Gerald Ford's Statement on New York City's $2.3 Billion Bailout Loan (11/26/1975)

After threatening to veto any bill that would bail out NYC to prevent a default (see the quote below in the Q&A portion), President Gerald Ford finally decided "to ask the Congress when it returns from recess for authority to provide a temporary line of credit to the State of New York to enable it to supply seasonal financing of essential services for the people of New York City."

He also said, "There will be stringent conditions. Funds would be loaned to the State on a seasonal basis, normally from July through March, to be repaid with interest in April, May, and June, when the bulk of the city's revenues comes in. All Federal loans will be repaid in full at the end of each year."


Here is former President Gerald R. Ford's full statement on 11/26/1975 via UCSB's American Presidency Project:

695 - The President's News Conference
November 26, 1975

STATEMENT ON MEASURES TAKEN TO IMPROVE THE FINANCIAL SITUATION OF NEW YORK CITY

THE PRESIDENT. [1.] Good evening. Before we go to questions, I would like to comment briefly on recent developments in New York. Since early this year, and particularly in the last few weeks, the leaders of New York State and of New York City have been working to overcome the financial difficulties of the city which, as a result of many years of unsound fiscal practices, unbalanced budgets, and increased borrowing, threaten to bring about municipal bankruptcy of an unprecedented magnitude.

As you know, I have been steadfastly opposed to any Federal help for New York City which would permit them to avoid responsibility for managing their own affairs. I will not allow the taxpayers of other States and cities to pay the price of New York's past political errors. It is important to all of us that the fiscal integrity of New York City be restored and that the personal security of 8 million Americans in New York City be fully assured.

It has always been my hope that the leaders of New York, when the chips were down, face up to their responsibilities and take the tough decisions that the facts of the situation require. That is still my hope, and I must say that it is much, much closer to reality today than it was last spring.

I have, quite frankly, been surprised that they have come as far as they have. I doubted that they would act unless ordered to do so by a Federal court. Only in the last month, after I made it clear that New York would have to solve its fundamental financial problems without the help of the Federal taxpayer, has there been a concerted effort to put the finances of the city and the State on a sound basis. They have today informed me of the specifics of New York's self-help program.

This includes: Meaningful spending cuts have been approved to reduce the cost of running the city. Two, more than $200 million in new taxes have been voted. Three, payments to the city's noteholders will be postponed and interest payments will be reduced through the passage of legislation by New York State. Four, banks and other large institutions will have agreed to wait to collect on their loans and to accept lower interest rates. Five, for the first time in years members of municipal unions will be required to bear part of the cost of pension contributions and other reforms will be made in union pension plans. Six, the city pension system is to provide additional loans up to $2.5 billion to the city.

All of these steps, adding up to $4 billion, are part of an effort to provide financing and to bring the city's budget into balance by the fiscal year beginning July 1, 1977.

Only a few months ago we were told that all of these reforms were impossible and could not be accomplished by New York alone. Today they are being done.

This is a realistic program. I want to commend all of those involved in New York City and New York State for their constructive efforts to date. I have been closely watching their progress in meeting their problem.

However, in the next few months New York will lack enough funds to cover its day-to-day operating expenses. This problem is caused by the city having to pay its bills on a daily basis throughout the year while the bulk of its revenues are received during the spring. Most cities are able to borrow short-term funds to cover these needs, traditionally repaying them within their fiscal year.

Because the private credit markets may remain closed to them, representatives of New York have informed me and my Administration that they have acted in good faith, but they still need to borrow money on a short-term basis for a period of time each of the next 2 years in order to provide essential services to the 8 million Americans who live in the Nation's largest city.

Therefore, I have decided to ask the Congress when it returns from recess for authority to provide a temporary line of credit to the State of New York to enable it to supply seasonal financing of essential services for the people of New York City.

There will be stringent conditions. Funds would be loaned to the State on a seasonal basis, normally from July through March, to be repaid with interest in April, May, and June, when the bulk of the city's revenues comes in. All Federal loans will be repaid in full at the end of each year.

There will be no cost to the rest of the taxpayers of the United States.

This is only the beginning of New York's recovery process, and not the end. New York officials must continue to accept primary responsibility. There must be no misunderstanding of my position. If local parties fail to carry out their plan, I am prepared to stop even the seasonal Federal assistance.

I again ask the Congress promptly to amend the Federal bankruptcy laws so that if the New York plan fails, there will be an orderly procedure available. A fundamental issue is involved here--sound fiscal management is an imperative of self-government. I trust we have all learned the hard lesson that no individual, no family, no business, no city, no State, and no nation can go on indefinitely spending more money than it takes in.

As we count our Thanksgiving blessings, we recall that Americans have always believed in helping those who help themselves. New York has finally taken the tough decisions it had to take to help itself. In making the required sacrifices, the people of New York have earned the encouragement of the rest of the country.


Via the Q&A session:

NEW YORK CITY

[2.] Q. Mr. President, I notice that you don't put any dollar figure on the amount of the loans that you would be offering. I wonder if you could supply us with a figure, and also, why were loans necessary rather than loan guarantees?

THE PRESIDENT. The amount in the proposed legislation, which is a maximum ceiling--not necessarily would they have to go up to the ceiling--but the figure is $2,300 million per year, all of it to be repaid at the end of each fiscal year.

The reason we made it a loan rather than :l loan guarantee is very simple. It is a much cleaner transaction between the Federal Government and the State and/or the city. If you have a loan guarantee, you involve other parties. And we think it is much better, we have better control over it, if we make it a direct loan from the Federal Government.

NEW YORK CITY

[4.] Q. Mr. President, in a nationally televised speech before the National Press Club on October 29, you said, and I quote, "I can tell you now that I am prepared to veto any bill that has as its purpose a Federal bailout of New York City to prevent a default," end of the quote. What has happened in the interim, sir, to make you change your mind? And secondly, do you regard your proposal as a Federal bailout of New York City?

THE PRESIDENT. The answer is very simple. New York has bailed itself out, because on October 29, when I made the speech before the Press Club, it was anticipated that on June 30 of 1976, there would be a cash deficit of $3,950 million in the New York City situation. Under the plan that I have embraced, on June 30, 1976, New York City will have a zero cash balance. So New York City, by what they have done in conjunction with New York State, with the noteholders, with the labor organization, the pension fund people, they have bailed out themselves.

Q. The private sector will not invest in New York City apparently because they think it is too great of a gamble to invest any longer in New York City. Can you tell us why you are willing to risk Federal money in investing in New York City when the private sector thinks the risks are too great?

THE PRESIDENT. Unfortunately, because a period of 10 or 12 years where the finances of New York City have been badly handled, there has been a loss of confidence in the private money markets. In order to get New York City to restore their credibility in the money markets, they have taken these steps which have eliminated $3.95 billion cash deficit. And by the fiscal year that begins July 1, 1977, they will be on a balanced budget basis.

Therefore, in the interim while they are restoring their credit credibility, I decided that it was needed and necessary to give short-term financing on a seasonal basis. This, I think, is what we can do without any loss of taxpayers' money. And let me show you what the precautions are that we have taken.

We have said that the money will be loaned to New York City at a rate no less than the Federal Government borrows itself and with the option of the Secretary of the Treasury to impose an additional up to 1 percent on the city when they do borrow from us. And secondly, we include in the legislation a lien for the Federal Government, so that the Federal Government has a priority claim against any other creditor for the repayment of any seasonal loan made by the Federal Government.

The net result is the Federal Government will be held harmless and the taxpayers won't have to lose a penny, and the city of New York will straighten out its fiscal situation.

Q. That is a pretty good deal--l-percent loan. What will you do tomorrow when other mayors around the country call up and say, "Mr. President, how do we get in on that?"

THE PRESIDENT. Mr. Schieffer [Bob Schieffer, CBS News], I think you misunderstood. They will have to pay the same interest rate that the Federal Government pays when it borrows money, plus up to 1 percent extra. So they are in effect reimbursing us over and above what the Federal Government has to pay to borrow its money.

Q. That is still a good deal.

THE PRESIDENT. Well, if the Federal Government is paying 6 percent, then the city of New York will have to pay whatever the difference is. Now other cities, we hope, won't have to be in that situation.

NEW YORK CITY

[8.] Q. Mr. President, Mayor Beame in New York was asking as long ago as September for short-term Federal assistance. How is the plan that you propose tonight different from what he was seeking then?

THE PRESIDENT. Significantly different. As I pointed out a minute ago, when the Governor and the mayor were asking for any kind of help, short-term or long-term there was the anticipated deficit for the current fiscal year in New York City of $4 billion. In the meantime, the mayor and the other public officials in New York City, along with the help of private citizens, have reduced that fiscal deficit for this current year to zero. So there is quite a different circumstance.

Q. Well, you seem to be suggesting, Mr. President, that your opposition earlier to assistance for New York was based primarily on a tactical maneuver to get them to make the hard decisions that you say they have now made. Why couldn't you have said then that the aid would be forthcoming if they did all those things?

THE PRESIDENT. Well, we have always felt that they could do enough, but only because we were firm, have they moved ahead to accomplish what they have done now which is a bailout of New York City by New York officials. If we had shown any give, I think they would not have made the hard decisions that they have made in the last week or so.

NEW YORK CITY

[12.] Q. Some Congressional leaders are saying that it may not be possible to enact New York City legislation in time to avert a default by December 11. Does the Administration have a plan to respond if this does occur?

THE PRESIDENT. The bill that I am submitting to the Congress is about a two or three-page bill. It is very simple. I think Congress can take it, hold hearings, and act within a very short period of time, and I see no reason for any delay whatsoever. And I am confident they will.

Q. Is there a contingency plan, sir, in the event Congress does not act in time to avert default on December 11?

THE PRESIDENT. I asked earlier, as I'm sure you know, for a change in the Federal bankruptcy law. 1 That legislation is in the House and Senate committees; hearings have been held. If they want to take a precautionary measure--I don't advocate it--they could enact the change in the Federal bankruptcy law. I would rather have them take what I am sending up the day they get back from recess so we don't have to go through the process of Federal bankruptcy.

1 See Item 646.

NEW YORK CITY

[25.] Q. Mr. President, thank you, sir. As a New York reporter, I am very interested in something you said in your statement. Part of the package that you found to indicate progress on the part of New York officials involved $205 million in taxes, which are a very onerous burden on the middle class in New York, on the working man and woman, including a 25-percent city income tax raise. Now, are you concerned politically that these taxes, these new taxes on a very heavily taxed city, one of the most heavily taxed cities in America, that these taxes are going to become known as the Ford taxes and that you are going to have to kiss the voters of New York goodby next year?

THE PRESIDENT. As I have said repeatedly, the only requirement that I imposed was that the financial situation in New York City be such that we could handle the problem at the Federal level in the way in which we are doing it today.

As I understand it, Governor Carey has taken the full responsibility for the total package, including the taxes that were imposed through his recommendation to the State legislature. I think that is a very courageous stand by Governor Carey.

Under those circumstances, since I didn't recommend any particular tax package, or any additional taxes, I don't see how those taxes can be labeled taxes of this Administration.

Q. Although you do approve of those taxes as part of this package?

THE PRESIDENT. I approve of the financial plan of responsibility which the Governor and the city officials and others have put together.

Source: Gerald R. Ford: "The President's News Conference," November 26, 1975. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=5399.

Previous post on NYC's fiscal crisis: 'TBTF Muni New York City Got Bailed Out By the Federal Government in 1975! (Videos and Research)'

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