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    "ocrText": "The original documents are located in Box 5, folder \"New York City, November 20, 1975 -\nFebruary 2, 1976\" of the White House Special Files Unit Files at the Gerald R. Ford\nPresidential Library.\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 Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain.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 5 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library\nTHE PRESIDENT HAS SEEN\nTHE WHITE HOUSE\nWASHINGTON\nNOVEMBER 25, 1975\nMEMORANDUM FOR THE PRESIDENT\nFROM:\nL. WILLIAM SEIDMAN fws\nSUBJECT:\nNew York City Speech\nAn agreement involving actions by New York State, City, union\nand financial community leaders is expected to be consumated\ntoday at 3:00 p.m. A discussion at the EPB Executive Committee\nand with Ron Nessen, Bob Hartmann and others has produced the\nfollowing options for consideration regarding the announcement\nof your position on New York which you indicated last week you\nwould make after reviewing the actions taken by New York offi-\ncials.\nDraft legislation, the New York Seasonal Financing Assistance\nAct of 1975, has been prepared and cleared by the Departments\nof Treasury, Justice, the White House Counsel's Office, and\nOMB. A fact sheet for release following any statement or\nspeech is being prepared and should be completed by the end of\nthe day.\nOptions\nOption 1: Deliver a medium length (10-15 minute) address from\nthe Oval Office at noon tomorrow.\nAdvantages:\nO A noon announcement would likely be carried live by\nthe major networks and would also receive maximum\ncoverage in the network evening broadcasts.\no A noon announcement has two advantages over an even-\ning announcement when large numbers of people could\nbe expected to be travelling on Thanksgiving Eve and\nwhen it would not receive coverage in the nightly\nnetwork news programs.\n2\nOption 2: Deliver a medium length (10-15 minute) address from\nthe Oval Office at 7:30 p.m. tomorrow.\nAdvantages:\nIt is expected that the major networks would provide\ntime for live coverage.\nOption 3: Request network television time for coverage of an\nannouncement of your position at a meeting with\ndesignated New York officals (Governor Carey, Mayor\nBeame and a few others) in the Cabinet Room.\nAdvantages:\nThis would provide a new setting and permit you to\ncommend the New York officials personally on the\nmeasures that they have taken. New York officials\nwho have been quietly approached on their reaction\nto such a meeting have indicated that they would be\nreceptive to the idea and that they would respond\npositively during such a meeting.\nOption 4: Announce your position on New York in a prepared\nstatement at the beginning of a press conference\ntomorrow.\nAdvantages:\nAn announcement of your position in the context of\na press conference maintains the visibility of such\nan announcement while permitting attention on other\nissues at the same time (i.e. the China trip) and\nthereby reducing the perception that your announce-\nment represents a major change in your position.\nJim\nGERALD FORD LIBRARY\nnet\nMax Friedersdorf's office would\nlike the President to see this immediately\nafter the conference.\nTrudy\nTHE PRESIDENT HAS SEEN\nTHE WHITE HOUSE\nWASHINGTON\nNovember 26, 1975\nMEMORANDUM FOR THE PRESIDENT\nFROM:\nMAX L. FRIEDERSDORF\nm.\nSUBJECT:\nNew York City Reaction\nCongressional reaction to the President's New York City\nstatement tonight included the following:\nSenator John Tower - Strongly endorsed the Presidential\nmessage, indicated he would issue supportive comments.\nParticularly pleased that the assistance will be loans.\nSenator Bob Griffin - Not enthusiastic but indicated he\nwould not be critical and realizes the President had no\nchoice. I am taking a fact sheet by his house tonight.\nSenator Garn - \"As you know, I've been very opposed, but I\ndo prefer loans to loan guarantees. If you guaranteed that\nwould make New York's paper more valuable than Salt Lake\nCity's AAA. \" Was very pleased to have been called.\nSenator Young - \"It won't be popular out here, but I guess\nhe had to do it. I doubt if I could vote for it unless my\nvote was the deciding one. He has forced New York to make\nsome basic changes.\nRepresentative Barber Conable - Excellent statement and will\nlend all possible support. Believes that the President's firm-\nness has resulted in the best possible solution.\nRepresentative Bill Stanton - Supports the President all the way.\nWill issue statement and \"Dear Colleague\" letter to Republicans\nurging support. Will personally contact the Minority Members of\nHouse Banking & Currency Committee.\nRepresentative Lud Ashley - Get the bill up right away. Will\nconsider substituting the President's bill for the Committee\nbill now scheduled for House Floor action on Tuesday, December 2.\n-2-\nSenator Bellmon - \"Let them default. They got into the mess.\nThe President must make a case of having forced New York City\nto put its house in order. Hopefully, it is not a long-term\ncommitment into perpetuity. What will he (the President) do\non common situs and energy?\"\nRepresentative Lou Frey - Oscar Juarez, Frey's AA, called from\nOrlando and asked for a reading. He was very pleased and felt\nit would be acceptable to Frey and Floridians generally. Oscar\nfelt the emphasis on essential services and monthly granting\nof the loan money was good.\nSenator Hruska - \"Will he ask for bankruptcy legislation? It\nshould be part of the package. They may still try to postpone\nand bring on default so they can get larger federal help. I\nam pleased that Simon is the Federal official who will administer\nthe program. I will listen carefully and try to say something\nhelpful. We should really stress the bankruptcy legislation.\nI am pleased about the monthly provision.\"\nRepresentative Caldwell Butler - Believes the President's\nannouncement is a graceful retreat from his earlier position.\nSupports the legislative proposal as the most satisfactory,\navailable solution to the New York City problem. Foresees\nthis proposal as precluding further Congressional action on\npending bankruptcy legislation. Will support the President's\nnew position.\nRepresentative Jim Cleveland - \"I know Bill Loeb, the Governor\nand Reagan will call it a bailout. I plan to duck calls on it\ntonight. I will cogitate tomorrow and plan a press conference\non Friday. I have been traveling the state for three days and\nit's not good at all. I'm not saying we will get licked, but\nit is a lot of things like that crazy Nessen remark about skiing\nin New Hampshire.\" (I read Cleveland the good reports we are\ngetting, particularly from Frey's AA in Florida, and urged him\nto take a positive attitude, but Cleveland remained skeptical.)\nRepresentative Norman Lent - \"That's great. It will be a big\nhelp to New York City. I will embargo the information, but I\nheard essentially that on the radio a few moments ago.\nRepresentative John Rhodes - Fine statement. Will issue supportive\nstatement indicating he recommended these steps recently and pleased\nthat the President forced New York City to take responsible financial\nsteps.\nRepresentative Bob Michel - Non-commital. Just returned from the\nDistrict and wonders about pollsters who report public turning\naround on New York City. His people still strongly opposed to any\nassistance. People told him the President shouldn't give in on\nNew York City. \"I'm glad Reagan waffled and seemed soft on this\nissue because I'm afraid he could hurt us.\"\nCONGRESSIONAL REACTION TO PRESIDENT'S NEW YORK\nCITY ANNOUNCEMENT\nFORD\nLIBRARY\nThe Speaker\nEnroute to North Carolina. Gave message to Mike\nReed. He was non-committal, but seemed satisfied.\nChairman George Mahon\nEnroute to Dallas. Nancy Langston will relay message.\nWas enthusiastic. Believes the Chairman will approve\nof this approach.\nChairman Henry Reuss\nIn Africa. Gave message to James Galbraith, Banking\nand Currency Committee Counsel. He seemed to buy\nthe approach and felt the Chairman would want to\nconvene the Committee speedily to report out the\nlegislation as a committee amendment which could be\noffered to the pending bill under the open rule.\nRep. Jack Wydler\nVery supportive. Urged that the President's\nstatement expresses sympathy for the people of\nNew York City who have been the victims of their\nelected leaders.\nRep. John Anderson\nEnroute back to Washington. Gave message to\nMike Masterson, who felt the Congressman would\nsupport this approach and issue a statement.\nRep. Stewart McKinney\nCould not be reached at his home in Connecticut.\nLeft message with Mrs. McKinney and with Jerry\nMcKiernan, his Press Aid here. McKiernan was\nenthusiastic.\nRep. J. William Stanton\nAlready had essence of the plan from Max.\n- 2 -\nRep. Joe Waggonner, Jr.\nInitially reacted with the following questions:\n-- Will New York City retirement plans be made\ncontributory?\n-- Will New York City impose salary freezes for\nCity employees?\n-- Are Federal audits planned for New York and\nNew York City in order that we may be assured\nof their financial positions?\n-- Will New York City's previous abuses of welfare\nprograms, higher education and retirement plans\nbe corrected?\n-- Will the Federal government be assured that\n\"essential services\" will not be allowed to go\non strike while being Federally financed?\n-- In the event of default on seasonal loans, does\nthe Federal government have a means to retrieve\nloaned monies -- i.e. withholding of commensurate\namounts of revenue sharing monies, etc. ?\nThe Congressman indicated he did not feel the\nPresident's announcement would be warmly accepted\nthroughout the country. However, he stated that he\nwould do everything he could to lend public support\nto the President on this matter and all others.\nRep. Ed Hutchinson\nAs a result of the President's announced loan\nprogram, believes Congress will forego action on\npending bankruptcy legislation.\nIn travelling through his district, the Congressman\nhas found that his constituents will only support\namendments to the Bankruptcy Law. They do not\nbelieve Federal assistance of any sort should be\nmade available to New York City. Therefore, the\nCongressman stated he would not be able to\npublicly support the President's announcement.\nThomas P. O'Neill, Jr. (D-Mass.)\nWill this require legislation? Yes. I'm delighted at the\nPresident's action. I won't be critical. \"I'm in Cape Cod\nand don't expect any calls but if he does he'll say that the\nPresident has done the right thing and thank God for the\nnation.\"\nPeter W. Rodino, Jr. (D-N.J.)\nSpoke with Francis O'Brien, A/A - Rodino will probably have\na reaction but don't know what that reaction will be until he\nsees the fact sheet on the President's statement.\nThomas L. Ashley (D-Ohio)\nHe talked to Seidman and wants fact sheet this afternoon and\nhopes that's understood so he can coordinate the necessary\nlegislative action. Ashley bill put onto the Senate calendar to\navoid filibuster. If he has to start with new language or bill\nthen something has to be done to keep the number of the bill,\nunderstand the legislative situation and act accordingly. He\ntalked to Burns and says Ford exposing himself a little on\ndirect loan -- politically he's exposed himself on direct loans\nand budget implications. There also may be problem because\nthis doesn't discourage other cities as the Ashley bill does by\nsetting conditions so onerous that they wouldn't consider it.\nThis smacks of direct bail out and people will shake their\nheads. He'll make no commitment until he sees the fact sheet\nand language of the bill. Bill Seidman told him that Ed Schmultz\nof the Counsel's office is to meet with him on Friday, November\n28.\nJohn J. McFall, (D-Calif.)\nIs this going to require going back to Committee with new\nlegislation? Hope not, we should be able to work something\nout legislatively. Glad its worked out this way and hope we\ncan work out the legislative situation next week.\nNorman F. Lent (R-N.Y.)\nCould not be reached.\nSENATOR\nPLACE\nTIME\nREACTION\nScott, H.\nD.C.\n4:15 *\nHis reaction is favorable.\nThe action to continue the\nviability of New York City\nis desirable. Will support it.\nBuckley\nNew York\n4:20\nSpoke to A.A. He will\ntransmit message and advise\nus of reaction.\nBrooke\nD.C.\n4:20\nSenator and A.A. unreachable.\nSpoke with Secretary, Sheila\nCrowley, but did not read\nthe message to her.\nMansfield\nFlorida\n5:15\nFine! The President played\nthis just right. The situation\ncould have been chaotic.\nN.Y. now has a chance to work\nout of a situation on a firm bas-\nis.\nJavits\nNew York\n5:30\nThe President has done well.\nI will issue a statement in\nsupport.\nProxmire\nMilwaukee\n5:40\nSounds alright to me. Will\nthe loans be direct treasury\nloans? If so, they will require\nauthorization and appropria-\n1040\ntion. The figures sound a\nLIGRARY\nlittle low.\n* all times P.M.\nTHE\nPRESIDENT HAS SHEN\nTHE WHITE HOUSE\nWASHINGTON\nNovember 28, 1975\nMEMORANDUM FOR THE PRESIDENT\nFROM:\nMAX L. FRIEDERSDORF m.b.\nHR7.\nSUBJECT:\nNew York City/Senator Proxmire\nBill Kendall personally delivered the New York City\nlegislation to Senator Proxmire today and received\na favorable reaction.\nI am attaching Kendall's brief report on the Proxmire\nmeeting.\nFORD LIBRARY\nTHE WHITE HOUSE\nWASHINGTON\nNovember 28, 1975\nMEMORANDUM FOR: MAX L. FRIEDERSDORF\nFROM:\nWILLIAM T. KENDALI\nSUBJECT:\nSenator Proxmire's reaction to the\nNew York City legislation\nI was able to deliver the New York City legislation to Senator Proxmire\npersonally this morning before he left for Wisconsin. He approves of\nthe legislation and hopes that it can be passed by the House by the middle\nof next week. His chief staff man was also in on the conference. The\nstaff man suggested two minor changes: (1) that GAO audit city finances- - -\nbut not necessarily before the loans are made-- - (2) and that a quarterly\nreport be submitted to the Congress from the President on the New Yo rk\nCity situation.\nProxmire cautioned his staff man that he wanted to accept whatever\nthe House sent over and that any such changes should be made on the\nHouse side. He feels that it will be necessary to lay down a cloture\npetition on Thursday for a possible Monday, December 8 vote. He thinks\nthat there are a good 45 Democratic votes for the bill.\nTHE WHITE HOUSE\nWASHINGTON\nPresident said on 12/9/75 that he\nwanted to hold on this statement - -\nBill was sent forward.\nper Jim Connor\nTHE WHITE HOUSE\nWASHINGTON\nDecember 9, 1975\nMR PRESIDENT:\nThe attached signing statement on New York\nSeasonal Financing Act of 1975 was prepared\nby EPB and approved by Bob Hartmann. Your\napproval is requested.\nApprove\nDisapproved\nJim Connor\nDecember 9, 1975\nSIGNING STATEMENT ON NEW YORK SEASONAL FINANCING ACT OF 1975\nI am signing into law today H.R. 10481, a bill authorizing the\nFederal Government to assist the City of New York in meeting its\ntemporary financing needs over the next two and one half years.\nUnder this legislation, the Federal Government is authorized\nto provide loans of up to $2. 3 billion a year to the State of New York.\nState authorities will in turn channel the funds to the City of New York\nto enable the city to continue providing essential services to its residents.\nBy the end of each fiscal year the loans are to be repaid to the Federal\nGovernment in full and with interest. It is anticipated that there will be\nno cost to the taxpayers in the rest of the United States.\nThis measure climaxes a long, arduous but ultimately\nsuccessful effort to ensure that New York assumes primary responsibility\nfor solving its own financial problems. They have begun this process\nthrough a self-help program. This includes:\n2\nOne, meaningful spending cuts have been approved to reduce the\ncost of running the City; Two, more than $200 million in new taxes have\nbeen voted; Three, payments to the City's noteholders will be postponed\nand interest payments will be reduced through passage of legislation by\nNew York State; Four, banks and other large institutions have agreed\nto wait to collect on their loans and to accept lower interest rates;\nFive, municipal employees will be required to bear part of the cost of\ntheir pension contributions and other reforms will be made in the pension\nfunds; Six, the City pension system is to provide additional loans of up\nto $2. 5 billion to the City. All of these steps -- adding up to $4 billion\n-- are part of an effort to provide financing and to bring the City's budget\ninto balance by the fiscal year starting July 1, 1977.\nI am gratified that these constructive efforts are\ncontinuing. I also want to take this opportunity today to commend the\nCongress for its rapid action in securing passage of this authorizing\n3\nbill; I look forward to a companion appropriations bill within\nthe next few days.\nWhile this occasion represents a significant milestone in\nresolving New York's financial difficulties, none of us should be lulled\ninto complacency about what still needs to be done. In many ways, this\nstill represents only the beginning for New York. As I have said before,\nthe provision of seasonal loans by the Federal Government is contingent\nupon the continued good faith efforts by the leaders of New York to carry\nout their own self-help program.\nLooking beyond the current self-help plan, let us recognize that\nin New York -- as in Washington and elsewhere around the country -- all\nof us still have a great responsibility to take the hard, tough steps that\nwill actually bring public spending into line with public revenues.\nA fundamental lesson to be learned from New York's experience\nis that sound fiscal management is an imperative of self-government.\n4\nNo individual, no family, no business, no city, no State, and no Nation\ncan go on indefinitely spending more money than it takes in.\nOF\nDEPARTMENT THE THE TREASURY\nPRESIDENT HAS\nSEEN\nTHE SECRETARY OF THE TREASURY\nWASHINGTON 20220\n1789\nRBC has SEHEN\nFebruary 2, 1976\nMEMORANDUM TO THE PRESIDENT\nSubject: Update on New York City and New York State\nThe New York City Loan Program\nTo date we have loaned $510 million under the New York\nCity Seasonal Financing Act of 1975. It is anticipated\nthat additional loans of $350 million will be made in\nFebruary and $400 million in March, bringing the total\noutstanding at the end of March to $1,260 million.\nThe loans are scheduled to be repaid in full during\nthe spring quarter. Each loan is directly secured by a\nspecific revenue source expected to flow to New York City\nduring the spring quarter. These sources total more than\n$2 billion and consist of City tax levy funds, State\nrevenue sharing funds, State aid to education, and prepay-\nments of aid to education and higher education. The State\nwill have to borrow to meet this and its other commitments.\nThus, timely repayments of the Federal loans to the City\ndepend upon the State's ability to borrow this spring.\nNew York State\nNew York State and its agencies face immense financing\nneeds in FY 1977. We are monitoring the situation very\nclosely, as is the Federal Reserve. Treasury and New York\nFederal Reserve personnel were in Albany last week to review\nNew York State's fiscal and borrowing situation. On the\nfiscal side, we believe New York State will be in sound\nshape if a reasonable FY 1977 budget is produced by the\nLegislature.\nThe key concern is New York State's needs this spring.\nThe State must raise $3.7 billion -- largely seasonal\nfinancing -- during the spring quarter.\n- 2 -\nOrdinarily, the seasonal needs would be funded by open\nmarket sales of tax anticipation notes. However, given the\noverall concerns regarding New York securities, there is\nat least some question whether a public sale of the entire\n$3.7 billion will be possible.\nAccordingly, I have asked Ed Yeo quietly to explore\nthe possibilities of establishing a nationwide back-up\nbank line of credit for New York State. To date, he has\nhad preliminary discussions with a limited group of bankers\nin New York City and on the West Coast. With the help of\nthe information we developed in Albany, this approach will\nbe pursued further.\nNew York City's Progress\nAttached are copies of recent correspondence I have\nhad with Mayor Beame (Tab A) and with Senators Proxmire\nand Stevenson (Tab B). These letters, along with information\nobtained from monitoring meetings of the Emergency Financial\nControl Board, indicate that New York City has made some\nprogress towards living within its revenue constraints.\nHowever, much remains to be done, especially in light of\nthe fact that revenues will fall below the estimates in\nthe current Financial Plan. That Plan is now being revised\nto reflect these shortfalls and other changes. The revised\nPlan will be ready by mid-February.\nCongressional Oversight\nAs reflected in the attached correspondence with\nSenators Proxmire and Stevenson, Congressional interest\nremains strong. Our liaison work with the staffs of the\nrelevant Committees is continuing. We understand informally\nthat Senate Banking and House Appropriations are planning\noversight hearings in April.\nWilliam E. Simon\nAttachments\nOF\nTHE\nTHE 1789 TREASURY\nTHE SECRETARY OF THE TREASURY\nFORD\nWASHINGTON 20220\nJAN 20 1976\nDear Mayor Beame:\nI am sure that by now you have seen the Arthur\nAndersen & Co. report regarding New York City's\nfinancing requirements under PL 94-143, and have had\ntime to digest its substance. The report calls\nattention to a number of reasons for concern about the\nultimate success of the seasonal financing loan program\nunder PL 94-143. I would appreciate your prompt\nresponses to the concerns raised by the Andersen report.\n(1) Changes in programs planned for this fiscal\nyear call for expenditure cuts of $200 million in the\nexpense budget on an annual basis. As of December 29,\n1975, savings having an annual effect of only $50 million\nhad been identified and only $12 million actually achieved.\nI understand, however, that further substantial progress\nhas been made since December 29, 1975, and has been\nreported to the Emergency Financial Control Board. Please\nprovide me with the details of these savings. In addition,\nI would appreciate your arranging to have future progress\nreports on the identification and achievenent of scheduled\nexpenditure cuts transmitted to me when they are submitted\nto the Control Board.\n(2) Staff of the City Comptroller have called\nattention to the possible loss of $571 million in revenues\nin this and the next two fiscal years. How do you evaluate\nthis possibility? More generally, what revisions in the\nFinancial Plan are contemplated to cover any revenue\nshortfall? Are there alternative revenue sources? The\nTreasury Department must be immediately informed about\nall revenue developments which might affect the size or\ntiming of the City's loan requests and the availability\nof revenues for repayment.\n- 2 -\n(3) The Financial Plan, drawn-up in October, assumes\nthat salaries will be maintained at the 1975-1976 level\nthrough FY 1978, that savings will offset the effects of\ninflation on other than personal service costs, and that\nthe public assistance caseload will remain stable. How\ndo you now evaluate these assumptions? Please keep me\ninformed about developments which affect them.\n(4) Recognition of unfunded pension liabilities\nwill raise future pension costs substantially. How will\nthis change the Financial Plan?\n(5) The Andersen report indicates a shortfall of\n$408 million in current cash sources to cover this year's\nneeds. Prepayment of $192 million of real estate taxes\nlast year accounts for nearly half of this amount. Will\nprepayments approach $192 million this year? What cash\nsources are available to cover the $408 million shortfall?\n(6) The Andersen report expresses serious doubts\nabout the City's current ability to generate reliable\nfinancial data. What steps have been taken to assure\nthat reliable data, as agreed upon in the Credit Agreement,\nare supplied to the Treasury on a timely basis?\nI look forward to your reply by January 31. It is\nabsolutely essential that the Treasury be kept informed\nof all developments pertaining to the implementation of\nthe Financial Plan, any revisions in it, and to be supplied\nreliable up-to-date financial data on a timely basis.\nWithout such information and data, we cannot make the\njudgments we are required under the enabling legislation.\nSincerely yours,\n(Signed) William Et. Simon\nWilliam E. Simon\nThe Honorable\nAbraham Beame\nMayor of the City of New York\nCity Hall\nNew York, New York 10007\nCC: Governor Carey\nEFFECTY\n1664\nTHE CITY OF NEW YORK\nOFFICE OF THE MAYOR\nNEW YORK, N.Y. 10007\nJanuary 29, 1976\nMr. William E. Simon\nSecretary of the Treasury\nWashington, D.C. 20220\nDear Mr. Secretary:\nThis is in response to your letter of January 20, 1976 in which you pose\nseveral specific questions.\n1. With reference to expenditure cuts of $ 200 million in the expense\nbudget, substantial progress has been made since the December 29, 1975 report\nof Arthur Andersen & Co. As reflected in the enclosed Status Report to the\nEmergency Financial Control Board, as of January 23, 1976 action has been com-\npleted on 60% of the programs to be cut or in which revenues are to be increased\nin this fiscal year. Timely progress is being made on an additional 30%.\nThese reductions amount to $95.2 29 million in annualized savings out of\n$116. 2 million in anticipated savings.\nTen percent of the planned reductions are behind schedule. This repre-\nsents 16 reduction actions amounting to $20.9 million in annualized savings.\nThe principle item involved is $17.5 million in reduced Medicaid costs. At the\ntime the Financial Plan was prepared, it was expected that this saving could\nbe achieved by administrative action. However, it has since been determined\nthat State legislative action may also be necessary. This action is contemplated\nin the State budget recently submitted to the Legislature.\nI have directed that future progress reports on these matters be trans -\nmitted to the Treasury at the time of transmittal to the Control Board. It is\nanticipated these reports will be monthly.\n-2-\n2. With reference to the reported possible loss of $571 million in\nrevenues over this and the next two fiscal years, the Financial Plan is cur-\nrently being revised. This revision is scheduled to be completed by February 15,\n1976 and should answer fully the revenue shortfall questions you raise.\nIn the present year, the Financial Plan is being adjusted to reflect a\n$35 million shortfall in General Fund revenues as well as changes in other\nrevenues, expenditures and debt service. The revised Plan will include pro-\nvision for the impact of all required changes during the three years covered by\nthe Plan.\n3. The maintenance of salaries at the 1975-1976 level through FY 1978\nremains in collective bargaining. The Financial Plan provides that salaries\nbe maintained at said levels. To the extent that increases occur, they must be\noffset in savings in the same manner that inflation is offset in other areas covered\nby the Plan.\nThe public assistance case load level is not stable. The current rate of\nincrease in the case load is slightly less than anticipated. However, indications\nare that there may be an increase next year that had not been previously anti-\ncipated. This matter is being considered in connection with the current revision\nto the Financial Plan.\nIt is significant to note that despite the smaller case load increase this\nyear, the cost of public assistance is larger than estimated. This is due directly\nto rent increases which increase the welfare grants.\n4. As you are aware, the Mayor's Management Advisory Board (the\n\"Shinn Committee\") is investigating the matter of unfunded pension liabilities\nand their effect on future pension costs. The Committee is scheduled to report\nabout March 1, 1976. A determination as to the effect of these liabilities on the\nFinancial Plan will be made after this report is received.\n5. With regard to cash sources available to cover cash shortfalls, I\nattach a memorandum from the Hon. Harrison J. Goldin, Comptroller of the\nCity of New York, addressed to the Emergency Financial Control Board which\ndiscusses this question in detail.\nA significant aspect of the cash sources question concerns the ability of\nthe five New York City employee pension funds to meet their commitment to\n-3-\npurchase New York City serial bonds. The next purchase is to be on or about\nFebruary 20, 1976. This purchase cannot be assured without legislation con-\ncerning certain provisions of the Internal Revenue Code. I am pleased that\nTreasury has communicated to me and the Joint Committee on Internal Revenue\nTaxation its support in principle of this proposed legislation. If this objective\ncannot be achieved in time for the pension investment to be made as scheduled,\nthe City will seek to advance the next intended loan from the Treasury.\n6. The City has taken substantial steps to improve its financial systems\nreporting. I attach a memorandum to the Control Board which addresses this\nissue specifically.\nThe City is eager to maintain close communication with Treasury and\nwill make every effort to keep your office timely and fully advised of the pro-\ngress of the implementation of the Financial Plan.\nSincerely,\nAbraham D. Beame\nMAYOR\nTHE CITY OF NEW YORK\nOFFICE OF THE COMPTROLLER\nHARRISON J. GOLDIN\nCOMPIPOLLT#\nJanuary 21, 1976\nTO:\nEmergency Financial Control Board\nFROM:\nHarrison J. Goldin\nSUBJECT: Arthur Andersen Report -\nCash Shortfall\nThe attached memorandum should explain\nthe confusion surrounding Arthur Andersen's\nassertion of a $400 million cash shortfall.\nTHE CITY OF NEW YORK\nOFFICE OF THE COMPTROLLER\nMUNICIPAL BUILDING.\nNEW YORK. N. Y. 10007\nHARRISON J. GOLDIN\nSTEVE CLIF FORD\nCOMPTROLLER\nSPECIAL DEPUTY COMPTROLLER\nJanuary 21, 1976\nTO:\nHarrison J. Goldin\nFROM:\nSteve Clifford\nSUBJECT: Arthur Andersen Report - Cash Shortfall\nArthur Andersen stated that \"to meet the cash requirements\nfor fiscal 1976 the city must find additional sources of\nover $400 million. \" The Comptroller's Office made available\nto Arthur Andersen detailed computerized cash projections\nfor the remainder of the fiscal year demonstrating that all\ncash shortages can be covered by seasonal loans plus long\nterm financing already arranged with the City's pension\nfunds. We do not know whether these projections were reviewed\nin depth by Arthur Andersen; however, they were not included\nin the discussion of cash needs in their report.\nInstead, they based their assertion of a $408 million cash\nshortfall on their analysis of aggregated annual financial\nplan totals displayed on page 52 of the report. This analysis\nfailed to adjust for a number of distinctions between cash\nflow on one hand and accrual-based financial plan data on\nthe other hand. Specifically, the following items should\nhave been included in Arthur Andersen's analysis:\n1. State Advance - $162 million\nOf the funds advanced by the State to the City\nin the fourth quarter of fiscal 1974-75, only\n$628 million was included as financial plan\nrevenue for 1975-76, the remainder being credited\nto 1974-75. Were the State to discontinue this\nadvance, cash receipts in 1975-76 would then be\n$628 million less than accrued revenue under the\nplan. However, since the State will advance\n$800 million this fiscal year, cash receipts\nwill exceed accrued revenue by $162 million.\n2. Reserve -for Disallowances - $223 million\nThe City included in its financial plan an\nexpense of $315 million for reserve for aid\ndisallowances. As we informed Arther Andersen,\nwe do not expect to experience the full cash\nimpact of this accrued expense in this fiscal\nyear. Our cash forecast assumes that\n$223 million of this reserve will remain\na non-cash charge in FY 76-77.\n3. Expenses to be Paid Subsequent to June 30, 1976 -\nApproximately $83 million\nThe City's financial plan includes accrued expenses\nof $383 million to be paid after June 30, 1976.\nExpenses paid in fiscal 1975-76 to be charged to\nprior years is estimated at $300 million of which\n$280 million had been paid through 11/30/75. Cash\nneeds for the current fiscal year should be decreased\nby the difference, $83 million.\n4. Decrease in Expense Aid Receivables - $136 million\nAs of June 30, 1975, valid, collectible expense\nbudget receivables of State and Federal aid were\nestimated by the Office of Management and Budget\nto be $604 million. Through November 30, 1975\nwe had collected $538 million of these receivables\nand we expect to collect an additional $66 million\nin this fiscal year. According to the City's\nfinancial plan, receivables as of June 30, 1976\nwill be $468 million. The difference, $136 million,\nshould appear as a source of funds.\n5. Decrease in Capital Aid Receivable - $78 million\nAs of June 30, 1975, capital aid receivables were\n$148 million. They have decreased by $78 million\nto $70 million as of December 31, 1975. We expect\nthe year end receivables to be approximately the\nsame as December 31st.\n6. Other, Including Non-Plan and Non-Budget Cash\nFlows - $10 million negative\nThe above six adjustments decrease cash needs or increase\ncash sources by a total of $672 million. Accordingly, rather\nthan a cash deficit of $408 million for 1975-76, Arthur\nAndersen's analysis should indicate a surplus of $264 million.\nAs stated in the documents supplied to Arthur Andersen by the\nHarrison J. Goldin\n-3-\nJanuary 21, 1976\nComptroller's Office, we are currently forecasting a surplus\nof $191 million before adjusting for possible future State\nlegislative actions, not reflected in the financial plan,\nwhich may impact this year's cash flow. This document also\nnoted that our projected cash outflows are $73 million higher\nthan the financial plan. By adding this $73 million to the\n$191 million, our detailed cash forecast can be reconciled to\nthe $264 million indicated by the aggregate annual flow approach\nemployed by Arthur Andersen.\nIn light of the above, we have asked Arthur Andersen to issue\na clarifying amendment to their report.\n20\nTO: Members of the EFCB\nFROM: Steven A. Clifford, Office of the Comptroller\nDavid G. Woodbridge, Office of the Mayor\nSUBJECT: Arthur Andersen & Co. 's Comments on Current and Proposed City\nFinancial Management Systems\nThe Arthur Andersen & Co. report states that\na systems change of the magnitude\nenvisioned might take substantially longer to implement than the present schedule\nof 18 months. This is an appropriate observation as the systems changes mandated\non the City are immense. However, these changes are required by law. Accordingly,\nwe are organizing our efforts with a view to complying with the statutory mandate.\nRecognizing the critical shortage of City personnel available for this task, we have\nlaid out the program SO that three consulting firms will be involved, two of which\nhave already been selected and have been at work on the project for a number of\nweeks. While this project will be difficult to accomplish within the time frame avail-\nable, we believe, nevertheless, that it is not an impossible goal.\nWith respect to the present accounting activities, Arthur Andersen & Co. stated\nthat\nit is our conclusion that the present circumstances demand immediate\nimprovement. \" In view of the City's limited personnel resources, we are devoting\nprimary attention to accomplishing the major systems project. However, steps are\nbeing taken on an interim basis that will improve the City's recordkeeping and re-\nporting. For example, the City is revising its procedures so that monthly statements\ncan be issued of the type called for in the credit agreement with the Treasury Depart-\nment. As we have advised the U.S. Treasury, initially these statements will be\npartially incomplete and no doubt deficient with respect to some of the information\nreported. However, continuing efforts will be made to improve the completeness\nand reliability of these reports. In the months ahead other steps will be under way\nto speed up the processing of data in City agencies and improve the monitoring of\nState and Federal aid collections.\nB\nWILLIAM PROXMIRE, WIS., CHAIRMAN -\nJOHN SPARKMAN, ALA.\nJOHN TOWER, Trx.\nMARRISON A. WILLIAMS, JR., N.).\nEDWARD W. BROOKE, MASS,\nTHOMAS J. MC INTYRE. N.H.\nBOB PACKWOOD, ONEG.\nALAN CRANSTON, CALIF\nJESSE HELMS. N.C.\nADLAI E. STEVENSON, ILL.\nJAKE GARN, UTAH\nJOSEPH R. BIDEN, JR., DEL.\nROBERT MORGAN, N.C.\nUnited States Senate\nKENNETH A. MC LEAN, STAFF DIRECTOR\nCOMMITTEE ON BANKING. HOUSING AND URBAN AFFAIRS\nANTHONY T. CLUFF. MINORITY STAFF DIRECTOR\nMARY FRANCES DE LA PAVA, CHIEF CLERK\nWASHINGTON, D.C. 20510\nJanuary 23, 1976\nThe Honorable William E. Simon\nSecretary of the Treasury\nFifteenth Street and Pennsylvania, N.W.\nWashington, D.C. 20220\nDear Secretary Simon:\nOn January 14, 1976, you announced the commitment\nof an additional $140 million in loans to New York City\nbeyond the $370 million previously advanced pursuant to\nthe New York City Seasonal Financing Act of 1975. In\ndoing so, we understand that you concluded, as required\nby law, that there is a \"reasonable prospect of repayment. \"\nHowever, on the same day you announced receipt of an Arthur\nAndersen & Co. report on the financial condition of New\nYork City which generally concluded that the City does not\nyet have adequate financial accounting and reporting systems\nand that spending reductions are running behind schedule.\nThe Arthur Andersen report points out that there are many\nquestionable assumptions and deficiencies in the City's\nthree-year financial plan, including unrealistic pro-\njections of anticipated revenue and prospects for holding\ndown expenditures through fiscal year 1978.\nIn light of that report, we would appreciate being\napprised of the factors which led you to conclude that\nthere is nevertheless a reasonable prospect of repayment\nby June 30, 1976. In addition, we would appreciate your\nresponse to the following questions which are suggested by\nthe report:\n1.\nWhat action is anticipated by New York City and the\nTreasury if the short-term debt moratorium is declared\ninvalid by the courts?\n2.\nHas New York State made a firm commitment to prepay\n$800 million in State aid in the spring of each year during\nthe life of New York City's three year financial plan? What\nis the source of such funds? Has the City accounted for\nthese funds properly to date, or have there been instances\nof double-counting, e.g. as both cash on hand and revenues\ncoming due. What steps have been taken to remedy any pro-\nblems rising from erroneous accounting for these funds?\nThe Honorable William E. Simon\nJanuary 23, 1976\nPage Two\n3. Has the City specifically identified the reductions in\nbudgeted expenditures needed to fulfill the plan (total\nof $1.5 billion during the three-year period) ? If so,\nwould you specify such reductions?\n4. Does New York City or New York State have a contingency\nplan for raising additional revenues or making additional\nexpenditure reductions in the event the assumptions of the\nfinancial plan are not met? If so, would you describe that\nplan?\n5. Has the City entered into negotiations to reduce the\ncost of City pension plans? If not, why not, and what are\nthe prospects?\n6. The Arthur Andersen report states that the City's financial\nplan continues to include operating expenditures in the\ncapital budget ($677 million in Fiscal 1976, $607 million\nin Fiscal 1977, $557 million in Fiscal 1978) and that this\npractice will continue over a ten year period before being\nended. The report views this as a \"major departure from\nsound accounting and public reporting\" and implies that it\ncould hinder access by New York City to the capital markets\nafter Fiscal 1978. Why is the practice being allowed to\ncontinue for so long? What efforts have you made to eliminate\nthis practice?\n7. The Andersen & Co. report suggests that the City's\nimplementation of the State Comptroller's Uniform System of\nAccounts may not be possible by July 1, 1977. If not, why\nnot and what must be done to achieve that goal.\n8. In your judgment, has the City achieved an adequate\ninterim system of budget control? If not, why not?\nYour cooperation is appreciated.\nSincerely,\nWilliam E. Proxmire\nAdlai E. Stevenson\nOF\nTHE\nTHE SERVICES\nTHE SECRETARY OF THE TREASURY\nWASHINGTON 20220\n12A9\nDear Mr. Chairman:\nI am pleased to respond to your request for additional\ninformation concerning our conclusion that there is a\nreasonable prospect that New York City will repay the loans\nmade to date under the New York City Seasonal Financing\nAct of 1975. Your concern, as I understand it, is based on\nthe observation, contained in the report to me prepared by\nArthur Andersen & Co., that there are many questionable\nassumptions and deficiencies in New York City's current\nthree-year financial plan.\nMany of the concerns provoked by the Andersen report\nand reinforced in recent days by the prospect of reduced\naid under recently announced State and Federal budgets\nappear to be based on the erroneous assumption that the\nthree-year plan is immutable. It is not. Revenue short-\nfalls or expenditure overruns, arising from unforeseen\ncircumstances or from miscalculations by the City or the\nEmergency Financial Control Board last October, can and\nmust be offset by modifying the plan to compensate for such\nshortfalls or overruns. I expect that timely compensating\nactions will be taken as warranted by the emerging facts.\nEven now the City and Control Board are amending the plan\nto compensate for actual and newly projected revenue short-\nfalls and expenditure overruns that have been recognized\nor acknowledged since October. These revisions are scheduled\nto be completed by mid-February.\nWe expect the modified plan to take account of many\nof the concerns identified in the Andersen report in a\nmanner designed to insure that New York City will complete\nthe current fiscal year with its cash flows in balance. Under\nsuch circumstances, New York City will have ample cash to meet\nall of its obligations, including the Federal loans. It is\nthis conclusion which has served as the primary basis for my\nfinding that a reasonable prospect of repayment currently\nexists.\n- 2 *\nIn addition, however, there are several other specific\nprotections designed to insure repayment of the Federal\nloans. First, pursuant to the Credit Agreement dated\nDecember 30, 1975, between the Treasury, New York State,\nNew York City, and the Emergency Financial Control Board,\neach Federal loan is directly secured by a specific and\nspecified State aid payment flowing to New York City.\nThese payments will CO into a special account from which\ndisbursements cannot be made, except with my permission.\nThese \"trasped\" funds will be applied first to the repay-\nment of outstanding Federal loans. Moreover, New York\nCity will need seasonal financing next year. City officials\nrecognizo that this year's seasonal loans must be repaid in\norder to obtain future seasonal financing. This statutory\nrequirement serves as a powerful incentive to do what is\nnecessary to repay the Federal Loans on time.\nIn short, I an satisfied that a number of considerations\nprovide an adequate basis for my finding that there currently\nexists a reasonable prospect of repayment.\nYour letter also identified a number of specific\nconcerns regarding the financial situation In New York City.\nMany of these concerns mirror questions I recently addressed\nto ayor Soame. Accordingly, I an attaching to this lottor\na copy of my letter to Mayor Beame and his response thereto.\nMy responses to your specific questions are set forth below.\n1. Given the judicial decisions to date, we do not\nexpect the moratorium to be overturned. In the event teat\nit is, our actions will denend cn the actions of other parts\nof the financing component of the three-year plan.\nSpecifically, we would want to know whether the pension funils,\nthe banks and the State adhere to their commitments. The\nnotes in moratorium would, of course, be in default. Hew York\nCity and the Control Board would then have to decide whether\nto pay interest on these notes while the courts adjudicated\nclaims of notcholders.\n2. Governor Carey has agreed to take the actions\nnecessary for the prepayment of $300 million in State aid\nto New York City during the period covered by the financial\nplan. In addition, at the time the Credit Agreement was\nexecuted, I received from the leaders of the New York State\nSenate and Assembly written commitments to support the pay-\nment of such advances.\n- 3 -\nTo make these advances to New York City and to other\njurisdictions, New York State will be required to issue\nshort term debt during the months of April, May and June.\nSpecifically, in connection with this spring's advances,\nthe State's cash flow projections for its next fiscal year\nindicate the funds will be advanced in three parts: $400\nmillion April 1, $200 million May 1 and $200 million June 1.\nI do not believe the aid advances are materially double\ncounted in New York City's revenue and cash projections.\nCity officials recognize that the extra cash provided by\nadvancing aid payments to the spring quarter was largely\nused last year.\n3. New York City has identified the specific reductions\nin expenditures for this fiscal year. According to Mayor\nBeame, itemization of specific reductions for fiscal years\n1977 and 1978 is now in progress and will be available\nshortly.\n4. In his attached response to me (see paragraph 2)\nMayor Beame indicates that contingency plans will be reflected\nin further revisions to the financial plan on February 15.\nI shall have a further response to you on this matter after\nwe have evaluated those revisions.\n5. The Mayor's Management Advisory Board on pensions\nis scheduled to report on March 1, 1976. We expect the\nreport to include recommendations on reducing the cost to\nthe City of its pension plans. Public Law 94-143 does\nnot provide me with legal authority to direct New York City\nto reduce specific expenditure items or otherwise control\nthe City's management or operations. I will, of course, be\nmonitoring all aspects of New York City's costs structure\nin connection with my statutory responsibility.\n6. Under State law, New York City must eliminate\noperating expenses from its capital budget over a ten year\nperiod and the financial plan under which Congress and the\nPresident acted and under which New York- City is now operating\ncontemplates such a reduction period. While it obviously\nwould be most desirable to accelerate the process, it is not\nwithin my statutory authority to direct New York City to do so.\n7. City officials contend that while implementation\nof a uniform accounting system by July 1, 1977 will be difficult,\nthey will be able to meet the target date.\n- 4 -\n8. Mayor Beame assures me that \"the City has taken\nsubstantial steps to improve its financial systems reporting. \"\nHowever, there is not yet in place an obligation encumbrance\nagency reporting system. Such a system, even in manual form,\nwould be extremely helpful in preventing expenditure overruns.\nNew York City and Control Board officials also recognize\nthis pressing need and efforts are underway to implement a\nworkable interim system within a matter of months.\nI am pleased and heartened by your interest. As you\nknow, we have established a staff level liaison group with\nthe Senate Banking Committee and the other Congressional\ncommittees directly concerned with the implementation of\nthe seasonal loan program to review relevant matters on an\nongoing basis. Please let me know if I can be of further\nassistance.\nSincerely yours,\nWilliam E. Simon\nThe Honorable\nWilliam E. Proxmire, Chairman\nCommittee on Banking, Housing\nand Urban Affairs\nUnited States Senate\nWashington, D.C. 20510\nTHE OF\nTHE SECRETARY OF THE TREASURY\nTHE\nWASHINGTON 20220\n1739\nDear Adlai:\nI am pleased to respond to your request for additional\ninformation concerning our conclusion that there is a\nreasonable prospect that New York City will repay the loans\nmade to date under the New York City Seasonal Financing\nAct of 1975. Your concern, as I understand it, is based on\nthe observation, contained in the report to me prepared by\nArthur Andersen & Co., that there are many questionable\nassumptions and deficiencies in New York City's current\nthree-year financial plan.\nMany of the concerns provoked by the Andersen report\nand reinforced in recent days by the prospect of reduced\naid under recently announced State and Federal budgets\nappear to be based on the erroneous assumption that the\nthree-year plan is immutable. It is not. Revenue short-\nfalls or expenditure overruns, arising from unforeseen\ncircumstances or from miscalculations by the City or the\nEmergency Financial Control Board last October, can and\nmust be offset by modifying the plan to compensate for such\nshortfalls or overruns. I expect that timely compensating\nactions will be taken as warranted by the emerging facts.\nEven now the City and Control Board are amending the plan\nto compensate for actual and newly projected revenue short-\nfalls and expenditure overruns that have been recognized\nor acknowledged since October. These revisions are scheduled\nto be completed by mid-February.\nWe expect the modified plan to take account of many\nof the concerns identified in the Andersen report in a\nmanner designed to insure that New York City will complete\nthe current fiscal year with its cash flows in balance. Under\nsuch circumstances, New York City will have ample cash to meet\nall of its obligations, including the Federal loans. It is\nthis conclusion which has served as the primary basis for my\nfinding that a reasonable prospect of repayment currently\nexists.\n- 2 -\nIn addition, however, there are several other specific\nprotections designed to insure repayment of the Federal\nloans. First, pussuant to the Credit Agreement dated\nDecember 30, 1975, between the Treasury, New York State,\nNew York City, and the Emergency Financial Control Board\nGERALD R. FORD LIBRARY\neach Federal loan is difectly secured by a specific and\nspecified State aid payment flowing to New York City.\nThese payments will go into a special account from which\ndisbursements cannot be made, except with my permission.\nThese \"trapped\" funds will be applied first to the repay-\nment of outstanding Federal loans. Moreover, New York\nCity will need seasonal financing next year. City officials\nrecognize that this year's seasonal loans must be repaid in\norder to obtain future seasonal financing. This statutory\nrequirement serves as a powerful incentive to do what is\nnecessary to repay the Federal loans on time.\nIn short, I am satisfied that a number of considerations\nprovide an adequate basis for my finding that there currently\nexists a reasonable prospect of repayment.\nYour letter also identified a number of specific\nconcerns regarding the financial situation in New York City.\nMany of these concerns mirror questions I recently addressed\nto Mayor Beame. Accordingly, I an attaching to this letter\na copy of my letter to Mayor Beame and his response thereto.\nMy responses to your specific questions are set forth below.\n1. Given the judicial decisions to date, we do not\nexpect the moratorium to be overturned. In the event that\nit is, our actions will depend on the actions of other parts\nof the financing component of the three-year plan.\nSpecifically, we would want to know whether the ponsion funds,\nthe banks and the State adhere to their commitments. The\nnotes in moratorium would, of course, be in default. New York\nCity and the Control Board would then have to decide whether\nto pay interest on these notes while the courts adjudicated\nclaims of noteholders.\n2. Governor Carey has agreed to take the actions\nnecessary for the prepayment of $800 million in State aid\nto New York City during the period covered by the financial\nplan. In addition, at the time the Credit Agreement was\nexecuted, I received from the leaders of the New York State\nSenate and Assembly written commitments 00 support the pay-\nment of such advances.\n- 3 -\nTo make these advances to New York City and to other\njurisdictions, New York State will be required to issue\nshort term debt during the months of April, May and June.\nSpecifically, in connection with this spring's advances,\nthe State's cash flow projections for its next fiscal year\nindicate the funds will be advanced in three parts: $400\nmillion April 1, $200 million May 1 and $200 million June 1.\nI do not believe the aid advances are materially double\ncounted in New York City's revenue and cash projections.\nCity officials recognize that the extra cash provided by\nadvancing aid payments to the spring quarter was largely\nused last year.\n3. New York City has identified the specific reductions\nin expenditures for this fiscal year. According to Mayor\nBeame, itemization of specific reductions for fiscal years\n1977 and 1978 is now in progress and will be available\nshortly.\n4. In his attached response to me (see paragraph 2)\nMayor Beame indicates that contingency plans will be reflected\nin further revisions to the financial plan on February 15.\nI shall have a further response to you on this matter after\nwe have evaluated those revisions.\n5. The Mayor's Management Advisory Board on pensions\nis scheduled to report on March 1, 1976. We expect the\nreport to include recommendations on reducing the cost to\nthe City of its pension plans. Public Law 94-143 does\nnot provide me with legal authority to direct New York City\nto reduce specific expenditure items or otherwise control\nthe City's management or operations. I will, of course, be\nmonitoring all aspects of New York City's costs structure\nin connection with my statutory responsibility.\n6. Under State law, New York City must eliminate\noperating expenses from its capital budget over a ten year\nperiod and the financial plan under which Congress and the\nPresident acted and under which New York City is now operating\ncontemplates such a reduction period. While it obviously\nwould be most desirable to accelerate the process, it is not\nwithin my statutory authority to direct New York City to do so.\n7. City officials contend that while implementation\nof a uniform accounting system by July 1, 1977 will be difficult,\nthey will be able to meet the target date.\n- 4 -\n8. Mayor Beane assures me that \"the Cityhas taken\nsubstantial steps to impoove its financial systems reporting.\"\nHowever, there is not yet in place an obligatonn encumbrance\nagency reporting system. Such at system, even in manual form.\nwould be extremely helpful in preventing expenditure overruns.\nNew York City and Control Board officials also recognize\nthis pressing need and efforts are underway to implement a\nworkable interim system within a matter of months.\nI am pleased and heartened by your interest. As you\nknow, we have established a staff level liaison group with\nthe Senate Banking Committee and the other Congressional\ncommittees directly concerned with the implementation of\nthe seasonal leen program to review relevant matters on an\nongoing basis. Please let me know if I can be of further\nassistance.\nWith best regards,\nSincerely yours,\nWilliam E. Simon\nThe Honozable\nAdlai E. Stevenson\nUnited States Senate\nWashington, D.C. 20510\nOF\nREPARTMENT THE TREASURY\nTHE\nTHE SECRETARY OF THE TREASURY\nWASHINGTON 20220\n1789\n2/2/76\nMEMORANDUM TO THE PRESIDENT\nSubject: Update on New York City and New York State\nThe New York City Loan Program\nTo date we have loaned $510 million under the New York\nCity Seasonal Financing Act of 1975. It is anticipated\nthat additional loans of $350 million will be made in\nFebruary and $400 million in March, bwinging the total\noutstanding at the end of March to $1,260 million.\nThe loans are scheduled to be repaid in full during\nthe spring quarter. Each loan is directly secured by a\nspecific revenue source expected to flow to New York City\nduring the spring quarter. These sources total more than\n$2 billion and consist of City tax levy funds, State\nrevenue sharing funds, State aid to education, and prepay-\nments of aid to education and higher education. The State\nwill have to borrow to meet this and its other commitments.\nThus, timely repayments of the Federal loans to the City\ndepend upon the State's ability to borrow this spring.\nNew York State\nNew York State and its agencies face immense financing\nneeds in FY 1977. We are monitoring the situation very\nclosely, as is the Federal Reserve. Treasury and New York\nFederal Reserve personnel were in Albany last week to review\nNew York State's fiscal and borrowing situation. On the\nfiscal side, we believe New York State will be in sound\nshape if a reasonable FY 1977 budget is produced by the\nLegislature.\nThe key concern is New York State's needs this spring.\nThe State must raise $3.7 billion -- largely seasonal\nfinancing -- during the spring quarter.\n- 2 -\nOrdinarily, the seasonal needs would be funded by open\nmarket sales of tax anticipation notes. However, given the\noverall concerns regarding New York securities, there is\nat least some question whether a public sale of the entire\n$3.7 billion will be possible.\nAccordingly, I have asked Ed Yeo quietly to explore\nthe possibilities of establishing a nationwide back-up\nbank line of credit for New York State. To date, he has\nhad preliminary discussions with a limited group of bankers\nin New York City and on the West Coast. With the help of\nthe information we developed in Albany, this approach will\nbe pursued further.\nNew York City's Progress\nAttached are copies of recent correspondence I have\nhad with Mayor Beame (Tab A) and with Senators Proxmire\nand Stevenson (Tab B). These letters, along with information\nobtained from monitoring meetings of the Emergency Financial\nControl Board, indicate that New York City has made some\nprogress towards living within its revenue constraints.\nHowever, much remains to be done, especially in light of.\nthe fact that revenues will fall below the estimates in\nthe current Financial Plan. That Plan is now being revised\nto reflect these shortfalls and other changes. The revised\nPlan will be ready by mid-February.\nCongressional Oversight\nAs reflected in the attached correspondence with\nSenators Proxmire and Stevenson, Congressional interest\nremains strong. Our liaison work with the staffs of the\nrelevant Committees is continuing. We understand informally\nthat Senate Banking and House Appropriations are planning\noversight hearings in April.\nWilliam E. Simon\nAttachments"
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