New York City Saved From Bankruptcy
On the brink of default, a reluctant President Ford finally agreed to help — and pulled the nation's largest city back from the edge.
By Marc Schulman American History · 1975–2000 4 min read
New York in the early 1970s was losing jobs — especially manufacturing jobs — at a rapid rate, and its fiscal condition slowly worsened. By October 16th, 1975, the city's situation was dire. New York had a $453 million debt payment to make the next day and only $34 million in its banks. Lenders were refusing to advance the city any more money.
That night was the annual Al Smith Dinner, where the city and state's leaders gathered. The evening was usually one of levity, but that year the guests at the city's largest annual Catholic charity gathering were grim. When it was Mayor Beame's turn to speak, he used the moment to attack the Ford administration for refusing to help. The only remaining hope was that the teachers' union would invest its pension funds in city bonds — but by the end of the evening, the union too had declined.
Governor Carey sent his fixer, Richard Ravitch, to find the head of the teachers' union, Al Shanker, and convince him to invest the pensions. They met until 5 AM but reached no conclusion. Meanwhile, Mayor Beame sat with his advisors trying to decide which city services were essential and which were not. With the help of his friend and unpaid media advisor Arthur Rubinstein, he drafted an announcement declaring the bankruptcy of the city. Beame placed one last call to the White House — and was told that President Ford was asleep.
The next morning the city awoke to the dread of an imminent default. The stock market fell; gold rose. Ford began to hear warnings that a New York default would damage the dollar and the wider American economy. His press secretary, Ron Nessen, was unmoved: "This is not a natural disaster or an act of God. It is a self-inflicted act by the people who have been running New York City."
Shanker, though, was not at peace with his decision. He felt a fiscal responsibility to spend his teachers' money carefully — yet he knew that if the city went bankrupt, thousands of those same teachers would lose their jobs. He asked to meet the governor again. They gathered in Ravitch's apartment, and by the end of the meeting Shanker was convinced. He went to his board, and less than two hours before the deadline, the Teachers' Union announced that it would invest.
With the immediate crisis postponed, the city kept pressing Washington for help. On October 29th, 1975, President Ford spoke at the National Press Club and declared that he was "prepared to veto any bill that has as its purpose a federal bailout of New York City to prevent a default."
Ford to City: Drop Dead New York Daily News, October 30, 1975
Ford had misgivings about his words, as did others in the White House — chief among them Vice President Rockefeller, who lobbied for a federal role in rescuing the city. In the meantime, New York's government, its unions, and its banks worked out a fiscal recovery plan. At a press conference on November 26th, Ford changed his tone: "I have, quite frankly, been surprised that they have come as far as they have." He asked Congress to act, and Congress granted New York $2.3 billion in loans at one percent above the federal borrowing rate. It was enough to let the city restructure its finances and regain a sound fiscal footing that has lasted to this day.
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