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.
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