Starting in 1961, New York City was running annual current account deficits; the City’s revenues could not fund their current expenditures and debt payments. By 1974, in the midst of the second recession of the decade, the annual deficit had reach $487 million. The City maintained spending and services by borrowing to cover these operating expenditures. In 1974, New York City borrowed $2.2 billion to offset deficits and finance other capital projects. In the same year, the City’s outstanding debt had reached $13.5 billion.
In 1975, the banks reviewed the City’s revenue projections and decided they would no longer underwrite the notes and bonds of New York City. The City could no longer borrow money to operate and by April of 1975, New York City ran out of money. City leaders turned to the federal government and the State looking for the funds required to avoid bankruptcy. Eventually, Governor Hugh Carey agreed to advance the City funds from the State in exchange for the City turning financial oversight to the State. The outcome was the creation of the Municipal Assistance Corporation (MAC). The MAC was authorized to sell bonds to meet the City’s borrowing needs.
On October 16, 1975, New York City was on the brink of bankruptcy, with debts of $453 million due and only $34 million available. The city's leaders, including Mayor Abraham Beame and Governor Hugh Carey, scrambled to avoid default. Pension funds, particularly the Teachers' Retirement System, were seen as the last resort. After intense negotiations, the teachers' union agreed to fund the city's shortfall, saving New York from financial collapse.
President Ford’s refusal to initially aid the city led to his infamous association with the headline, "Ford to City: Drop Dead."
Welcome to the
Your guide to the world outside.
To create your own library,
please sign in
Don't have an account?
See account options
30 day free trial