments to jump from $465 million in 1972-73 to an estimated
$1.1 billion in 1974-75
Dr. Bernard Jump of Syracuse University's Maxwell School
indicated that retirement cost increases of $700 to $900
million per year (including social security) could reasonably
be expected over the next seven years.
In addition, the Fire Department Pension fund is currently
$200 million in arrears because of an impasse among members
of the fund's Board of Trustees as to the respective respon-
sibilities which the employees and the City should assume
in making payments to liquidate the deficit.
Despite these factors, the City took advantage of some fiscal
gimmickry to use $125 million of "excess" income in the
Employees Retirement System to help "balance" the 1974-75
budget.
4. Underfunding collective bargaining settlements
In each of the last two fiscal years the City has underfunded
the cost of its collective bargaining settlements by about
$100 to $150 million annually. Essentially, the City assumes
that contracts negotiated in one fiscal year, e.g., 1973-74,
won't be settled until the following year, e.g., 1974-75. This
allows the 1973-74 costs of such contracts to be paid retro-
actively through bonds issued under the "judgements and claims"
provision of the City Charter and the State Finance Law. The
effect on relative expenditure levels in the following year,
e.g., 1974-75, is to double count the cost of the collective
bargaining increase as the amount allocated doubles to meet
the base year (1973-74) salaries plus the second year (1974-75)
cost increases.
GERATO FORD LIBRARY
- 3 -
This practice also permits the City to grant salary increases
in excess of what they might normally provide since there is
little effect on the City tax levy funds in the base year.
5. Placing certain expenditures on a cash basis
Although the City normally operates on an accrual basis,
they have been able to generate some one-time savings by
placing certain expenditures on a cash basis. For example,
if the last pay period of City FY 1973-74 actually includes
5 working days of the new fiscal year, an accrual system would
require counting all the expenditures in 1973-74. By switching
to a cash basis, however, the City charges only 5 days expense
to the 1973-74 fiscal year with the remaining 5 days expense
chargeable to the following fiscal year. While an ingenious
strategy, it has one major drawback - viz. in 1977, according
to City officials, the accrual pay period and the cash pay
period will end on the last day of the City fiscal year
(June 30). Thus, the City will, in effect, be faced with
an extra or 27th pay period instead of the normal 26 periods.
6. Funding from one-time sources
The foregoing is but one example of the growing tendency of
the City to resort to one-time sources to balance the budget.
In CFY 1974-75 about $450 million in such sources were used.
In addition to the use of pension fund interest ($125 million)
and the accrual to cash accounting ($32 million) noted above,
other devices totalled $297 million.
The use of these financing measures to support ongoing operating
expenses means that a substantial portion of the programs in
the 1974-75 budget had no dependable future support. Thus as
the 1975-76 budget is drafted, the City will face the prospect
of cutting the programs, finding some source of ongoing
support, e.g., borrowing, increasing local taxes or getting
additional State or Federal Aid and/or devising a new series
of one-shot gimmicks.
LIBRARY
Tab B
Illustrative List of Possible Expenditure
Changes in 1975-76 Budget
1.
End free tuition at City University
Establish State University tuition rate, for those who
can afford it.
$million
138,000 students
60+
2.
Reduce work force. Say 10,000 employees.
average salary
$11,000
fringe benefits
3,300
$14,300
10,000 X $14,300
143
3.
Raise subway fares $0.05
From 35 to . 40
50
4.
Tolls on East River Bridges
50
5.
Charge Day Care according to Federal
standards
15
6.
Reduce City University salaries to State
University salary rates
10
7.
Renegotiate employee contracts to require
partial --- 20% contribution of employees to the
retirement
200
8.
Reduction in primary and secondary education
costs
100
9.
State takeover of city court system
120
10.
State takeover of correction system
(tax levy cost)
90
11.
Reduction in levels of free hospital services
($340 million tax levy)
100
12.
No increase in pay levels under pending
AIRRARY GERALD
negotiations
350-400
Tab C
Elements of a Fiscal Improvement
Program for New York City
1.
Phase out the use of long-term borrowing to finance operating
expenses over a 5 to 10 year period by amendments to the Local
Finance Law. This should include requirements for disclosure
of all such items now included in the capital budget or "outside
the certificate."
2.
Reduction of the City's short-term debt position in line with a
plan for the next 12 to 18 months. This should include a program
of improved advances/reimbursements of State and Federal aid.
3.
Improvements in the City's financial accounting and reporting
systems by means including:
Work toward adoption of MFOA principles and standards
Install improved accounting systems
4.
Installation of a long-range fiscal planning process (3 to 5 years)
for City expenditures and -- in so far as feasible -- revenues.
5.
Establish a City-State fiscal commission to review aid programs,
shared financing of operating programs, etc., along the lines
of the Mayor's proposal.
FORD FIBRARY
THE WHITE HOUSE
WASHINGTON
MEETING WITH GOVERNOR HUGH CAREY
AND MAYOR ABE BEAME
Tuesday, May 13, 1975
2:00 p.m. (45 minutes)
The Oval Office
From:
Jim Cannon
Jain
I.
PURPOSE
This meeting was requested by Governor Carey and
Mayor Beame to apprise you of the fiscal crisis that
New York City faces in the next two weeks and to appeal
Secretary Simon's decision not to support legislation
giving Treasury authority to loan New York City Federal
funds.
This will provide you an opportunity to explain to them
the problems the Federal government would have if it were
to consider the fiscal crisis of one major municipality
without at the same time considering the fiscal crisis of
all other state and municipal governments who are experienc-
ing similar financial difficulties. In addition, you
may want to point out to the Mayor that you recognize that
the current fiscal crisis has not developed overnight but
rather results from a long series of decisions which has
now precipitated this crisis.
II.
BACKGROUND, PARTICIPANTS & PRESS PLAN
A. Background: Attached at Tab A is a brief
memorandum Dick Dunham has put together
covering the New York City problem. Also
attached (Tab B) is a summary of Treasury's
views on the impact of the problem.
This morning Jerry Jones passed on your
request for additional budget information
on New York City. We are in the process
of pulling that together.
FORD LIBRARY
2
B.
Participants:
The Vice President, Governor
Carey, Mayor Beame, Secretary Simon, Bill
Seidman, Jim Lynn, Alan Greenspan, Jim Cannon,
Dick Dunham, and Secretary Dunlop.
C. Press Plan: To be announced. Photo opportunity.
Options
1.
Immediate announcement by statement
through Ron Nessen. Draft statement being
revised by Paul Theis, is at Tab C.
2.
Ron Nessen and Jim Lynn to brief press
on what happened at the meeting and to make
clear the President's position.
3.
President himself to go to briefing room
and summarize statement for the cameras. Leave
and have Ron Nessen or Jim Lynn brief on the
meeting and take questions.
4.
The President considers the request from
Mayor Beame and Governor Carey for 24 hours,
then announces his decision, or have Jim Lynn
announce it.
Domestic Council staff recommends Option 3.
III.
TALKING POINTS
1.
I have followed the situation closely and
I am fully aware of your fiscal problem.
2.
I am very sympathetic with your plight
and very sympathetic with the people of New
York City. You are up against a hard pro-
blem.
3.
Call on Governor Carey.
4.
Call on Mayor Beame
FORD
GERALD
LIBRARY
LIBRARY
FORD
&
THE WHITE HOUSE
WASHINGTON
May 12, 1975
MEMORANDUM CONCERNING NEW YORK CITY FINANCIAL CRISIS
The President will meet with Governor Carey and Mayor Beame
on Tuesday, May 13, 1975, concerning the possible insolvency
of New York City which could occur on or before May 23.
PROBLEM
The insolvency will occur unless the City can borrow on a
short term basis by May 20 about $750 million to meet
various payrolls, BAN*maturities and other expenses.
Three major N.Y.C. banks have notified Mayor Beame, Governor
Carey and Secretary Simon that they cannot market New York
City short or long term debts in the amounts required over
the next 4 months.
BACKGROUND
There are three elements to the problem and the solution to
the short term financing problem lies in a credible and
realistic solution to the other two.
These are:
1. The City needs to borrow on a short term basis
about $3.5 billion before the end of August.
These tax anticipation notes would be used to
finance the City's cash flow until property
taxes or other payments are received in major
amounts in the Fall.
2. The City must adopt by July 1, a 1975-76 Budget
that is in balance. Mayor Beame states that
there is a gap of $600-800 million between esti-
mated expenditures and estimated income that
must be covered by new taxes, increased State
or Federal aid or city service cuts.
3. There is a long term imbalance between revenues
and expenses which lie at the heart of the problem.
* *Bond Anticipation Notes
TORO
GERAED
LIBRARY
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Over the last five years, City revenues (excluding State
and Federal aid) have grown at an average rate of about 8
percent. During the same period, however, expenditure
growth has averaged 15 percent.
This differential between revenues and expenditures has
been funded through the use of one time revenues, accounting
changes such as capitalizing current expenses, and increased
short term borrowing.
See Tab A for a description of the types of methods used
over the last few years which have caused the current lack
of confidence in City financial paper. Most of these methods
are well documented and in the public domain.
SOLUTION
Long Term
The solution to the short term financing problem is
to restore confidence in the integrity of and long
term balance of City revenues and expenditures.
The confidence of the financial community can probably
only be restored by extensive fiscal reform, a cut
back in the current level of services and expenditures,
and a long term demonstration of willingness on the
part of the City administration to live within the
available revenues.
See Tab B for an illustrative list of possible
current reductions.
See Tab C for a possible program to accomplish the
long term restoration of confidence, balance, and
reform.
Short Term
A reduction in City expenses for the 1975-76 fiscal
year and the adoption of a longer term solution can-
not realistically be accomplished within the next
two weeks.
It is unlikely that a program containing elements
of the above and possibly some tax increases could
be accomplished much before June 30.
FORD
GERALD
LIBRARY
This leaves a cash need of the City for:
By May 15
$650 - 750 Million
By June 11
$750 - 850 Million
Total through June 30 $1.5 Billion
These short term funds will probably have to be provided
through:
A. Increased use of New York State credit.
B. Refinancing by the Banks of current notes -
$234 Million BAN's*and $792 Million of TAN's.**
C. Or appeals to the Federal Reserve Board.
* Bond Anticipation Notes
** Tax Anticipation Notes
BERALD
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LIBRARY
FORD
GERALD
SOME COMMENTS ON THE CITY'S FISCAL SITUATION
The current fiscal imbalance situation has not developed
overnight but rather results from a series of decisions
made by both the Lindsay and Beame Administrations. The
central theme of these decisions has been the provision of
new and expanded services without regard to the present or
future ability of the City to finance them. In addition,
the ability of the City's powerful unions to extract ex-
orbitant wage settlements, coupled with ineffective lower
and middle management have contributed significantly to
the situation in which the City finds itself.
Some of the more significant fiscal practices which have
contributed to the City's predicament are outlined below.
1. Capitalization of operating expenses
An estimated $715 million of operating expenses are contained
in the City's $1.7 billion capital budget for 1974-75. The
City uses this device to reduce the need for tax levy monies
in a given fiscal year. This practice, however, has grown
to the point where it seriously erodes the City's ability to
finance needed capital improvements to its aging and deterior-
ating physical plant (e.g. housing). Further, this practice,
while legal, inevitably costs the taxpayer about 15 to 20
percent more over time because of the interest payments on
the borrowed funds. Examples in 1973-74 budget, the entire
cost of the vocational education program (estimated at $148
million) was transferred from the operating budget to the
capital budget through a technical loophole in the law.
2. Rapid growth of debt service
Indicative of the City's growing reliance on both long and
short term borrowings to achieve a "balanced" budget, the
City's debt service payments will consume an estimated 16
percent or $1.8 billion of the expense budget for 1974-75
(up from 11.2 percent or $1.2 billion 1973-74) - The
magnitude of these payments impedes the City's ability to
provide essential services and contribute to the use of
fiscal gimmicks to balance the budget.
FORD
GERALD
LIBRARY
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3. Underfunding pension cost
A series of articles in the New York Daily News last spring
(3/25/74), indicated that the City may be seriously under-
funding its entire pension program. The analysis noted that
many of the actuarial assumptions have not been modified
since they were made in 1917. This practice, coupled with
the lucrative pension benefits agreed to by City officials
and increases in the City's labor force have caused pension
payments to jump from $465 million in 1972-73 to an estimated
$1.1 billion in 1974-75
Dr. Bernard Jump of Syracuse University's Maxwell School
indicated that retirement cost increases of $700 to $900
million per year (including social security) could reasonably
be expected over the next seven years.
In addition, the Fire Department Pension fund is currently
$200 million in arrears because of an impasse among members
of the fund's Board of Trustees as to the respective respon-
sibilities which the employees and the City should assume
in making payments to liquidate the deficit.
Despite these factors, the City took advantage of some fiscal
gimmickry to use $125 million of "excess" income in the
Employees Retirement System to help "balance" the 1974-75
budget.
4. Underfunding collective bargaining settlements
In each of the last two fiscal years the City has underfunded
the cost of its collective bargaining settlements by about
$100 to $150 million annually. Essentially, the City assumes
that contracts negotiated in one fiscal year, e.g., 1973-74,
won't be settled until the following year, e.g., 1974-75. This
allows the 1973-74 costs of such contracts to be paid retro-
actively through bonds issued under the "judgements and claims"
provision of the City Charter and the State Finance Law. The
effect on relative expenditure levels in the following year,
e.g., 1974-75, is to double count the cost of the collective
bargaining increase as the amount allocated doubles to meet
the base year (1973-74) salaries plus the second year (1974-75)
cost increases.
GERALO FORD LIBRARY
3
This practice also permits the City to grant salary increases
in excess of what they might normally provide since there is
little effect on the City tax levy funds in the base year.
5. Placing certain expenditures on a cash basis
Although the City normally operates on an accrual basis,
they have been able to generate some one-time savings by
placing certain expenditures on a cash basis. For example,
if the last pay period of City FY 1973-74 actually includes
5 working days of the new fiscal year, an accrual system would
require counting all the expenditures in 1973-74. By switching
to a cash basis, however, the City charges only 5 days expense
to the 1973-74 fiscal year with the remaining 5 days expense
chargeable to the following fiscal year. While an ingenious
strategy, it has one major drawback - viz. in 1977, according
to City officials, the accrual pay period and the cash pay
period will end on the last day of the City fiscal year
(June 30). Thus, the City will, in effect, be faced with
an extra or 27th pay period instead of the normal 26 periods.
6. Funding from one-time sources
The foregoing is but one example of the growing tendency of
the City to resort to one-time sources to balance the budget.
In CFY 1974-75 about $450 million in such sources were used.
In addition to the use of pension fund interest ($125 million)
and the accrual to cash accounting ($32 million) noted above,
other devices totalled $297 million.
The use of these financing measures to support ongoing operating
expenses means that a substantial portion of the programs in
the 1974-75 budget had no dependable future support. Thus as
the 1975-76 budget is drafted, the City will face the prospect
of cutting the programs, finding some source of ongoing
support, e.g., borrowing, increasing local taxes or getting
additional State or Federal Aid and/or devising a new series
of one-shot gimmicks.
GERALD FORD LIBRARY
LIBRARI FORD
GERALD
+
Illustrative List of Possible Expenditure
Changes in 1975-76 Budget
1.
End free tuition at City University
Establish State University tuition rate, for those who
can afford it.
$million
138,000 students
60+
2.
Reduce work force. Say 10,000 employees.
average salary
$11,000
fringe benefits
3,300
$14,300
10,000 X $14,300
143
3.
Raise subway fares $0.05
From 35 to 40
50
4.
Tolls on East River Bridges
50
5.
Charge Day Care according to Federal
standards
15
6.
Reduce City University salaries to State
University salary rates
10
7.
Renegotiate employee contracts to require
partial -- 20% contribution of employees to the
retirement
200
8.
Reduction in primary and secondary education
costs
100
9.
State takeover of city court system
120
10.
State takeover of correction system
(tax levy cost)
90
11.
Reduction in levels of free hospital services
($340 million tax levy)
100
12.
No increase in pay levels under pending
negotiations
350-400
GERALD FORD LIBRARY
Elements of a Fiscal Improvement
Program for New York City
1.
Phase out the use of long-term borrowing to finance operating
expenses over a 5 to 10 year period by amendments to the Local
Finance Law. This should include requirements for disclosure
of all such items now included in the capital budget or "outside
the certificate."
2.
Reduction of the City's short-term debt position in line with a
plan for the next 12 to 18 months. This should include a program
of improved advances/reimbursements of State and Federal aid.
3.
Improvements in the City's financial accounting and reporting
systems by means including:
Work toward adoption of MFOA principles and standards
Install improved accounting systems
4.
Installation of a long-range fiscal planning process (3 to 5 years)
for City expenditures and -- in so far as feasible -- revenues.
5.
Establish a City-State fiscal commission to review aid programs,
shared financing of operating programs, etc., along the lines
of the Mayor's proposal.
FORD i LIBRARY GERALD
/
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/
FORD
Proposed Comments on the Consequences of a Default
by New York
Robert A. Gerard, Director
Office of Capital Markets Policy - TREASURY
There is little doubt that a default by NYC would
have a substantial psychological impact on the municipal
market and the capital markets generally, NYC accounts
for 25% of the short term tax-exempt market; its total
outstanding debt is $12-13 billion. A default on even
a single note issue would severely reduce the market
values of all NYC securities, if it did not close the
market entirely.
On the other hand, the cataclysm threatened by some
City officials and some bankers is unlikely. NYC banks
hold approximately $1.25 billion of NYC securities,
slightly more than 1% of their total assets. To the
extent a default created liquidity problems for one or more
banks, the Fed would undoubtedly step in with loans.
There could be serious hardship to individual investors
who need to convert to cash, but, if the City took proper
measures, it would be short lived.
A default could trigger the kind of radical fiscal
action by the City which is required. Such action could
induce the banking community -- probably with the blessing
of the Fed -- to provide the City with the cash to cure
the default and conduct its affairs until enough tangible
evidence of progress exists to return to the public market.
Alan Holmes, Vice President
Federal Reserve Bank - New York City
The possible consequences of a default by New York City
on its note or bond obligations are difficult to predict, but it
seems reasonable to anticipate that general effects on the
credit markets would be confined to NYC's own issues and to
other issues regarded as having relatively weak credit standings.
It is not anticipated that there would be a widespread collapse
of the markets in State and local issues generally.
A major unknown in this analysis is the possible secondary
effect that might stem from a significant weakening of con-
fidence in the large New York City banks. The major banks
hold sizable amounts of NYC obligations and depositors could
be feared of the consequences of the City banks facing large
losses or significant liquidity problems. While this result
is a risk, it is by no means a foregone conclusion or even
a likelihood. Available information on the exposure of large
GERALD, FORD LIBRARY
2
New York City banks does not suggest that such exposure
is a major proportion of capital. On the other hand, one
cannot entirely dismiss the possibility of "irrational
reactions" in the financial community.
J.C. Partee, Managing Director
for Research & Economic Policy - Federal Reserve Board
A default on its note issues by New York City probably would
not have significantly adverse effects on the national economy,
assuming that the City is permitted to continue to meet pay-
rolls and other current expenses. An austerity program un-
doubtedly would be forced upon New York City, and the resultant
cutbacks over time in current activities would tend to increase
the already substantial unemployment problem in that area.
Some other hard-pressed communities and governmental entities,
adversely affected by increased investor sensitivity to the
risk factor in tax exempt securities, might also be compelled
to curtail some activities for lack of financing. But the
scale of these direct impacts would be very small relative
to the overall economy.
Potentially more damaging to the economy would be the
possible psychological effects of a New York City default.
Banks and other lenders might tighten up on their credit
standards generally. Consumers, confronted with this new
evidence of weakness in the financial structure of the
country, could become even more cautious in their spending
behavior. Markets for stocks and corporate bonds could
suffer a reaction, with selective declines in those issues
judged to be of doubtful or marginal quality. Such a
reaction, if it developed, would obviously weaken the
prospects for recovery in business capital spending, con-
struction, and postponable consumer expenditures.
FORD i LIBRARY GERALD
New York City faces a financial crisis, and I am
sympathetic to Governor Carey and Mayor Beame and all
of the residents of our largest city.
Although New York City's fiscal problems are enormous,
they come down to this:
The city has been living beyond its means for many
years. The cost of the services the City provides has
been rising almost twice as fast as the City's capacity to
pay for them. The difference between annual income and
outgo has been made up in large part by borrowing -- and
now the size of New York City's debts are so great that
banks are finding it difficult to extend credit to New
York City.
But the problem is not new. The New York City
fiscal situation was analyzed by a non-partisan State Study
Commission for New York City and also by the State Charter
Revision Committee for New York City. Both concluded, in
effect, that the City's revenue base, big as it is, is
simply not large enough to finance all the services that
New York City provides.
There is a way out of this dilemma, and I have
been pointing to it: Fiscal responsibility, for cities,
states, and the Federal government.
FORD is LIBRARY GERALD
know how hard it is to reduce or postpone worthy
and desirable public programs. Every family who makes up
a budget has to make painful choices. As we make these
choices at home, SO also must we make them in public office
too. We must stop promising more and more services
without knowing how we will cover their costs.
Above all, it seems to he, we must play fair with the
public. The extent to which the Federal Government can
or should redistribute revenues among the States and
cities is limited by standards of equity. The extent
to which States can or should subsidize cities is also
limited. And the taxpayer, on whom the whole pyramid
rests, can only carry so much. It is fruitless to promise
him more than he is willing to pay for.
FORD H LIBRARY 9ERALD
THE WHITE HOUSE
WASHINGTON
June 21, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. William Seidman PWS
SUBJECT:
New York City Financial Situation
Attached for your information is a memorandum which the
Economic Policy Board requested Treasury to prepare on
the New York City financial situation.
Att.
GREATE FORD
OF
THE TREASURY THE
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
1739
ASSISTANT SECRETARY
MEMORANDUM TO THE ECONOMIC POLICY BOARD
From:
Gerald L. Parsky
Assistant Secretary
yrs
Subject:
New York City Financial Situation
On June 10, New York State created the Municipal
Assistance Corporation ("MAC") primarily to refinance a
portion of New York City's short term debt. Although
the formation of MAC has clearly bought the City some time,
a number of fundamental issues remain to be resolved.
Current Cash-Flow Situation
Today (June 11) $792 million in short term paper
matured. The City will meet this obligation as follows:
$280 Million -- One year, 8% loan from New York
Clearing House banks
$100 Million - .
Short term "bridge" loan from
MAC. The NYCH banks will lend
these funds to MAC at a 5.75%
rate.
$200 Million --
Advance by State of unspecified
future payments. The NYCH
banks will lend these funds to
the State to fund this advance.
Balance
-- Cash on hand, including normal
cash flow, increased by pre-
payment of real estate taxes,
slow payment of suppliers and
employees, etc.
LIBRARY
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In connection with the $280 million loan transaction,
the banks received a letter from Mayor Beame and Comptroller
Goldin to the effect that the City will be able to meet
other obligations (including note maturities) through
June 30, the end of this fiscal year.
Description of MAC
Financing Authority. MAC is a New York corporation
with authority to borrow up to $3 billion and to use the
proceeds to retire short term securities of the City and
to pay operating expenses. It is anticipated that these
funds will be used to retire the short term debt maturing
between July 1 and September 30 (approximately $1.2 billion)
and to fund past advances used to retire the short term
debt maturing between April 1 and June 30, 1975.
MAC's borrowings will be secured by a first claim on
the City sales tax and the stock transfer tax. These taxes,
which now yield approximately $1 billion per year, should
be adequate to provide the $300 - 400 million necessary to
fund debt service and to pay MAC's expenses. In addition,
the enabling legislation includes language creating a
"moral obligation" on the part of the State Legislature to
fund any shortfall in the debt service reserve.
Structure and Non-Financial Authority
MAC is administered by a nine-person board, five members
selected by the Governor and four by the Mayor (most observers
were pleased at the high quality of the Mayor's initial selec-
tions). The legislation also authorize other State officials
to designate non-voting representatives to MAC.
Substantively, the legislation requires the City to
improve its financial record-keeping and, more importantly,
confers upon MAC stringent responsibility to review and
supervise all of the City's financial activities. Specifically,
the City must
1. bring its accounting into compliance with
generally accepted principles;
2. permit record inspection by MAC and an annual
independent audit;
LIBRARY
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3. obtain MAC approval of its expense budget;
4. phase out use of the capital budget for
current expenses;
5. report to MAC on revenue and expenditure
plans for each quarter and explain deviations
from such plans in past quarters; and
6. obtain MAC approval for budget changes.
In addition, the legislation establishes a complex
formula, the effect of which is to limit severely net new
short term borrowing by the City and to place even more
stringent limits on short term borrowing to be retired
by means other than long term debt (i.e., tax and revenue
anticipation notes which, in the past, have provided the
principal vehicle for increasing the short term borrowing
load).
Enforcement Authority
Because MAC will reach its lending limits within
months, it will not be able to enforce compliance with its
directives by withholding funds from the City. The legis-
lation does authorize MAC to veto new City short term
borrowing, but only on the ground that such borrowing would
violate the dollar amount ceiling. Finally, MAC is
authorized to obtain court injunctions to force the City
to comply with the legislation.
As a practical matter, however, whatever long term
benefits MAC provides are likely to derive from its per-
vasive role in the City's budget process and its ability
to expose and critize deviations from the mandates of the
legislation or sound fiscal principles. This opportunity
in turn depends upon keeping MAC non-political. As suggested
above, the first selections provide a basis for optimism in
this regard.
Remaining Issues
The limited nature of the direct MAC contribution must
be emphasized. Under the legislation MAC will not:
LIBRARY
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1. Balance the F.Y. 1975-76 Budget. While the
"official" gap remains $641 million, most
observers believe the real figure is closer
to $850 million. Moreover, this higher
figure does not reflect the fact that sales
tax revenues of $300 - 400 million will be
paid to MAC, not to the City. When this
revenue loss is factored in, the actual
shortfall exceeds $1 billion. A final plan
of expenditure cuts and new revenues to close
the gap has not been adopted.
2. Meet a Major Portion of F.Y. 1975-76 Borrowing
Needs. After netting out MAC-financed retire-
ments, it is estimated that the City will still
have to issue in excess of $4 billion in short
term notes and $1.2 billion in long term bonds.
While much of the short term borrowing represents
refunding, it is anticipated that there will be
a short term borrowing increase of as much as
$1 billion, primarily to finance the F.Y. 1974-75
deficit.
Accordingly, between now and late fall, the City and
MAC will have to make enough progress toward long term
fiscal reform to reopen the public market. The $3 billion
reduction in short term debt outstanding will help, but
will be insufficient standing alone. If the market is to
be more receptive in December than it was in May (as it
must to prevent a recurrence of the cash flow crisis) a
credible F.Y. 1975-76 balanced budget and substantial
progress in the areas outlined by the legislation are a
necessity.
May 7, 1975
SUBJECT:
NY OFFICIALS MEET WITH SIMON
AND OTHER TREASURY OFFICIALS
Why did Secretary Simon meet with Governor Carey and Mayor
Beahme yesterday?
GUIDANCE: Secretary Simon, Chairman Burns, Governor Carey,
Mayor Beahme, NY City Controller Goldwin and
members of their staffs met yesterday, together
with representatives of New York banks, to bring
each other up-to-date on the cash flow problems
of New York City. The meeting was a continuation
of a series of staff meetings held over the past
several months.
Did Secretary Simon make any commitments?
GUIDANCE: I know of none, but you should talk with Treasury
if you wish additional information.
Was Mr. Seidman present?
GUIDANCE: Yes
FORD LIBRARY
JGC
[6-75?]
Simon Tells Mayors
Bill to Help Cities
Will Be Restudied
By a WALL STREET JOURNAL Staff Reporter
WASHINGTON - The Ford administra-
tion will "take another look at" a legislative
proposal that would channel extra federal
aid to cities hard-hit by recession, Treasury
Secretary William Simon said.
A group of about 120 mayors meeting at
the White House asked the administration to
reconsider its opposition to the measure,
which is pending in the Senate. As currently
drafted. it would provide up to $2 billion to
cities whose unemployment rate exceeded
6.5% of the labor force. Mr. Simon told re-
porters after the meeting that he and James
Lynn. director of the office of management
and budget, promised to restudy the pro-
posal.
The Treasury Secretary declined to "pre-
judge" the outcome of the reconsideration.
however, and he reiterated the administra-
tion's strong opposition to the bill in its pres-
ent form.
Mayor Ralph Perk of Cleveland, chair-
man of a Republican mayors' group, said he
believes perhaps a 10% unemployment-rate
trigger might be "less inflationary," but he
emphasized that he didn't expect any com-
mitment from Mr. Simon at this stage on &
possible compromise.
At the outset of the mayors' meeting,
President Ford cautioned against seeking
changes in the formula for apportioning
general revenue-sharing funds-the no-
strings aid the federal government distrib-
utes to state and local governments.
Many members of Congress still oppose
general revenue sharing, Mr. Ford said,
warning that "if we tinker with the for-
mula." the lawmakers might reject extend-
ing the program when it expires in Decem-
ber 1976.
The current formula includes population,
need and local tax effort. but there has been
considerable support for an adjustment that
would permit needier cities to receive more
money.
Again expressing optimism about the
economic outlook. Mr. Ford observed that
the nation had been through a "rough time"
and wasn't "totally out of the weeds yet."
However, he said. all the economic indica-
tors are improving and "It adds up to the
fact that America is going to start bounding
upward." As the nation's economy im-
proves. so will the financial situation of the
cities, Mr. Ford said.
FORD & GERALD LIBRARY
FYI
THE
New York Stock
Exchange
May 22, 1975
Needham
Officer
Mr. L. William Siedman
Assistant for Economic Affairs
Executive Office of the
President
The White House
1600 Pennsylvania Ave. , N.W.
Washington, D.C. 20500
Dear Mr. Siedman:
For your information enclosed is a letter which was
hand delivered to Mayor Abraham Beame yesterday
reaffirming the Exchange's unequivocal opposition
to proposed increases in the New York State Stock
Transfer tax.
As outlined in the letter, these increases would be
counterproductive to New York City and State as they
would lead to a significant loss of jobs and revenues,
both of which the City can ill afford at this time.
Sincerely,
James Jim J. Needham
FORD LIBRARY
Prock Exchange, Eleven/Wall Street New York New York 10005
THE
New York Stock
Exchange
Needham
and
Honorable Abraham Beame
May 21, 1975
ecutive Officer
Mayor of the City of New York
City Hall
New York, New York
By Messenger
Dear Abe:
In light of discussions which we have had with you and
with legislative leaders in Albany, I want to reaffirm
the New York Stock Exchange's unequivocal opposition to
the various proposals to increase the New York State
Stock Transfer taxes.
As you know, I believe very strongly that any increase
in stock transfer taxes would be counterproductive for
the City and State and would seriously erode New York
City's historic position as the financial center of the
World.
The City will not receive the projected revenues from
an increase in transfer tax rates, since investors can
and will avoid any transfer tax by moving their securi-
ties transactions out of New York. As a result, New
York City will sustain a reduction in transfer tax
revenues accompanied by a loss of upwards to 20,000
jobs in the securities industry and related industries
principally in lower Manhattan and a resultant loss of
other state and city tax revenues.
The economic and competitive environment in the securi-
ties industry is vastly different today than it was a
few years and even a few weeks ago. Developments underway
to intensify competition between the markets are dis-
cussed in detail in the enclosed memorandum on the
Analysis of the Consequences of an Increase in the
Stock Transfer Taxes," copies of which have been pre-
viously supplied to you and your staff.
Since May 1, stock exchange members are no longer permitted
to charge a fixed commission rate, but are now required
New York Stock Exchange, inc. Eleven Wall Street New York, New York 10005
ANALYSIS OF THE CONSEQUENCES
OF AN INCREASE IN THE
STOCK TRANSFER TAX
New York Stock Exchange, Inc.
THE
New York Stock
Research Department
Exchange
April 16, 1975
rund GERARY
ARTHUR OCHS SULZBERGER
Publisher
JOHN 5. OAKES, Editorial Page Editor
The New York Times
A. H. RASKIN, Assistant Editorial Page Editor
Monnaine
Editor
Founded in 1351
N.Y. CITY
ADOLPH S. OCHS, Publisher 1396-1935
ARTHUR HAYS SULZBERGER, Publisher 1935-1061
ORVIL E. DRYFOOS, Publisher 1951-1963
THE WHITE HOUSE
washington
Date June 4,
Home Misrule
TO:
WILLIAM SEIDMAN
Mayor Beame reportedly has strongly endorsed Gov-
ernor Carey's proposal for a new state agency to take
FROM:
over a portion of New York City's crushing short-term
JIM
FALK
7
debt burden. Mr. Beame continues to insist, however,
that the new agency must not encroach on "home rule."
That is a reservation We would normally endorse
XX
For your information
wholeheartedly. Unfortunately, the city authorities have
forfeited their right to press it. Nobody in his right mind
would-or advance to: this city the billions. of
For your appropriate handling
dollars it must have to meet its obligations over the next
few months without insisting on drastic changes in the
fiscal policies that have made New York a national model
For your review and comment
of municipal mismanagement.
Although the controls to be exercised by the proposed
Return to me
new Municipal Assistance Corporation have yet to be
disclosed in detail, they will have to be sweeping if they
Return to file
are to carry conviction with the Legislature, the Federal
authorities and the financial community, all of whom
will have to join in advancing the needed cash.
Return to central files
Governor Carey has made it clear that his appointees
will dominate the new corporation which City Controller
Goldin has correctly described as the "only way" left, to
avoid bankruptcy. This does entail a humiliating transfer
of power and responsibility, but the shift has been made
Comments:
the Mayor's persistence, in the face of
overwhelming evidence of acute and deep-rooted crisis,
in seeking to befog the fiscal picture and to avoid the
tough decisions needed to bring municipał revenues and
spending into honest balance.
Even now, with New York in imminent peril of default
on its obligations, Mr. Beame continues to play politics
of the most cynical and ruthless kind with the city's
future. His whole approach to cutting the budget has
been straight out of Frankenstein, its aim to terrify the
community by concentrating cuts of intolerable dimen-
sions in indispensable services. Singled out for particu-
larly punitive treatment have been those districts served
by seven Republican State Senators, all in line with the
Mayor's brazen bid to bully his opponents into compro-
mises that would prolong and deepen the city's funda-
mental fiscal stress.
Mindless encouragement for this charade has come
THE NEW YORK TIMES, WEDNESDAY, JUNE 4. 1975
from Democratic leaders in the City Council and Board
of Estimate, whose own long-time neglect of budgetary
responsibilities has significantly contributed to the pres-
ent shameful slide into dependence on rescue by Albany.
New Yorkers are not likely to regain effective home
GERALD FORD LIBRARY
rule until this era of misrule is ended-or, as City Club
chairman Joel Harnett has suggested, until the Mayor
who professes to "know the buck" stops passing it.
June 21, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. William Seidman
SUBJECT:
New York City Financial Situation
Attached for your information is a memorandum which the
Economic Policy Board requested Treasury to prepare on
the New York City financial situation.
Att.
LWS:RBP:k
CHRON
FORD is LIBRARY GERALD