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1534735
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1975/08/08 - New York City Meeting
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1534735
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1975/08/08 - New York City Meeting
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James M. Cannon Files (Ford Administration)
James Cannon's Meetings Files
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New York City financial crisis
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1975-08-01
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The original documents are located in Box 50, folder "1975/08/08 - New York City
Meeting" of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 50 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
MEETING WITH FELIX ROHATYN, BILL
SEIDMAN, GEORGE MITCHELL, CHARLES
PARTI, DUNHAM AND DELANEY
Friday, August 8, 1975
10:00 a.m.
"New York City"
Room 3312 Treasury Building
THE WHITE HOUSE
WASHINGTON
August 1, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
JIM CANNON
SUBJECT:
New York City Financial Situation
Here is a status report by Dick Dunham on the financial
situation of New York City as it stands today.
This was prepared by Dick in consultation with Treasury
officials and Bill Seidman.
Attachment
CC: The Vice President
Secretary Simon
Mr. Seidman
THE WHITE HOUSE
WASHINGTON
August 1, 1975
MEMORANDUM TO:
JIM CANNON
FROM:
DICK DUNHAM
SUBJECT:
New York City Financial Crisis
The purpose of this memorandum is to bring you up to date on
the New York City financial crisis.
The central question was and is will New York City go into
default, either in August, through the failure of Big MAC
to market additional securities for the City, or later
in the fall when New York City must market its own securities.
The first test will be on August 4 when the underwriting
group headed by Chase Manhattan tries to organize for a sale
on August 7. The success or failure of next week's sale
is, therefore, the first hurdle.
Since this sale and any subsequent issues of New York City
or Big MAC depend primarily on investor perception, as much
as the actual accounting facts, the acid test is the
credibility of the Mayor's actions to correct the enormous
imbalances and accumulated deficits of the City's finances.
City Actions
The Mayor has taken, or is taking, a series of steps which,
if actually put into effect, will have both a substantive
fiscal effect of restoring balance and also a dramatic
effect which will help to restore investor confidence.
The steps announced include a wage freeze, cuts in the City
University budget, capital budget cuts, abolition of a few
agencies, a $.15 subway and bus increase, and bridge toll
increases. The value of these proposals to the current
City budget is around $500 million. Whether or not this
amount is sufficient to balance the current City budget
and/or to restore investor confidence in New York City
finances is, of course, unknown.
- 2 -
Two points in regard to these proposals must be kept in mind.
First, they must be enacted and implemented by the Mayor and,
secondly, the union rank and file and the general public
must accept them before their impact can be completely
evaluated.
That is, if the Mayor backs down or the City Council fails
to enact the wage freeze or if there is a substantial dis-
ruption in city services by union member action, investor
confidence will not be restored.
August Big MAC Sale
The underwriting group handling the August 7 sale of $1 billion
in Big MAC bonds has of this time, Friday p.m., put together
a tentative package which will provide the funds needed to
cover the August cash flow needs of the City and to prevent
default of the large note issue coming due on August 22.
The package includes $250 million by the banks, a $100 million
rollover of August notes held by the banks, $120 million
State welfare advance, $270 million in State pension fund
investments and a $250 million public offering, of which
insurance companies and other institutions will take a
major part.
This package, however, cannot be characterized as a "successful
underwriting" since only half of the issue is new public
investment. The balance is an advance, a rollover and a
State-controlled investment.
It can, therefore, be characterized as only a postponement,
which is desirable, but neither a permanent solution nor an
indication of investor confidence. If successful, it will
prevent an August default and allow more time to evaluate
the City's actions.
Broader Effects of Municipals
Treasury is monitoring and attempting to evaluate the
spillover effect of the New York City situation on other
municipals. At this time we do not see any other major
city experiencing similar difficulties.
- 3 -
Other New York State agencies, including the Housing
Finance Agency, may be experiencing difficulty and liquidity
problems this month. In large part this is due to the
publicity of the New York City situation and also because
there is market recognition that a large portion of their
cash inflows is from New York City and City projects.
Conclusion
The situation is still serious and tenuous, but there is
cause for some optimism because of both the City's actions
and the fact that there will likely be a sale of the second
Big MAC issue, thus avoiding an August default.