Ask the Scholar

{
    "localId": "75501934",
    "label": "New York City, November 1975 - July 1976 (3)",
    "core": "doc",
    "dtoType": "document",
    "citationUrl": "https://catalog.archives.gov/id/75501934"
}

{
    "id": "75501934",
    "sourceUrl": "https://catalog.archives.gov/id/75501934",
    "contentType": "document",
    "title": "New York City, November 1975 - July 1976 (3)",
    "citationUrl": "https://catalog.archives.gov/id/75501934",
    "collections": [
        "L. William Seidman Files (Ford Administration)",
        "William Seidman's Economic Policy Board Subject Files"
    ],
    "subjects": [
        "New York City financial crisis"
    ],
    "iiifBase": "https://s3.us-east-1.amazonaws.com/NARAprodstorage/lz/presidential-libraries/ford/grf-0117/644163/75501934.pdf",
    "thumbnailUrl": "https://s3.us-east-1.amazonaws.com/NARAprodstorage/lz/presidential-libraries/ford/grf-0117/644163/75501934.pdf",
    "largeImageUrl": "https://s3.us-east-1.amazonaws.com/NARAprodstorage/lz/presidential-libraries/ford/grf-0117/644163/75501934.pdf",
    "imageCount": 1,
    "hasImages": true,
    "source": "import",
    "hasTranscription": false
}

{
    "url": "https://catalog.archives.gov/id/75501934",
    "naId": 75501934,
    "coverageEndDate": {
        "logicalDate": "1976-07-31",
        "month": 7,
        "year": 1976
    },
    "coverageStartDate": {
        "logicalDate": "1975-11-01",
        "month": 11,
        "year": 1975
    },
    "levelOfDescription": "fileUnit",
    "recordType": "description",
    "ocrSource": "nara-archive"
}

{
    "seq": 1,
    "pageIndex": 0,
    "type": "document",
    "url": "https://s3.us-east-1.amazonaws.com/NARAprodstorage/lz/presidential-libraries/ford/grf-0117/644163/75501934.pdf",
    "mediaId": "c55030158d5f939b",
    "ocrText": "The original documents are located in Box 79, folder \"New York City, November 1975\n- July 1976 (3)\" of the L. William Seidman Files at the Gerald R. Ford Presidential\nLibrary.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 79 of the L. William Seidman Files at the Gerald R. Ford Presidential Library\nTHE SECRETARY OF THE TREASURY\nWASHINGTON 20220\nNovember 14, 1975\nMEMORANDUM FOR THE PRESIDENT\nSubject: New York Plan\nGovernor Carcy; Felix Rohatyn, Chairman of MAC; Stanley\nSteingut, Speaker of the State Assembly; Warren Anderson,\nMajority Leader of the State Senate; and other New York officials\npresented the outlines of a plan designed to meet the financial\nneeds of New York City, New York State, and the New York State\nagencies.\n(1) Summary of the Plan\nThe plan involves measures to:\n(a) Force a restructuring of New York City's short-term\ndebt.\n(b) Generate $200 million of new city tax revenues.\n(c) Provide $2.5 billion in new loans to the City from the\ncity pension funds.\n(d) Reduce City contributions to employee pension funds by\nrequiring contributions from the employees, thus reducing\nby $85 million City expenditures; and restructure the\nemployee pension plans.\n(e) Generate sufficient State tax revenues (estimated by\nGovernor Carey at $600-700 million) to balance the\nState's budget.\n(f) Provide State funding for the Housing Finance Agency\nto strengthen its financial condition.\n(g) Force a balancing of New York City's budget by fiscal\nyear 1978.\n(h) Reduce welfare and social service costs.\nGERALA FORD LIBRARY\n- 2\n(2) Proposed Federal Role\nThe Federal Government has been asked to provide seasonal\nfinancing on a short-term, self-liquidating basis. For FY 1976,\napproximately $1.3 billion would be required during the period\nDecember 1975 - March 1976, to be repaid by June 30, 1976. For\nFY 1977 and FY 1978 the need in the July-March period would peak\nat $2.3 billion in March. In each of these fiscal years, the\nentire amount would be repaid by June 30.\n(3) Discussion of the Plan\n(a) New York City\nThe key elements of the plan are a restructuring of New York\nCity's short-term debt and substantial commitments of new cash from\nthe union pension funds. The debt restructuring is in two parts.\nFirst, the banks and other institutional investors have agreed\nto exchange their short-term New York City notes for ten-year\nCity bonds carrying an interest rate of six percent. Secondly,\nthey have agreed to refinance their holdings of MAC bonds to\nreduce the cash flow drain on the City. These understandings\nare contained in letters to MAC from the major New York banks\nand certain union leaders.\nIndividual holders of short-term City notes (who hold\n$1.6 billion) will be offered a long-term (10-15 year) MAC\nbond, carrying an 8-9 percent interest rate. Holders who do not\naccept the exchange will be subject, pursuant to new legislation\nthe Governor is introducing, to a three-year moratorium on their\nright to enforce the terms of notes: that is, their ability to\ncollect principal and interest at maturity. This approach is\nmodeled on the anti-mortgage foreclosure legislation used by\nNew York and other States during the depression.\nNew loans of $2.5 billion through FY 1978 will be provided\nfrom the city employee pension funds. This commitment, as well\nas a commitment to restructure their existing holdings of MAC\nsecurities and City notes, is reflected in a letter to MAC signed\nby the heads of the Teachers, Municipal Employee, and Sanitation-\nmen's unions.\nThe plan also includes legislation for new City taxes of $200\nmillion and changes in certain pension fund arrangements relieving\nthe City of $85 million in contribution obligations.\nGERALH\n- 3 -\n(b) New York State\nThe key aspect of the State plan is new state taxes to\neliminate the $700 million deficit estimated for the fiscal year\nending March 31, 1976. At our meeting, Governor Carey was not\nspecific as to what types of tax measures might be taken.\nMoreover - - and perhaps more importantly -- Senate Majority\nLeader Anderson refused to accept the $700 million figure and\nwas extremely vague as to whether he would support new taxes as\nopposed to expenditure cuts. The problem with the expenditure\ncut approach over the short term is that it easily lends itself\nto gimmickry, such as merely deferring certain outlays into the\nfollowing fiscal year.\nThe Governor also indicated that he will seek to achieve\nreductions in the welfare and social services area. He was vague\nas to whether these reductions would come through legislation,\nadministrative actions or both.\nThe State has no concrete plans for meeting the $4 billion\nseasonal borrowing requirement it faces in April-June 1976.\nHowever, if the overall plan were put in place, it would appear\nlikely that the State would have access to the market to meet\nthis need. And as a fallback, the $11-plus billion in State\nemployee pension plans could be tapped.\n(c) State Agencies\nTwo major steps are being taken with respect to the agencies.\nFirst, no new projects will be undertaken. Second, the Governor\nis proposing legislation of the type requested by the banking\ncommunity to bolster the finances of the Housing Finance Agency.\nEven if the legislation is adopted, however, the banks have not\nagreed to meet the agencies' financing needs, which amount to\napproximately $2.5 billion over the next two years. The state has\ntentatively identified sources (pension funds, etc.) for approxi-\nmately $1.8 billion; it hopes to persuade the banks to take the\nrest.\nEvaluation of Plan\nWith respect to the City portion, the plan is basically\nthe Administration's bankruptcy proposal by another name. Like\nour proposal, short-term noteholders will not be paid in cash,\nbut will get long-term bonds (or the equivalent) instead. As\nwould have been the case under our plan, the Emergency Financial\nControl Board will run the City.\n- 4 -\nWhether the plan succeeds largely depends on two factors.\nFirst, if any element of the legislation is whittled back by the\nLegislature - - c.g., fudging on the amount of the State's deficit\nor the amount of new taxes - - the existing commitments may not be\nkept and, more importantly, the market - - essential for the State\nin April - - may not be persuaded that the State has in fact done\nwhat is necessary.\nEqually important is the public's perception -- over the\nnext six months -- of how the State and City are being managed.\nIf reforms continue at their current pace, the problem may be\nsolved. If not, the problem may be as great by April or May as\nfears return that the State will have to commit more of its\ncredit toward helping the City.\nTimetable\nWe were asked for an answer by Monday but they have been\nadvised that we will give them an answer as soon as possible.\nAs a practical matter, time is of the essence: (1) The U.S.\nCongress, which may need to act on this matter is planning to\nrecess November 21; and, (2) The restructuring of the short-\nterm debt must be accomplished by December 10. Because of the\ncomplexity of the restructuring arrangment, at least two weeks\nwill be required for this to take place.\nWe have made a summary of the plan without any policy comment\nand distributed it to Congressional leaders for their review over\nthe weekend. We would secure their reaction on Monday while you\nare in Europe. When you return, you would then have the oppor-\ntunity to consult with the Congress on Tuesday and could then\nannounce a decision if you wish.\nOptions\nOption One. To turn down the request for federal assistance\nand recommend that actions be taken at the state\nor local level.\nOption Two. Agree to support legislation (copy attached)\nauthorizing federal assistance to meet seasonal\nborrowing needs with any or all of the following\nconditions and any others to be determined:\n(a) That it is limited to $1.5 billion with\nbroad authority to revoke assistance if\nstate and city action fails to meet\nspecified conditions.\nGERALD\n- 5 -\n(b) That the Governor of New York provides us\nwith written assurance that no further\nrequests for assistance for the City, State,\nor for any of its agencies will be forth-\ncoming.\n(c) That the substance of such a letter be\nembodied in a resolution of the state\nlegislature.\nOption Three. Seek agreement from private financial institutions\nto provide financing for City's seasonal needs\nand support legislation (copy attached) enabling\nus to secure such financing with future Federal\npayments otherwise due the State and City.\nThese are three basic options available to you. If you are\nconsidering Option Two, you have various alternatives with respect\nto timing. You could:\n(a) Indicate that you will not consider any form of assistance\nuntil the State Legislature has acted.\n(b) Describe the kind of Federal assistance you will consider,\nbut state that you will not reach a decision until after\nthe State Legislature has acted.\n(c) Announce you have decided to provide assistance as\ndescribed above if the Legislature acts in accordance\nwith the plan.\nAttached are the following background material:\nTab A. Letters from the Governor, MAC, Union Leaders and\nFinancial Institutions.\nTab B. Draft legislation to provide direct federal assistance.\nTab C. Draft legislation to secure loans by private institution\nTab D. Additional cash flow requirements, subject to further\nrefinement.\nStephen S. Gardner\nGERALD 1020 LIBRARY\nfinaloging\nNovember 14, 1975\nMEMORANDUM FOR MAX FRIEDERSDORF\nFROM:\nSTEPHEN S. GARDNER\nSUBJECT:\nNew York Plan\nGovernor Carey, Felix Rohatyn, Chairman of MAC, Stanely Stein-\ngut, Speaker of the State Assembly, Warren Anderson, Majority\nLeader of the State Senate, and other New York officials pre-\nsented the outlines of a plan designed to meet the financial\nneeds of New York City, New York State, and the New York State\nagencies.\n1. Summary of the Plan\nThe plan involves measures to:\nA. Force a restructuring of New York City's short term\ndebt.\nB. Generate $200 million of new city tax revenues.\nC. Provide $2.5 billion in new loans to the City from\nthe city pension funds.\nD. Reduce City contributions to employee pension funds\nby requiring contributions from the employees thus\nreducing by $85 million City expenditures and restruc-\nturing the employee pension plans.\nE. Generate sufficient State tax revenues (estimated by\nGovernor Carey at $600-700 million) to balance the\nState's budget.\nF. Provide State funding for the Housing Finance Agency\nto strengthen its financial condition.\nG. Force a balancing of New York City's budget in the\nfiscal year 1977-78\nH. Reduce welfare and social service costs.\nGERALDA\nLIBRARY\n2\n2. Proposed Federal Role\nThe Federal Government has been asked to provide seasonal\nfinancing on a short term, self-liquidating, basis. For\nFY 1976, approximately $1.3 billion would be required\nduring the period December 1975-March 1976, to be repaid\nby June 30, 1976. For FY 1977 and FY 1978 the July-March\nneed would peak at $2.3 billion in March, and the entire\namount to be repaid by June 30 of each of these fiscal years.\n3. Details of the Plan\nA. New York City\nThe key elements of the plan are a restructuring of\nNew York City's short term debt and substantial commitments\nof new cash from the union pension funds. The debt restruc-\nturing is in two parts. First, the banks and other institu-\ntional investors have agreed to exchange their short term\nNew York City notes for ten year City bonds carrying an\ninterest rate of six percent. Secondly, they have agreed\nto refinance their holdings of MAC bonds to reduce the cash\nflow drain on the City. These understandings are contained\nin letters to MAC from the major New York banks and certain\nunion leaders.\nIndividual short term City noteholders (who hold $1.6 billion)\nwill be offered a long term (10-15 year) MAC bond, carrying\nan 8-9 percent interest rate. Holders who do not accept the\nexchange will be subject, pursuant to new legislation the\nGovernor is introducing, to a three year moratorium on their\nright to enforce the terms of notes: that is, their ability\nto collect principal and interest at maturity. This approach\nis modeled on the anti-mortgage foreclosure legislation used\nby New York and other States during the depression.\nNew loans of $2.5 billion through FY 1978 will be provided\nfrom the city employee pension funds. This commitment, as\nwell as a commitment to restructure their existing holdings\nof MAC securities and City notes is reflected in a letter to\nMAC signed by the heads of the Teachers, Municipal Employee,\nand Sanitationmen's unions.\nThe plan also includes legislation for new City taxes of $200\nmillion and changes in certain persion fund arrangement re-\nlieving the City of $85 million in contribution obligations.\nB.\nNew York State\nThe key element of the State plan is new state taxes and\nexpenditure reductions to eliminate the $700 million deficit\nestimated for the fiscal year ending March 31, 1976.\n3\nThe Governor indicated that he will seek to achieve reduc-\ntions in the welfare and social service expenditures.\nC. State Agencies\nTwo major steps are prepared for State agencies. First,\nno new projects will be undertaken. Second, the Governor is\nproposing legislation of the type requested by the banking\ncommunity to bolster the finances of the Housing Finance\nAgency.\nGERAL\nSUBRARY\nSTATE OF NEW YORK\nEXECUTIVE CHAMBER\nALBANY 12224\nHUGH L. CAREY\nGOVERNOR\nNovember 14, 1975\nDear Mr. Secretary:\nI am writing in keeping with our recent conversations\nconcerning the financial program presented by the New York\nState Municipal Assistance Corporation to meet the severe\nfiscal crisis facing New York City, as well as the proposals\nput forth by State officials to meet the needs of the agencies\nand underlying credit of New York State itself.\nToday, you will receive from the Chairman of the Municipal\nAssistance Corporation the documents prepared by the various\ncommercial banks and representatives of organized labor in\nNew York City. These documents should serve to fulfill the\nstated Federal requirement that these elements of the MAC plan\nhave been brought to the level of a commitment to the extent\nconsistant with the legal and moral responsibilities of the\nsignatories.\nFor my part, as Governor of the State of New York, I have\nsought to meet the Federal requirements as understood in our\nconversations. Yesterday I called the State Legislature into\nan Extraordinary Session to meet the fiscal problems of both\nthe State and City of New York.\nIn meeting with the Legislative Leaders I presented them\nwith a legislative package to accomplish for the State the\nfollowing:\nLIBRARY GERALD\n-2-\nFirst, every step necessary will be taken to close the\ngap in the State's budget. The Comptroller of the State has\ninformed me and the Legislative Leaders that in his opinion,\nand that of his staff, the State's current deficit will fall\nbetween $600 and $700 million this fiscal year. Accordingly,\nI am sending to the legislature a tax package that will raise\nrevenues sufficient to close that gap.\nSecondly, I have informed the Legislative Leaders that\nI shall seek the authority necessary to introduce further\neconomies in State expenditures. At the outset, I shall seek\na series of measures that the State and its' localities can\nundertake in order to reduce social service, i.e. welfare,\nand Medicaid expenditures in the coming year. By a series of\nreductions in the scope and level of funding of our programs\nI hope to achieve a Statewide savings of over $500 million.\nThird, for the State \"moral obligation\" agencies, I will\npresent legislation to both stregthen their reserves as well\nas to remove those few programs whose adequacy as to underlying\nsecurity and revenues might be questioned only under the most\nrigorous review. This legislation will require an appropriation\nof $130 million. For the moment, I am pleased that we have\nsucceeded in keeping the Housing Finance Agency from default for\nanother 30 day period, mainly through the investment of certain\nfunds under the custody of the State Comptroller.\nFourth, I shall introduce legislation that will have the\neffect of freezing salary schedules for the period of one year\nof all employees of New York State and its agencies.\nTo meet the fiscal problems facing the City of New York,\nI shall do the following:\nFirst, to accomplish the exchange of short-term City notes\nin the hands of individual investors into long-term MAC bonds,\nI shall introduce legislation that would place a 3-year mora-\ntorium on the claims of those who do not participate in the\nexchange.\nSecondly, I have informed the Legislative Leaders that\nlegislation will be introduced to increase the revenues raised\nin, and available to, the City by $200 million.\n-3-\nThird, I shall introduce legislation necessary to accomplish\nthe increase in city employee contributions to the pension system\nin the amount of $85 million -- an amount agreed to in documents\nyou have received today.\nThis is a program that has my full commitment as Governor.\nWe in New York State have, I believe, brought to bear every\nresource at our command to find a solution in the face of an\nextraordinary and historic financial crisis. There is still a\nneed, however, which can only be met by Federal assistance.\nSincerely,\nHonorable William E. Simon\nSecretary of the Treasury\nDepartment of the Treasury\n15th Street and Pennsylvania Avenue, N.W.\nWashington, D. C. 20220\nLIBRARY\nMUNICIPAL ASSISTANCE CORPORATION\nFOR THE CITY OF NEW YORK\n2 World Trade Center\nNew York, New York 10047\nNovember 13, 1975\nThe Honorable William E. Simon\nSecretary of the Treasury\nWashington, D.C.\nDear Mr. Secretary:\nPursuant to your request to the Governor on November 12th,\nI am pleased to enclose copies of conditional commitments\nreceived to date from the various New York City banks, and\nfrom the leadership of the various City unions, who have\nbeen asked to participate substantially in the Three-Year\nFinancial Plan For New York City.\nWe are submitting the enclosed letters pursuant to your\nrequest that, to the extent and as rapidly as possible, we\nreduce to writing the commitments required from the various\nparticipants in the Three-Year Financial Plan. As these\nletters are reduced to final agreements, the legalities\nmay require changes in the form, but we hope not the sub-\nstance, of the outlined transactions.\nIn view of the time constraints involved, these letters\nare in the form of letters of intent rather than formal\nlegal commitments. They relate to the new cash investments\nin the City, and the interest reductions and maturity\nadjustments on oustanding City and MAC obligations, referred\nto in the City financial section of the Three-Year Plan,\na copy of which is enclosed for your convenience.\nWe understand that the Governor will communicate with you\nseparately with respect to the fiscal and State Agency\nportions of the Plan.\nCARD LIBRARY\nPage Two\nThe Governor has called the New York State Legislature\nback into its continuing extraordinary session today in\norder to consider and adopt the moritorium legislation\nwhich we have discussed with you.\nPursuant to the proposed moritorium legislation, the\nMunicipal Assistance Corporation is currently readying\nan Official Statement by which it plans to offer to\nexchange its bonds for maturing notes of The City of\nNew York. The first of these exchange offers is scheduled\nto commence on or about Tuesday, November 18th. A\npreliminary Official Statement is enclosed.\nAs you will understand, the program referred to in the\nenclosed materials is conditional upon the availability\nof Federal governmental assistance and upon the completion\nof the November financings. In this connection, you\nshould know that we have not yet received any commitment\nwith respect to the availability of $150,000,000 of the\nState appropriation scheduled to be paid on November 21, 1975.\nThank you for your courtesy and helpfulness.\nRespectfully submitted,\nChairman of the Board\nFGR:ek\nEnclosure\nFORD LIBRARY\nNovember 13, 1975\nMr. Felix G. Rohatyn\nChairman\nMunicipal Assistance Corporation\n2 World Trade Center\nNew York, New York 10047\nDear Mr. Rohatyn:\nThe undersigned are aware that the Trustees of the Municipal\nEmployees Retirement Systems are presently considering the\ninvestment of $2.5 billion in new securities as part of an\noverall program to meet the needs of the City of New York\nbetween now and the end of fiscal year 1977-78 and are\nconsidering agreeing to a conversion of MAC securities\npresently held by these systems to a new MAC issue of\n6%, 10 year bonds and to a conversion of city notes held by\nthe systems for a new city issue of 6%, 10 year bonds.\nThe aggregate amount of securities to be converted is\n$1.2 billion.\nThe undersigned agree to use their best efforts to cause\nthe Trustees to approve, in the exercise of their discretion,\nthe items referred to above.\nThe undersigned understand that the Federal and State\ngovernments require that the ITHP portion of the City's\ncontribution to the systems be reduced by 50%. This will\nincrease the employees' annual contributions by $107 million.\nThe above commitments are subject to the completion of a\nfinancial package assuring funding of the City government\nthrough Fiscal Year 1977-78, including the Federal\nguarantees of securities, or other Federal funding, required\nto complete the financial package.\nSincerely,\nJain E. Defury Joes\nVictor Gorbaum\nJohn J. Delury\nExecutive Director, District Council 37\nPresident, Uniformed\nalbert shanker, J.B.\nSanitationmen's\nAlbert Shanker, President\nAssociation, Local 831\nLocal 2, United Federation of Teachers\nI.B.T.\nMORGAN GUARANTY TRUST COMPANY\nOF NEW YORK\n23 WALL STREET, NEW YORK, N.Y. 10015\nNewYork\nNovember 13, 1975\nELLMORE C. PATTERSON\nChairman of the Board\nMr. Felix Rohatyn, Chairman\nMunicipal Assistance Corporation\nfor the City of New York\nc/o Lazard Freres & Co.\n1 Rockefeller Plaza\nNew York, N. Y.\nDear Mr. Rohatyn:\nYou asked for a response from this bank and the other\nNew York City Clearing House banks with respect to certain as-\npects of the Three-Year Financial Plan for New York City, New York\nState Agencies and New York State dated November 10, 1975 (the\n\"Plan\"), a copy of which was given to an officer of this bank last\nevening. We have had the benefit of a meeting this morning with\nyou and the other Clearing House banks at which the Plan was dis-\ncussed and specific requests were made of us.\nIn response to the specific requests, and subject to the\nconditions listed below, I can advise you that this bank would be\nprepared to convert its present holdings of MAC securities to 6 per-\ncent MAC bonds maturing in 10 years, to extend our present holdings\nof New York City notes to 10 years at 6 percent, and to participate in up\nto $2.5 billion \"seasonal\" financing for the City of New York that\nnecessarily must be Federally guaranteed.\nThe following conditions are integral to this response:\n1. Any securities of either MAC or New York City must,\nsatisfactorily to us, be approved as to legality and documentation.\n2. We must reserve our right to reconsider our response if\nat any time prior to or during the implementation of the Plan there\nis any default on securities issued by the State, the City or a State\nagency. We would not consider a moratorium on payment of prin-\ncipal on City notes, so long as MAC bonds are offered in exchange,\nas a default for this purpose.\nMORGAN GUARANTY TRUST COMPANY\nOF NEW YORK\nMr. Felix Rohatyn, Chairman\nMunicipal Assistance Corporation\nfor the City of New York\n- 2\nNovember 13, 1975\n3. All other members of the Clearing House respond affirm-\natively and participate in the Plan on substantially the same basis.\n4. All parts of the Plan are committed to by the appropriate\nparties, including the State executive and legislative leaders, the\nCity executive and legislative leaders, City union officials, and the\nofficials of MAC and the City Control Board. Federal executive and\nlegislative leaders indicate support of Federal guarantee of the financ-\ning of the City's \"seasonal\" borrowing needs. Appropriate concrete\nactions at the appropriate City, State and Federal levels should accom-\npany any actual steps taken by this bank.\nWe understand that an essential part of the program is the\nsuccessful exchange of MAC securities for notes held by holders other than\nClearing House banks and City pension funds. We do think it preferable\nthat the banks and pension funds receive MAC bonds for City notes on the\nsame basis as other note holders and urge that serious consideration be\ngiven to that possibility.\nWe would also like to express our concern about the need to\nfinance the estimated $2.5 billion State agency requirements in full, and\nthis bank's unwillingness to participate in any such financing except with\nFederal guarantees or assistance. We also have concern about the approx-\nimately $4 billion short-term financing requirements of the State itself in\nthe Spring and the desirability of prearranging the availability of that amount\nof credit. It is our present belief that Federal assistance may well be\nnecessary for that purpose.\nVery truly yours,\nEllmar Putterson\nMANUFACTURERS HANOVER TRUST COMPANY\nI+I\n350 PARK AVENUE. NEW YORK, N.Y. 10022\nGABRIEL HAUGE\nCHAIRMAN OF THE BOARD\nNovember 13, 1975\nMr. Felix G. Rohatyn\nChairman of the Board\nMunicipal Assistance Corporation\nc/o Lazard Freres & Co.\nOne Rockefeller Plaza\nNew York, New York\nDear Sir:\nWe have reviewed the document dated November 10,\n1975 and entitled \"Summary of Three-Year Financial Plan\nfor New York City, New York State Agencies and New York\nState\" prepared by you and delivered to us today. In\nconnection with the Financial Plan, we understand that\nthe member banks of the New York Clearing House Associa-\ntion are being requested to agree in principle to the\nfollowing:\n1. Conversion of present holdings of approx-\nimately $1,050,000,000 MAC securities to 6% Bonds maturing\nin 10 years.\n2. Extension of approximately $550,000,000 of\nNew York City Notes to 10 years at 6%.\n3. Providing New York City with up to $2,500,000,000\nof \"seasonal\" financing.\nThis letter is to advise you that we are agreeable\nin principle to the provisions of paragraphs] and 2 above\non the following conditions:\nMr. Felix G. Rohatyn\n-2- -\nNovember 13, 1975\n(a) New York State, New York State Agencies\nand New York City shall not be in default on any of their\nrespective obligations at the time these provisions of\nthe Financial Plan are implemented.\n(b) State Agency financial needs referred to\nin Paragraph B of Section II of the Financial Plan will be\nprovided without the assistance of this institution.\n(c) This institution shall be satisfied as to\nall legal, documentary and similar facets of the Financial\nPlan prior to its implementation.\n(d) The portions of the Financial Plan which\ncontemplate direct or indirect funding by organizations\nother than the member banks of the New York Clearing House\nAssociation are agreed to by such organizations and all\nother steps relating to the improvement of the financial\nand fiscal condition of New York State and New York City\nreferred to in the Financial Plan have been adopted by\nthe New York State Legislature.\n(e) All member banks of the New York Clearing\nHouse Association agree to participate in these portions of\nthe Financial Plan subject to conditions acceptable to such\nbanks.\nWith respect to paragraph 3 above, this is to\nadvise you that this institution would be willing to par-\nticipate in a syndicate consisting at a minimum of all\nMr. Felix G. Rohatyn\n-3-\nNovember 13, 1975\nmember banks of the New York Clearing House Association\norganized for the purpose of providing New York City with\nup to $2,500,000,000 of \"seasonal\" financing subject to\nthe condition that such financing be guaranteed by the\nFederal Government.\nFinally, we note that Paragraph B of Section III\nof the Financial Plan entitled \"Short-Term Financing Re-\nquirements - State Fiscal Year 1976-77\" indicates that\n\"it is only realistic to anticipate the need for some\nFederal sponsorship for the New York State seasonal bor-\nrowings early in 1976.\" We concur in this conclusion.\nSincerely yours,\nSabril\nGERALD FORD LIBRARY\nUNITED STATES TRUST COMPANY\nOF NEW YORK\n45 WALL STREET NEW YORK, N. Y. 10005\n212-425-4500\nCHARLES W. BUEK\nChairman of the Board\nand\nPresident\nNovember 13, 1975\nDear Mr. Rohatyn:\nRe: Financial Plan Dated 11/13/75 Submitted to the\nMember Banks of the New York Clearing House\nIn response to your request this morning for advice as to our\nposition on the above proposal, I am glad to give you our advice as to\nthe four principal requests as summarized on the first page of the\nFinancial Plan.\nWe point out that we believe it undesirable to consider making\nplans for The City of New York alone as proposed in the first three\nrequests without making some provision for the New York State Housing\nFinance Agency and other State agencies referred to in request four of\nthe Financial Plan, and we shall not participate in such request.\nThe Trust Company, as a member of the New York Clearing House,\nagrees to participate in the first three requests set forth, subject to the\nfollowing conditions:\na.\nNeither the State of New York, any of its agencies, nor the\nCity is in default on any of its obligations at the time the\nFinancial Plan is implemented.\nb.\nThe proposal for financing New York State Agencies,\nincluding item four of the Financial Plan, must be\nprovided by sources other than the New York Clearing\nHouse Banks.\nc.\nWe shall participate in the loans to meet the City's needs\nfor \"seasonal\" financing (currently estimated at two and\n&\none-half billion dollars), but only if the Federal Government\nguarantees all of such loans.\nGERALD FORD CIBRANT\nUNITED STATES TRUST COMPANY\n01 New YORK\nMr. Felix G. Rohatyn\n2\nNovember 13, 1975\nd.\nThe legality and documentation of all aspects of the\nFinancial Plan must be satisfactory to us and our\ncounsel.\ne.\nAll the parties involved in the package constituting the\nfirst three requests must agree to such package.\nf.\nEach other member bank of the New York Clearing House\nshall have accepted the foregoing conditions.\nSincerely,\nCharles\nChairman\nUnited States Trust Company\nof New York\nMr. Felix G. Rohatyn\nChairman\nMunicipal Assistance Corporation\nfor the City of New York\nLazard, Freres & Company\nOne Rockefeller Plaza\nNew York, New York 10020\nLIBRARY\nNational Dand:\nof North America\nNovember 13, 1975\nMr. Felix G. Rohatyn, Chairman\nMunicipal Assistance Corporation\nWorld Trade Center\nNew York, New York\nDear Mr. Rohatyn:\nWe are pleased to respond to the proposals\nmade by you in furtherance of the plans set forth in\nthe \"Summary of Three Year Financial Plan for New\nYork City, New York State Agencies, and New York\nState\" dated November 10, 1975.\nNational Bank of North America would be\nwilling to convert its present holdings of Municipal\nAssistance Corporation securities, amounting to\napproximately $21,000,000, to 6% bonds of the Municipal\nAssistance Corporation payable over a period of ten\nyears, and to extend the maturities of its present\nholdings of New York City notes, amounting to approxi-\nmately $8,000,000, to maturities of ten years, bearing\ninterest at 6% per annum. In addition, National Bank\nof North America would be willing to assist in the\nunderwriting, during the next three years, of up to\n$2,500,000,000 of short term New York City obligations,\nprovided such obligations are guaranteed by the federal\ngovernment.\nOur willingness to move forward with the\nproposals made by you, as outlined above, is subject\nto the following conditions:\n1. All of the other elements of the Summary\nGERALA FORD LIBRARY\nWall Street Office\n44 Wall Street, New York, New York 10005 (212) 623-4000\nNational Bank\nof North America\nMr. Felix G. Rohatyn, Chairman\nMunicipal Assistance Corporation\n2.\nNovember 13, 1975\nwill be implemented prior to the time we are expected\nto take the actions described above.\n2. All of the other member banks of the\nNew York City Clearing House will join in the actions\nwe are to take.\n3. Neither the State nor the City nor any\nagency of the State will be in default in any of its\nobligations at the time the plan is implemented.\n4. The financial needs of State Agencies\ndescribed in the Summary will be provided for, including\nthe amount described as \"Remainder to be Financed.\"\n5. The Federal Government will agree to\nguarantee financing for the seasonal needs of New\nYork City, up to $2,500,000,000, for the next three\nyears.\n6. We and our counsel shall be satisfied\nwith the legality of, and documentation for, all of\nthe actions required for the plans described in the\nSummary.\nVery truly yours,\nWalter E. Van der Waag\nVice Chairman of the Board\nGERALD\nIRVING TRUST COMPANY\nONE WALL STREET\nNEW YORK, N.Y. 10015\nJOSEPH A. RICE\nPRESIDENT\nNovember 13, 1975\nMr. Felix Rohatyn\nLazard Freres & Co.\nOne Rockefeller Plaza\nNew York, New York 10020\nDear Mr. Rohatyn:\nThis letter responds to a proposal for participation\nby the New York Clearing House Banks and others in the financial\nplan set forth in a memorandum entitled \"Summary of Three Year\nFinancial Plan for New York City, New York State Agencies,\nand New York State\" dated November 10, 1975.\nWe are prepared to:\n(a) convert our present holdings of securities of\nthe Municipal Assistance Corporation to 6% bonds maturing in\nten years;\n(b) extend to ten years the maturities of New York\nCity notes which we now hold, such extended notes (or equivalent\nobligations) to bear interest at the annual rate of 6%; and\n(c) consider participating in up to $2.5 billion of\n\"seasonal\" financing to the City to bridge the gap between\nincoming City revenues and payouts of salaries and other\nobligations, but only if the City's obligations are guaranteed\nas to principal and interest by the Federal government.\nThe foregoing is subject to the following conditions:\n(a) neither the State, any State agency or the City\nis in default at the time of any such conversion, extension\nor participation in a seasonal financing;\nGERALD\nIRVING TRUST COMPANY\n-2-\n(b) all parts of the financial plan set forth in the\nmemorandum referred to above must be agreed to by the various\ninterested parties;\n(c) all of the other New York Clearing House banks\nshall have agreed to conversions, extensions and participations\nsimilar to those referred to above; and\n(d) the conversions, extensions and participations\nreferred to above shall be legally satisfactory to us.\nI wish to make clear that our agreement is limited\nas set forth above and we are not undertaking to participate in\nmaking loans to or purchasing securities of New York State or\nany of its agencies.\nYours very truly,\nFORD & 078870 LIBRARY\nMINICAL\n20 Pine Street\nDonald C. Platten\nNew York, NY 10005\nChairman\nNovember 13, 1975\nFelix Rohatyn, Esq.\nLazard Frères & Co.\n1 Rockefeller Plaza\nNew York, N. Y. 10020\nDear Mr. Rohatyn:\nReference is made to the presentation made by you and your associates\ntoday at the New York Clearing House, and specifically to the material presented\nat that meeting entitled \"Summary of Three-Year Financial Plan for New York\nCity, New York State Agencies and New York State\".\nOn behalf of Chemical Bank, I wish to advise you as follows:\n(1) Chemical Bank would be willing to convert its present holdings of\nMunicipal Assistance Corporation securities to 6% bonds maturing in level\npayments over ten years.\n(2) Chemical Bank would be agreeable to substitute for its existing\nholdings of New York City Notes new New York City notes with a maturity of 10\nyears bearing an annual interest of 6%, with amortization commencing after\nexpiration of the so-called moratorium period.\n(3) Chemical Bank would be willing to participate in a syndicate for\nseasonal financing needs of the City of New York up to an aggregate amount not\nin excess of $2-1/2 billion if, and only if, such borrowings by the State of New York\nare guaranteed by the full faith and credit of the United States.\nChemical Bank's willingness to do the foregoing is conditioned as\nfollows:\n(a) At the time of the implementation of such Financial Plan, there shall\nexist no default in any obligations of the City of New York, any agency of the\nCity of New York, the State of New York or any agency of the State of New York.\n(b) Recognition by all appropriate fiscal authorities that the refinancing\nof maturing New York State agency obligations must be effected through sources\nother than the New York Clearing House banks.\nTo: Felix Rohatyn, Esq.\n#2\nNovember 13, 1974\nLazard Frères & Co.\n(c) Our satisfaction as to all legal matters incident to the implementation\nof such Financial Plan (including, but not by way of limitation, the authority of\nthe City of New York to issue a 10-year note) and our satisfaction as to the documen-\ntation to be executed and delivered in connection therewith.\n(d) All other participants in such Financial Plan shall have agreed to the\nmatters being requested of them, as more fully set forth in such Financial Plan.\n(e) Your receipt of substantially similar letters from each of the other\nNew York Clearing House banks.\nFinally, we can not overemphasize our sincere belief and concurrence\nin the statement contained in such Financial Plan that it is only realistic to\nanticipate the need for Federal sponsorship for New York State's seasonal borrow-\nings during 1976. We believe that any contrary assumption would be unrealistic\nat this time and that it is in the best interests of the capital markets and the\ncommercial banking system that provision should be made therefor at this time.\nVery truly yours,\nCHEMICAL BANK\nBy- Dural back\nChairman of the Board\nD.C.P.\nRush delivery.\nBRARY\nTHE BANK OF NEW YORK\nNEW YORKS FIRST BANK FOUNDED 1784 BY ALEXANDER HAMILTON\n48 WALL STREET, NEW YORK, N.Y. 10015\nELLIOTT AVERETT\nCHAIRMAN OF THE BOARD\nNovember 13, 1975\nMr. Felix Rohatyn, Chairman\nThe Municipal Assistance Corporation\nfor The City of New York,\nLazard Freres & Cc.,\nOne Rockefeller Plaza\nNew York, New York 10020\nDear Mr. Rohatyn:\nThe Bank of New York is pleased to respond to the proposal that you\npresented today to the member banks of The New York Clearing House Association.\nThis proposal is summarized in a document entitled \"Summary of Three-Year\nFinancial Plan for New York City, New York State Agencies, and New York State\",\ndated November 10, 1975.\nThe Bank of New York would be willing to take the following three\nactions, if the conditions hereinafter described are met to its satisfaction.\nThe Bank of New York would:\n1. Convert the securities issued by the Municipal Assistance Corporation\nfor The City of New York (\"MAC\") which we presently hold as principal\ninto new securities issued by MAC, bearing an interest rate of 6% per\nannum, maturing in equal annual installments over a ten year period and\nranking pari passu with all other securities issued by MAC.\n2.\nExtend the maturity of the New York City notes which we presently hold\nas principal to a term of ten years and reduce the interest rate thereon\nto 6% per annum, provided the long term notes contain an appropriate\ncross default clause.\n3.\nParticipate proportionately with the other member banks of The New\nYork Clearing House Association and other commercial banks in providing\nNew York City with up to 2 1/2 billion dollars of \"seasonal\" financing,\nif, but only if, all obligations in respect of this financing are\nunconditionally guaranteed by the United States Government.\nThe conditions which we have in mind are the following:\nA.\nAt the time of our taking of any of such actions, none of the State\nof New York, any agency of the State of New York, New York City or any\nmunicipality with a population in excess of 100,000 shall be in default\nin the payment of any of its obligations.\nTHE BANK OF NEW YORK\nPage 2\nNovember 13, 1975\nB.\nIn the description of the \"Financing Requirements for State Agencies\"\n(Part II, B of the Summary), there is a reference to $650,000,000\nas the \"Remainder to the Financed\". These funds must be furnished\nfrom sources other than this Bank.\nC.\nAll the actions outlined in the Plan of \"Fiscal Correction\" for New\nYork City (Part I, A of the Summary) shall have been taken or\neffectively committed to by all parties concerned, and each of the\nother member banks of The New York Clearing House Association shall\nhave agreed to participate on terms substantially similar to those\ncontained in this letter.\nD.\nThe legality of each of this Bank's proposed actions shall be\nestablished to the satisfaction of our counsel, and all necessary\ndocuments shall have been prepared to our satisfaction, prior to our\ntaking any such action.\nVery truly yours,\nElliott Overatt\nChairman\nLIBRARY GERALD\nBANKERS TRUST COMPANY\n280 PARK AVENUE, NEW YORK\nJOHN W. HANNON, JR., PRESIDENT\nMAILING ADDRESS\nTELEPHONE 212 692-3765\nPOST OFFICE BOX 318\nCHURCH STREET STATION\nNEW YORK, NEW YORK 10015\nNovember 13, 1975\nMr. Felix G. Rohatyn, Chairman of the Board\nMunicipal Assistance Corporation for the City of New York\nc/o Lazard Freres & Co.\n1 Rockefeller Plaza\nNew York, N. Y. 10020\nDear Mr. Rohatyn:\nThis morning you outlined to the Clearing House banks, including\nourselves, a financial plan for New York City, New York State agencies\nand New York State itself, and asked us to comment to you today on\ncertain aspects of that plan which directly involved the Clearing House\nbanks.\nSubject to the conditions outlined below, we would be willing to\ndo the following as our part of the overall plan:\n1. Convert our own present holdings of Municipal Assistance\nCorporation for the City of New York (\"MAC\") securities to 6% serial\nbonds of MAC, with a final maturity of 10 years and an average life of\napproximately 6 years;\n2. Extend our own present holdings of New York City notes to\nmaturities not in excess of 10 years at 6%; and\n3. Use our best efforts to put together the necessary syndicates\nof banks and other financial institutions to meet the \"seasonal\" financing\nneeds of New York City over the next 3 years, provided that such needs\nnever exce ed $2-1/2 billion and, most importantly, that such financings\nbe guaranteed by the Federal Government. It is our opinion that without\nsuch Federal guarantee the \"seasonal\" financing needs could not be met.\nOur willingness to participate in the proposal outlined to us this\nmorning is subject to the following conditions:\n1. That at the time of any conversion or extension there is no\ndefault by New York State, any of the New York State agencies, or\nNew York City;\n-2-\n2. That the State agencies' needs outlined this morning in your\nproposed financial plan are to be taken care of from sources other than\nthe Clearing House banks;\n3. That the Federal Government guarantee any New York City\n\"seasonal\" financing;\n4. That the transactions contemplated by the financial plan\noutlined to us and by this letter are legal and proper for all of the\npersons (including governmental units and other entities) involved or\ncontemplated to be involved, including ourselves, and that all governmental,\ncorporate or other authorizations necessary or appropriate be obtained,\nand that all legal proceedings, including all documentation, in connection\nwith such transactions shall be satisfactory in form and substance to this\nbank and our counsel;\n5. That all of the persons and entities connected with the financial\nplan outlined to us this morning both execute the necessary or appropriate\ndocuments to indicate that they will perform as contemplated in accordance\nwith the plan outlined to us and that such performance is forthcoming at\nthe appropriate time, including financings from other sources and such\ngovernmental and other acts as are necessary or appropriate under the\nplan; and\n6. That our willingness to convert all of our own holdings of MAC\nsecurities, extend our own holdings of New York City notes and use our\nbest efforts to provide \"seasonal\" financing for New York City, as outlined\nabove, be matched by a willingness on the part of all of the other\nClearing House banks to do the same with their holdings and to use their\nbest efforts in connection with the \"seasonal\" financing for New York City.\nAs part of the proposed fi nancial plan we understand you will\nconsider and use your best efforts to restructure the plan as outlined to us\nto allow us to convert our New York City notes into MAC securities with\nthe same maturity and interest rate as proposed for the extended New York\nCity notes.\nVery truly yours,\nGERALD\nMARINE MIDLAND BANK\n140 BROADWAY\nNEW YORK, N Y. 10015\n(212) 797 4000\nNovember 13, 1975\nMr. Felix Rohatyn, Chairman\nMunicipal Assistance Corporation\nOne Rockefeller Plaza\nNew York, New York 10020\nDear Mr. Rohatyn:\nIn accordance with your request today to the representatives of the\nNew York Clearing House banks for an indication of willingness by each of\nsuch banks to participate in a proposed Financial Plan for New York City,\nNew York State and New York State Agencies (herein called the \"Plan\", a\ncopy of which is annexed hereto), this is to advise you that, subject to\nthe conditions set forth below, Marine Midland Bank-New York will, upon\nconsummation of the Plan:\n1. Convert Municipal Assistance Corporation (\"MAC\")\nsecurities held in this Bank's own portfolio to\nMAC bonds, amortized over ten years, bearing in-\nterest at 6% per annum, and ranking pari passu\nwith all other MAC obligations;\n2. Extend the maturity of New York City notes held\nby this Bank in its own portfolio to ten years\nand agree to a reduction in the interest rate on\nsuch notes to 6% per annum;\n3. Assist in the underwriting or syndication of a\nportion of an issue of New York City securities\nof up to $2.5 billion for \"seasonal\" financing\nneeds, provided that such securities are guar-\nanteed by the full faith and credit of the United\nStates of America.\nOur agreement to the foregoing and our continued participation in the\nPlan are subject to the following:\n1. Neither New York City, New York State nor any\nNew York State Agency shall be in default in\nany respect on any of their respective securities\nissues;\nFORD is LIBRARY GERALD\nMARINE MIIDLAND DANK\nNEW YORK\nMr. Felix Rohatyn, Chairman\nMunicipal Assistance Corporation\nNovember 13, 1975\nPage 2\n2. With respect to the $650 million additional\nfinancing (or any other additional financing)\nset forth in the Plan as required for New York\nState Agencies, sources other than this bank\nwill provide such funds.\n3. The definitive terms and the legality of the\nvarious new or extended securities to be issued\nin accordance with the Plan, as well as the doc-\numentation in connection therewith, shall be\nsatisfactory to us and our counsel. All legal\nmatters shall be satisfactory to us and our counsel.\n4. All parts of the proposed Plan shall be consummated,\neach of the institutions and purchasers of securities\nas set forth therein shall agree to and perform their\nrespective obligations as contemplated by the Plan\nand each of the member banks of the New York Clearing\nHouse Association shall participate in the Plan.\nVery truly yours,\nMARINE MIDLAND BANK-NEW YORK\nTherePH By: Krisch\nRussell H. Knisel\nVice Chairman of\nthe Board\nFORD is LIBRARY 9ERALD\nNEW\nYORK\nFIRST NATIONAL CITY BANK\nWILLIAM 1. SPENCER\n399 PARK AVENUE, NEW YORK, N. Y. 10022\nPRESIDENT\nNovember 13, 1975\nMr. Felix G. Rohatyn, Chairman\nMunicipal Assistance Corporation\nfor the City of New York\nc/o Lazard Freres\nRockefeller Center\nNew York, New York\nIBRARY\nDear Mr. Rohatyn:\nWe are writing to respond to your request that we participate in certain\ntransactions forming part of the three-year Financial Plan proposed for New\nYork City, New York State Agencies and New York State (the \"Plan\"). We have\nbeen furnished with a memorandum dated today outlining such transactions\ntogether with a summary of the Plan dated November 10, 1975.\nPrior to receipt of the Plan we discussed with you our conviction that\nthe financial and other problems confronting New York City are closely\nrelated to similar problems affecting New York State and its Agencies and that\na piecemeal approach which seeks only to prevent a City default is not an\nadequate response to the total situation. While we believe the general approach\nof the Plan is appropriate, we wish to record our view that it does not meet the\nfinancing requirements of the State Agencies and political subdivisions other than\nNew York City. For example, we do not believe that the indicated remainder\nof Agency needs to be financed of $650 million can be obtained from sources\nwithin the banking system. In our view the success of the Plan will depend on\nthe identification of additional financial support for Agencies and other\nsubdivisions.\nYou have asked us to consider: (1) Converting our holdings of MAC bonds\nof various series into MAC bonds of a new series under the existing bond\nresolution bearing interest at 6% per annum and maturing in 10 years. Such new\nbonds would be amortized on a level debt basis.\n(2) Extending the maturity of our holdings of New York City notes to 10\nyears. Such extended notes would bear interest at 6% per annum.\n(3) Participating in the provision of \"seasonal\" financing for New York\nCity during the three year period of the Plan in an amount not to exceed $2 1/2\nbillion at any one time outstanding.\nMr. Felix G. Rohatyn, Chairman\nNovember 13, 1975\nWe are willing to negotiate our participation in the above described\ntransactions on the following basis:\na) At the time of our participation there shall be no default in the\npayment of debt for borrowed money on the part of New York City, New York\nState or any Agency or political subdivision of the State.\nb) All New York Clearing House member banks and all pension funds\nfor City employees shall be participating in (1) and (2) above on the same\nbasis as we.\nc) Prior to our participation we shall be satisfied that there is a\nreasonable prospect of obtaining commitments for $650 million to fund the\nunfinanced requirements of the State Agencies. If any of the sources of\nfunding for Agencies outlined in the Plan prove to be unavailable in the\nrequired amounts, such amounts will be added to the $650 million\ncommitments.\nd) Commitments shall have been obtained for the aggregate amount of\nthe \"seasonal\" financing at the time required by the City and borrowings under\nsuch commitments shall be unconditionally guaranteed by the United States.\ne) All other aspects of the Plan shall have been implemented, or shall\nbe the subject of satisfactory commitments, substantially as outlined in the\nPlan.\nf) We shall be satisfied with all legal aspects of the transactions and\nagreements involved in carrying out the Plan and with the form and substance\nof the documents involved.\nWe recognize that under certain circumstances the City securities to\nbe issued under (2) above may not be available. We would be willing to\nnegotiate our participation in (2) on the basis of substituting MAC bonds in\nplace of such City securities.\nIn accordance with our discussions today, we expect to communicate\nseparately with representatives of the State concerning proposals for financing\nthe requirements of the New York State Housing Finance Agency on\nNovember 14.\nVery truly yours,\nof P Spencer\nTHE CHASE MANHATTAN BANK\nNational Association\n1 Chase Manhattan Plaza, New York, New York 10015\nDAVID ROCKEFELLER Chairman of the Board\nNovember 13, 1975\nMr. Felix G. Rohatyn, Chairman\nMunicipal Assistance Corporation for\nthe City of New York\nNew York, New York\nDear Felix:\nAt the meeting of the New York Clearing House banks with\nyou this morning, you asked that each of the banks\nindicate whether it would agree to participate in the\nfinancial plan for New York City, New York State agencies\nand New York State which you and Mr. Gould described.\nThe anticipated participation by the New York Clearing\nHouse banks is described in Items 3 and 4 of Part I. of\nthe \"Summary of Three-Year Financial Plan for New York\nCity, New York State Agencies and New York State\", dated\nNovember 10, 1975 (the \"Summary\"), a copy of which was\ndistributed.\nBefore responding to your inquiry, I should set forth\ncertain assumptions and comments upon which our response\nis based:\n1. New York State, New York State agencies and\nNew York City will not be in default in the\npayment of their obligations at the time the\nplan is implemented.\n2. Part II. of the Summary relating to State\nagencies will be implemented using sources of\nfunds other than commercial banks. We believe\nthat it is of vital importance to the reopening\nof the securities markets to New York State,\nits agencies and the City that the credit of\nthe State agencies be strengthened and that\ndefault in the payment of their obligations be\navoided.\nMr. Felix G. Rohatyn, Chairman\nTHE CHASE MANHATTAN BANK. N.A.\nTo\nMunicipal. Assistance Corporation\nPage No.\n2\nfor the City of New York\n3. Seasonal financing for New York City, estimated\nin the amount of $2.3 billion per fiscal year ($1.5\nbillion for the balance of the fiscal year ending\nJune 30, 1976), will be provided. We will be\nwilling to participate in an underwriting syndicate\nof New York Clearing House banks to underwrite such\nseasonal financing but only if the City's obligations\nare appropriately guaranteed by the Federal\nGovernment.\n4. Seasonal borrowing requirements of New York\nState will be satisfied, it being our view that\nFederal guaranty assistance will be necessary.\n5. All legal and documentary requirements relative\nto the conversion of the New York City short-term\nnotes (including, particularly, TANs and RANs) held\nby the Clearing House banks into long-term obligations\nwill be satisfied. In this connection, as you know,\nbank counsel have expressed concern as to the avail-\nability of bonding authorization and as to the use\nof bond proceeds to retire TANs and RANs.\n6. The total legislative, budgetary and financial\nplan (certain elements of which are described in the\nSummary) will be implemented concurrently with the\nrequested participation by the Clearing House banks.\n7. All Clearing House banks will participate in the\nplan as contemplated by Items 3 and 4 of Part I.A.\nof the Summary.\nSubject to these assumptions, we intend to participate in\nthe plan by accepting the contemplated interest reduction\nand lengthening of maturities on the New York City notes\nheld by us for our own account as described in the Summary\nand as discussed by you at the Clearing House this morning.\nIn this connection, since it is contemplated that the New\nYork City short-term notes will be exchanged for New York\nCity obligations with a ten-year maturity, we suggest that\nit is appropriate that the ten-year obligations contain\nprovision for acceleration in the event of any default by\nthe City in the payment of its obligations. On the same\nbasis, we, also, intend to accept extension of the maturity\nGERALD\nMr. Felix G. Rohatyn, Chairman\nTo\nMunicipal Assistance Corporation\nTHE CHASE MANHATTAN BANK. N.A.\nPage No. 3\nfor the City of New York\nof the MAC obligations held by us for our own account and\nthe interest reduction as contemplated by Part I.A. of\nthe Summary and our discussion this morning.\nVery truly yours,\nDanid Redufilly\nDR:jt\nGERALD\n1. Definitions. The words and phrases used in this\nAct\nsection\nhave the following meanings:\n(a) The term \"Federal Payments\" mean those\namounts authorized and appropriated for the Fiscal Year\nbeginning July 1, 1975 which the City of New York is en-\ntitled to receive, assuming compliance with the relevant\nstatutory criteria, from the United States prior to Sep-\ntember 30, 1976 pursuant to the following statutes:\n(b) The term \"Due Date\" means the time when a\nFederal Payment becomes due and payable by the United States\nto the City of New York.\n(c) The term \"Composite Treasury Bill Rate means\n(d) The term \"Secretary\" means the Secretary of\nthe Treasury.\n2. Advances of Federal Payments. Upon written request\nfrom the City of New York, the Secretary may make payment to\nthe City prior to the Due Date of amounts of Federal Payments\nestimated by the Secretary to come due prior to September 30,\n1976 in an amount not to exceed in the aggregate $1,500,000,000.\nEach such advance shall be accompanied by a written statement\nFORD is LIBRARY GERALD\ndescribing the particular Federal Payment or Payments being\nadvanced, the estimated amount thereof, and the Due Date.\n3. Interest on Advances. Each advance pursuant to section\n2 shall bear interest from the date of the advance to the Due\nDate at an annual rate equal to the Composite Treasury Bill\nRate determined at the time the advance is paid plus an\nadditional one per centum per annum. Interest shall be pay-\nable on the Due Date with respect to each Federal Payment\nadvanced.\n4. Adjustments.\n(a) In the event the aggregate advances exceed\nthe amount of Federal Payments ultimately determined to be due\nto the City of New York, the Secretary shall withhold such\namounts from future payments due the City of New York from\nthe United States and offset such withheld amounts against\nany such excess advances, including any unpaid interest thereon.\n(b) In the event the aggregate advances are less\nthan the amount of Federal Payments ultimately determined to\nbe due to the City of New York from the United States, the\nSecretary shall remit to the City of New York the amount by\nwhich such Federal Payments exceed the aggregate advances and\nany unpaid interest thereon.\n- 2 -\nFORO is LIBRARY GERALD\n1. Definitions. The words and phrases used in this\nAct have the following meanings:\n(a) The term \"Federal Payments\" means those\namounts authorized and appropriated for the Fiscal Year\nbeginning July 1, 1975 which the City of New York is or\nwill become entitled to receive but which have not been\nremitted to the City prior to the issuance of any Notes\nSecured by Federal Payments, assuming compliance with the\nrelevant statutory criteria, from the United States prior\nto September 30, 1976 pursuant to the following statutes:\n(b) The term \"Notes Secured by Federal Payments\"\nmeans debt obligations of the City of New York: (i) authorized\nand approved by the Secretary pursuant to section 3 of this\nAct; (ii) due and payable in full no later than June 30, 1976;\n(iii) the interest on which qualifies for exemption from\ntaxation under section 103 of the Internal Revenue Code of\n1954 as amended; (iv) which are valid and binding general\nobligations of the City of New York, and (v) which state on\ntheir face a day certain when the interest on and the\nprincipal amount of such Notes is payable.\n(c) The term \"Secretary\" means the Secretary of\nthe Treasury.\nGERALD FOR\n(d) The term \"default\" with respect to Notes Se-\ncured by Federal Payments means the failure of the City of\nNew York to make timely payment of any installment of in-\nterest on or of the principal amount of such Notes on the\ndate or dates specified on the face of such Notes.\n2. Application. The City of New York, if first\nspecifically authorized by the State of New York to issue\nNotes Secured by Federal Payments, may apply to the Secretary\nfor authority to issue Notes Secured by Federal Payments in\nan aggregate amount not to exceed $1,500,000,000. Such\napplication shall include: (a) a proposed schedule of\nborrowing showing the proposed dates of issuance and maturity\nof such Notes; (b) a statement that the funds to be obtained\nthrough the issuance of Notes Secured by Federal Payments\ncannot otherwise be raised by the City of New York; (c) a\nprojected statement of receipts and disbursements by the City\nof New York demonstrating the City's ability to pay the prin-\ncipal and interest on the Notes Secured by Federal Payments\nas such payments become due; and (d) an agreement that the\nCity agrees to be bound by the provision of this Act.\n3. Secretary to Approve Application. The Secretary\nshall approve the application of the City of New York and\nauthorize the City to issue Notes Secured by Federal Pay-\nments if he determines that (a) the funds to be obtained\nthrough the issuance of Notes Secured by Federal Payments\n- 2 -\nFORD & LIBRARY 938870\n#\ncannot otherwise be raised by the City of New York; (b) there\nis a reasonable probability that the City of New York will be\nable to pay the principal and interest on the Notes Secured\nby Federal Payments as such Notes mature and (c) the esti-\nmated amount of Federal payments is sufficient to provide for\nredemation\nthe retention of the Notes (including all accrued interest)\nat maturity.\n4. Endorsement of Approved Notes. Notes Secured by\nFederal Payments which have been approved and authorized by\nthe Secretary shall bear on their face a conspicuous legend\nthat \"The Payment of the Principal Amount of and Interest on\nthis Obligation is Secured by a Lien on Certain Funds to\nbecome Due to the City of New York from the United States,\"\nand shall be endorsed by the Secretary.\n5. Duty of Secretary to Redeem Notes.\n(a) In the event that\n(i) the City of New York defaults, or\n(ii) the Secretary determines that it is\nlikely that the City of New York will default,\nwith respect to any Notes Secured by Federal Payments, the\nSecretary shall withhold payment to the City of New York of\nan amount of Federal Payments equal to the principal amount\nand unpaid interest (determined as of the date of maturity)\nof all outstanding Notes Secured by Federal Payments and\n- 3 -\nGERALD\nshall set such sum aside in a special fund (the \"Special Fund\")\nfor the purpose of redeeming Notes Secured by Federal Pay-\nments (including all unpaid interest due thereon) as such\nNotes mature.\n(b) In the event that the City of New York defaults\nwith respect to any Notes Secured by Federal Payments, the\nholders of such Notes shall have the right to demand payment\nby the Secretary from the Special Fund of the unpaid principal\namounts of such Notes and the interest thereon to the date\nof maturity. No person other than the United States, a holder\nof a Note Secured by Federal Payments (but only to the extent\nof the unpaid principal amount and interest due on such Note),\nor the City of New York (but only in the absence of a default\nwith respect to Notes Secured by Federal Payments) shall have\nany right or interest in the Special Fund or shall have the\nright to attach, garnish, levy upon or otherwise seek any\npayment from the Special Fund or seek to prohibit or inter-\nfere with payments by the Secretary from the Special Fund.\nNo payment from the Special Fund pursuant to this Act shall\nbe deemed a voidable preference under the Bankruptcy Laws or\nunder any state or local law.\n(c) If the Secretary has established a Special\nFund pursuant to section 5(a) (ii) of this Act and it sub-\nsequently appears to the satisfaction of the Secretary that\n- 4 -\nGERALD P. FORD\nthe City will not default with respect to the Notes Secured\nby Federal Payments, the Secretary shall forthwith remit\nthe balance in the Special Fund to the City of New York.\n(d) In the event of default with respect to the\nNotes Secured by Federal Payments, if the Secretary of the\nTreasury determines that the Special Fund will be inadequate\nfor the purpose of making timely redemption upon maturity\nof all Notes Secured by Federal Payments he shall cause\nsuch Special Fund to issue to the Department of the Treasury\nobligations in an amount necessary to enable the Special Fund\nto redeem upon maturity all Notes Secured by Federal Payments\nand the Department of the Treasury shall purchase such obli-\ngations. Such obligations shall bear interest at a rate\ndetermined by the Secretary of the Treasury taking into con-\nsideration the current average yield on outstanding market-\nable obligations of the United States of comparable maturity.\nFor the purpose of purchasing the obligations of the Special\nFund described herein, the Secretary of the Treasury is\nauthorized to use as a public debt transaction the proceeds\nfrom the sale of any securities hereafter issued under the\nSecond Liberty Bond Act, and the purposes for which securities\nmay be issued under the Second Liberty Bond Act are extended\nto include such purchases. In such case, the Secretary shall\n- 5 -\nASF GERALD\nwithhold and continue to pay into the Special Fund all Federal\nPayments (or, if necessary, payments which would be Federal\nPayments but for the time limitations in section (1) (a) of\nthis Act) until the Special Fund shall have sufficient assets\nto redeem all Notes Secured by Federal Payments and all\nobligations of the Special Fund held by the Department of\nthe Treasury, including all interest thereon.\n(e) Notwithstanding any contrary provision of\n5\nlaw, payments made by the Secretary pursuant to subsection\n(b) shall be deemed in full satisfaction UL any claim by\nthe City of New York to the Federal Payments allocated to\nredeem such Notes or the obligations of the Special Fund issued\npursuant to subsection (d) of this section.\n- 6 -\nFORD is LIBRAPPY GERVID\nNEW YORK CITY CASH FLOW NEEDS\n(dollars in millions)\nCumulative Needs\nFY 1976-77\nFY 1977-78\nJune\n1100\n1041\nAugust\n1462\n1413\nSeptember\n1197\n1237\nOctober\n1585\n1293\nNovember\n1614\n1325\nDecember\n2063\n1670\nJanuary\n2062\n1697\nFebruary\n2017\n1645\nMarch\n2120 peak\n1994 peak\nApril\n1528\n1369\nMay\n1103\n996\nJune\n0\n0\nPer Peter Goldmark\nCC upon Mr. Goldmark's request to Bob Gerrard, Treasury.\n11/17/75\nNew York State Emergency Moratorium Act for New York City\nChapter 874 of the Laws of 1975\n(as amended by Chapter 875)\nApproved November 14, 1975\nSection 1. Legislative findings and statement of purposes.\nIt is hereby found and declared that the grave public emergency\nfound and declared to exist by the legislature in adopting the\nNew York State Financial Emergency Act for the City of New York\nhas dramatically worsened in the last two months. Today, not only\nis the City of New York threatened with default on its outstanding\nobligations, but financially sound agencies of the state itself\nare similarly threatened because of public fears about the effects\nof default by the city.\nSignificant and drastic steps have been and continue to be\ntaken by the city and the state pursuant to the New York Municipal\nAssistance Corporation Act and the New York State Financial\nEmergency Act of the City of New York to eliminate the causes of\nthis crisis and to restore the city to financial health. It is\nnow apparent, however, that there is not enough time for the\neffects of these steps to be demonstrated before all funds now\navailable to the city will be exhausted.\nThere is therefore an imminent danger that the city of\nNew York will be unable to pay its outstanding short-term indebt-\nedness and even to provide those basic services essential to the\nhealth, safety and welfare of its inhabitants and the continuation\nof orderly government in the city. The legislature recognizes and\ninsists that the pledge of the \"faith and credit\" of the city to\nthe payment of its obligations must be respected. The legislature\nfurther recognizes that in the current financial crisis, this\npledge can be honored only if the viability and resources of the\ncity are preserved and that the continuation of essential services\nis vital to such preservation. The preservation of the city, the\nhonoring of its obligations and the restoration of public confidence\nin the agencies of the state and of the state itself are all matters\nof imperative state concern and require the extraordinary exercise\nof the state's essential reserve and emergency powers set out in\nthis Act to protect the vital interests of the people by sustaining\nthe public credit and maintaining local government.\nThis act establishes a conditional three-year moratorium on\nenforcement of outstanding short-term obligations of the city, so\nas to avoid destructive actions during the time the city requires\nto regain its financial health. The moratorium will be effective\nonly as to those holders of city notes who are first offered an\nopportunity to exchange their short-term obligations for long-term\nbonds of the Municipal Assistance Corporation for the city of\nNew York, and who, in the event of refusal, receive continuing\ninterest payments on their short-term obligations as specified in\nthis Act.\n2 -\nThe purpose of the moratorium is to ameliorate the disastrous\nconsequences, to taxpayers, to holders of short-term obligations\nand to city residents, of an inability by the city to meet its\nfinancial and governmental responsibilities in full. The limited\nand conditional moratorium established by this act is intended to\navoid undue disruption of the process of financial recovery already\nunderway, so as to facilitate restoration of the city's financial\nintegrity and the payment of all its obligations.\n$2. The New York state emergency moratorium act for the city\nof New York is hereby enacted to read as follows:\nNEW YORK STATE EMERGENCY MORATORIUM ACT\nFOR THE CITY OF NEW YORK\nSection 1, Short title.\n2. Definitions.\n3. Enforcement of judgments and liens on account of\nshort-term obligations suspended.\n4. Actions upon short-term obligations suspended.\n5. Conditions of suspension.\n6. Issuance by city of evidence of indebtedness not\nprohibited.\n7. Statute of limitations not to run during moratorium.\nSection 1. Short title. This act shall be known and may be\ncited as the \"New York State Emergency Moratorium Act for the City\nof New York.'\n$2. Definitions. As used in this act, the following words\nand terms shall have the following meanings unless the context\nshall indicate another or different meaning or intent.\n1. \"City\" means the city of New York.\nGERALL\n2. \"Short-term obligations\" means tax anticipation notes,\nbond anticipation notes, revenue anticipation notes, budget notes\nand urban renewal notes of the city which are outstanding on the\neffective date of this act.\n3. \"Moratorium period\" means the period expiring three years\nfrom the effective date of this act unless shortened by act of the\nlegislature.\n4. \"Replacement obligation\" means a bond, note or other\nevidence of indebtedness of the municipal assistance corporation\nfor the city of New York created by section three thousand thirty-\nthree of the public authorities law.\n5. \"Offer\" means an opportunity to exchange a short-term\nobligation for a replacement obligation which is disseminated by\npublication at least once in each of two consecutive weeks in a\nfinancial newspaper and in a newspaper of general circulation,\ncustomarily published at least once a day for at least five days\n(other than legal holidays) in each calendar week, printed in the\nEnglish language and circulated in the city.\n$3. Enforcement of judgments and liens on account of short-\nterm obligations suspended. During the moratorium period, and\nnotwithstanding any inconsistent provisions of any law, general,\nspecial or local, or of any agreement or short-term obligation,\nno act shall be done, and no action or special proceeding shall\nbe commenced or continued in any court in any jurisdiction,\nseeking to apply or enforce against the city, or any political\nsubdivision, agency, instrumentality or officer thereof, or their\nfunds, property, receivables or revenues, any order, judgment,\nlien, set-off or counterclaim on account of any short-term obliga-\ntion, or the indebtedness or liability evidenced thereby, or\nseeking the assessment, levy or collection of taxes by or for the\ncity or the application of any funds, property, receivables or\nrevenues of the city on account of any such short-term obligation,\nor the indebtedness or liability evidenced thereby, although the\npayment of such short-term obligation may be due by the terms\nthereof or any general or special or local law or agreement.\n$4. Actions upon short-term obligations suspended. During\nthe moratorium period, and notwithstanding any inconsistent\nprovisions of any law, general, special or local, or of any\nagreement or short-term obligation, no action or special proceed-\ning shall be commenced or continued upon any short-term obligation,\nor the indebtedness or liability evidenced thereby, although the\npayment of such short-term obligation may be due by the terms\nthereof or any general or special or local law or agreement.\n$5. Conditions of suspension. Notwithstanding the foregoing\nprovisions, any person who would otherwise have the right to do\nthe acts or commence or continue the actions or special proceedings\nsuspended by such provisions, shall have the right, unless waived\nin writing by such person, to make an application to any court in\nwhich such an action or special proceeding might be brought, upon\nthirty days' notice to the city pursuant to subdivision two of\nsection three hundred eleven, of the civil practice law and rules,\nand if upon such application it shall appear to the satisfaction\nof the court that either of the following conditions shall not\nhave been met, then, the court shall order the termination of the\nsuspension provided by sections three and four of this act as\napplied to such person:\n(A) That, either before the date of maturity of the\nshort-term obligation held by such person or not later than sixty\ndays after such date of maturity, an offer shall have been made\nto exchange such short-term obligation for a replacement\nLIBRARY\nobligation having a date of maturity no more than twenty years\nafter the date of maturity of such short-term obligation and\nbearing interest, payable at least annually, at a rate of not\nless than six per. centum per annum; and\n(B) That interest on the short-term obligation held\nby such person, who does not accept the offer, shall have been\npaid to such person at the rate stated in such short-term obligation\nto the date of its maturity and, thereafter, at least annually, at\na rate of not less than six per centum per annum and not less than\nas\nthe interest rate payable to any holder of such short-term obliga-\namended\ntions who has entered into an agreement with the city pursuant to\nby\nsection six or which provides for the extension of the maturity of\nCh. 875\nthe short-term obligations held by such holder until the principal\nof such short-term obligation is paid or otherwise discharged, and\nat such time shall have paid such additional interest, if any, as\nmay be held to be mandated by the constitution of the state of\nNew York or the United States.\n$6. Issuance by city of evidence of indebtedness not\nprohibited. Nothing contained in this act shall be construed to\nprohibit or prevent the city from issuing to consenting holders\nof short-term obligations certificates or other evidence of\nindebtedness in payment, renewal or refunding of such short-term\nobligations.\n$7. Statute of limitations not to run during moratorium.\nAny act or special proceeding within the scope of this act, which\nwould have been maintainable at any time during the moratorium\nperiod, shall not be barred by any provision of article two of\nthe civil practice law and rules, nor by any defense of laches,\nduring a period of one year after the expiration of the moratorium\nperiod. This section shall not be construed to shorten the period\nwithin which any such action or special proceeding may be commenced.\n$3. If any section, part or provision of this act shall be\ndeclared unconstitutional or invalid or ineffective by any court\nof competent jurisdiction, such declaration shall be limited to\nthe section, part or provision directly involved in the controversy\nin which such declaration was made and shall not affect any other\nsection, provision or part thereof.\n$4. This act shall take effect immediately.\nGERALD\nDRAFT - 11/14/75 PM\nNEW YORK CITY: Draft of Possible Announcement\nFor the past eight months, this Administration has been\nworking with officials of New York to find ways that they\ncould overcome the financial difficulties of New York City.\nOur position from the beginning has been that American\ntaxpayers should not be saddled with responsibility for\npaying any of New York City's bills so long as they were unwilling\nto take tough, decisive actions on their own -- the kind of\nactions that have been sadly lacking in previous years.\nI have said repeatedly that the Federal Government will\nnot bail out the City of New York. Neither New York City\nnor any other city should ever become a permanent ward of\nthe Federal Government. I have been steadfastly opposed to\na bailout, and I remain opposed to it today.\nIn the early stages of our discussions, the New York\nrepresentatives who met with me and with my advisers insisted\n-- 2 -\nthat the Federal Government should intervene quickly and in\na massive way because they had exhausted most of their own\nresources. To be specific:\n- They thought there was no possibility for them to\nraise taxes to cover their own expenses;\n- They thought there was no possibility of renegotiating\ncity contracts which were plainly excessive;\n- - They thought that State and local pension funds\ncould not be used as a source of credit;\n- They thought that their payment obligations to\nholders of New York City notes and bonds could not be\nrenegotiated;\n- And they thought that every possible cut had been\nmade in the New York City budget.\nThe only option, they said, was for Washington to step\nin with a huge assistance program -- a program that inevitably\nFUND LIBRARY\n- 3 -\nwould have continued for years to come.\nI could not agree to those terms. I could see no\nreason why the working people in communities across the\ncountry should be forced to pay for a level of extravagence\nthat they could not afford in their home towns. I also did\nnot want to be party to any plan that would erode the basic\nidea that cities should govern themselves --- that Washington\nshould not make all the decisions and pay all the bills.\nMany said it was right for me to stand tough. Others\nsaid it was wrong because I supposedly betrayed a lack of\ncompassion and sympathy. I will leavé it to the American\npeople to decide whether it was right or wrong. What mattered\nthen and what matters now are the results: whether New York\nis willing to take the lead in solving its own problems.\nAnd today, I believe, we are seeing results.\nIn the last few weeks, we have seen a new spirit develop\nBERALD R. FORD\nLIBRARY\n- 4 -\nin New York -- a \"can do\" spirit that was once the pride of\nthe city and is now resurfacing. They are finally facing up\nto realities. They have rediscovered the backbone upon\nwhich so much of this country's greatness was built.\nIn September, the New York State Legislature passed a\nplan that would tide the city over through December. Pension\nfunds were tapped. Municipal services were cut somewhat.\nThe financial books that had been juggled for so many years\nwere brought into line. The unions, the banks, the political\nleaders --all began to work together in a more cooperative\nand earnest way.\nYet even that was not enough. It was only a temporary\nbandaid, and everyone knew it. Thus I continued to receive\nurgent pleas for a Federal bailout, and we saw the beginnings\nof a campaign to stampede the Government and the people of\nthis country into submission.\nFORD & LIBRARY GERALD\n- 5 -\nSuch scare tactics were intolerable, and I said SQ. We\nwere not about to be frightened into a bailout.\nNow, in the eleventh hour when the temporary program is\nabout to expire, the officials of New York have come together\nin a concerted, all-out effort to put the city's finances on\na sound basis -- exactly what we have been asking them to do\nall along.\nThe outlines of their plan were first presented to my\nAdministration last week. Since then, many additional\ndetails have been hammered out SO that all of us have a\nbetter understanding of exactly what New York is willing to\ndo for itself.\nLet me outline the essence of their self-help program:\nOne, they will raise nearly $1 billion in new city and\nState taxes.\nTwo, they will postpone payments on many of their debts\nGERALD FORD LIBRARY\n- 6 -\nand they will reduce their interest payments. In more\ntechnical language, this amounts to a rescheduling of their\ndebt.\nThree, they will for the first time require municipal\nemployees to bear part of the costs of their pensions and\nthey will make other fundamental changes in their extraordinarily\nexpensive pension plans.\nFour, they will make further and significant cuts in\nthe costs of running the city through personnel reductions\nand other economies.\nAnd five, the city pension system will provide additional\nloans of up to $2.5 billion to the city.\nAll of these steps are part of a broader effort to\nbring New York City's budget into actual balance within\nthree years, as now required by the law of that State.\nAll of these steps, I might add, are precisely what was\nFORD is LIBRARY 978839\n- 7 -\nthought be out of the question only a few months ago.\nThis is a tough, constructive program, and the leaders\nof New York, including the Governor, the Mayor, and the\npublic-spiriting citizens who have served so ably on the\nMunicipal Emergency Financial Control Board and in other\ncapacities, deserve the heartfelt thanks of all Americans\nwho wanted to see New York survive this ordeal with its\npride intact.\nHaving traveled this far --- perhaps 90% down the road -- the\nofficials of New York have come to me and said, in effect:\nwill you help us complete this journey?\nNew York, they are saying, has done everything you\nasked us to do originally. New York will take care of all\nof its old debts without a Federal bailout. What we are\nasking you, the Federal Government, to do now is to assist\nus only in a single, narrow area -- to help us on a short-term\nFORD is LIBRARY GERALD\n- 8 -\nbasis in providing essential services to the eight million\nAmericans who live in the nation's largest city.\nMy fellow Americans, I believe the time has come for\nall of us now to join with the people of New York in resolving\nthis issue. They have built almost all of the bridge back\nto safe ground. They have done what is fair and what is\nright. Now we can -- and should - put the last span in\nplace on their bridge.\nTo that end, I will submit legislation to the Congress\nasking for authority to provide up to $1.5 billion in temporary\nFederal assistance to New York City. This assistance will\nin the form of\nand will be used for only\none purpose: to help them pay the cost of future services\nfor the people of that city. The loans will also be made on\na seasonal basis: money will be lent out during the first\nthree months of the year and will be repaid to the Federal\nGERALD FORD VIBRARY\nGovernment during the next three months. The total pricetag\non Federal involvement is less than half of what New York\nofficials first requested; indeed, because the city and State\nare acting so affirmatively, I believe we can say with\nreasonable confidence that this plan will not cost the\nAmerican taxpayer a single dime.\nThe officials of New York -- including the governor,\nthe mayor, the banks, and others -- have already provided me\nwith written assurances that they will carry out their part\nof this program.\nTo guarantee that performance, the legislation I am\nproposing will require that the assistance provided by the\nFederal Government be continually reviewed and then swiftly\nterminated upon a failure by any party to live up to its\nobligations.\nThe actions that New York is taking are those which\n& GERALD LIBRARY\n- 10 -\nordinarily occur during a bankruptcy proceeding. Thus, as\nthe New York Times said last week, this action on the part\nof New York City amounts to a technical default. Yet some\nwill argue that this is not really a default since no formal\nbankruptcy has taken place.\nI don't really think it makes any difference what we\ncall it. What is important is that New York is acting\ndecisively to overcome its own problems and will not surrender\nits soveignty to Washington. It is upon that basis that I\nbelieve the Federal Government should now join in.\nTwo weeks ago, in an address here in Washington, I\nsaid that to be acceptable, the solution to New York City's\nproblems had to meet three basic tests. This plan meets\nthose tests.\nFirst, it maintains ęssential public services for the\npeople of New York City. Everyone has agreed that they\nGERALD FORD LIBRARY\n- 11 -\nshould not become innocent victims in this ordeal.\nSecond, the solution assures that New York City will\nachieve and maintain a balanced budget in the years ahead.\nNew York is demonstrating that it can take care of its\nproblems through its own initiative.\nAnd third, this solution guarantees that New York City\nwill not become a ward of the Federal Government. Our aid\nwill be stringently limited. Bureaucrats here in Washington\nwill not take over New York City, and the American taxpayers\nwill not be compelled to pay New York City's bills for years\nto come.\nI believe that this is a sound and wise solution --- one\nthat all Americans can support.\n(Conclusion to be added)\nFORD is LIBRARY GERALD\nTHE WHITE HOUSE\nWASHINGTON\nNovember 14, 1975\nDear Congressman Patman:\nI want to thank you for your letter of October 29, commenting\non my remarks before the National Press Club regarding the\nNew York City financial crisis. I surely did not wish to give\nthe impression that I favor unequal or inequitable treatment\nof the various participants in the crisis, and so I welcome\nthis opportunity to clarify the record. In my view all inves-\ntors in New York City securities should be subject on an\nequal basis to any delays or reductions that may occur in the\npayment of interest or principal of their securities.\nI am sure you will agree that our national financial system\nshould not be permitted to become disrupted because of the\nNew York City problem. This may well mean that some banks\nwill require access to a temporary source of liquidity, which\nI am informed the Federal Reserve is prepared to provide, in\norder to meet their obligations to depositors and other custom-\ners. It may even mean, in a few cases, that additional capital\nwill be needed from market sources or perhaps from the FDIC.\nBut I can assure you that, if need be, the bankers would have\nto take their losses, in both income and principal, just as would\nany other investor in the City's securities.\nSincerely,\nThe Honorable Wright Patman\nHouse of Representatives\nWashington, D.C. 20515\nFORD\nGERALD\nLIBRARY\nNevember 2, 1975\nDear Mr. Chairman:\nThank you for your October 29 letter to the President\ncommenting 00 his speech before the National Press\nClub, and requesting that yes be informed what stops\nare being taken to ensure that his assousced policy\nwith respect to as Faderal bail-out for liev York city\nwill be Replementad.\nI have passed along your letter for the early attention\nof the President and his advisors who have the sub-\nstantive responsibility in this area.\nwith kind regards,\nSincerely,\nTernon e. Losa\nDeputy Assistant\nto the President\nThe Nonorable Uright Pateas\nHouse of Representatives\nWashington, D.C. 20515\nbee w/inc to Was Seidman - for further ACTION (note: an advance\ncopy of the incoming has been sent to you).\nbee w/inc to Jim Cannon - FYI\nbee w/inc to Hal Eberle (Treasury) - PYI\nVCL:EF:rg\nFORD & LIBRARY GERALD\nWRIGHT PATMAN\nCOMMITTEES:\nFIRST DISTRICT\nBANKING, CURRENCY AND HOUSING\nSTATE OF TEXAS\nJOINT ECONOMIC COMMITTEE\nJOINT COMMITTEE ON DEFENSE PRODUCTION\nWASHINGTON ADDRESS:\n2328 RAYBURN HOUSE OFFICE BUILDING\nCongress of the United States\n20515\nhouse of Representatives\nHOME ADDRESS:\nP.O. BOX 1868, TEXARKANA, TEXAS\nWashington, D.C. 20515\n75501\nOctober 29, 1975\nThe President\nThe White House\nWashington, D. C.\nMy Dear Mr. President:\nAs I understand your speech before the National Press Club\nconcerning the financial problems of New York City, you are suggesting\nthat there be no assistance until the city enters default and goes\nthrough bankruptcy proceedings in the Federal courts. You indicated\nthat there would be two major beneficiaries of any pre-default\nassistance the present officials of New York City and the commercial\nbanks or other large investors who purchased the city's securities.\nYou made it clear that you opposed a \"bail out\" of either group.\nIt is well-known that the Federal banking agencies, particularly\nthe Federal Reserve, have often provided direct and indirect bail-out\nmechanisms for commercial banks when they have been caught with bad\ninvestments. As you know, there has been Congressional testimony\nand news reports about such assistance in relationship to the\ntroubled Real Estate Investment Trusts, to feed lot operators, and\nof course, it is a matter of public record that the now-defunct\nFranklin National Bank was provided about $1.7 billion in bail-out\nassistance from the Federal Reserve.\nJudging from the tone of your speech, which is clearly\n\"anti bail-out\", I assume that such mechanisms would not be employed\nin this instance and that the commercial banks and other investors\nwould, like the city, be required to seek relief in the courts. I\nassume that you have discussed this with Federal Reserve Board Chairman\nArthur Burns and other bank regulatory officials and that you have\ninstructed them that there will be no behind-the-scenes bail-outs\nemployed by these agencies.\nFORD CIBRARY\nThe President\n-2-\nOctober 29, 1975\nIn conclusion, Mr. President, your speech very clearly indicated\nto the American public and the Congress that it is your policy that\nthe municipality and those who have invested in its securities are to\nbe treated alike and that their basic remedies lie in bankruptcy\nproceedings. This would represent a significant change in policy\ntoward the commercial banking industry and other investors who make\nbad judgments. I am most interested in learning how you plan to\nimplement this policy at the Federal Reserve and the other regulatory\nagencies and what steps will be taken to monitor their continuing\nrelationships with the institutions which hold the New York City\npaper in question.\nMian Wright\nRespectfully, Patmas\nFORD LIBRARY is GERALD\nwz\nNovember 12, 1975\nMEMORANDUM FOR THE PRESIDENT\nFROM:\nMAX FRIEDERSDORF\nSUBJECT:\nNew York City\nPaul Nelson of the House Banking and Currency Committee advises that\nChairman Reuss will take the Reuss-Ashley New York Guarantee Loan\nBill to House Rules on Friday and they expect to schedule it on the\nHouse floor for Monday, November 17.\nbee: Jack Marsh\nDick Cheney\nBill Seidman\nAlan Greenspan\nFORD & LIBRABY GERALD\nBOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM\nNovember 14, 1975\nTO:\nMr. Seidman\nFROM: Arthur F. Burns\nAttached is a draft letter for the\nPresident's signature that you requested.\nAttachment.\nPres\non\nas\ngus\nGERAL\nThe Honorable Wright Patman\nHouse of Representatives\nWashington, D. C. 20515\nDear Mr. Patman:\nI want to thank you for your letter of October 29, commenting\non my remarks before the National Press Club regarding the New York\nCity financial crisis. I surely did not wish to give the impression that\nI favor unequal or inequitable treatment of the various participants in\nthe crisis, and so I welcome this opportunity to clarify the record. In\nmy view all investors in New York City securities should be subject on\nan equal basis to any delays or reductions that may occur in the payment\nof interest or principal or their securities.\nI am sure you will agree that our national financial system\nshould not be permitted to become disrupted because of the New York\nCity problem. This may well mean that some banks will require\naminformed\naccess to a temporary source of liquidity, which the Federal Reserve\nis prepared to provide, in order to meet their obligations to depositors\nand other customers. It may even mean, in a few cases, that additional\ncapital will be needed from market sources or perhaps from the FDIC.\nBut I can assure you that, if need be, the bankers would have to take\ntheir losses, in both income and principal, just as would any other\ninvestor in the City's securities.\nSincerely,"
}