In 1974 New York City became financially insolvent due to years of budget deficits, a deteriorating middle-class tax base, and union contracts. For decades the city had borrowed money in order to meet its budget needs. Moreover, since 1965, the city’s operating budget had more than tripled. In the fall of 1974 New Yorkers elected Democrats Hugh Carey to the governorship and Abraham Beame to City Hall. Faced with a fiscal crisis because of mismanagement by their predecessors, New York governor Nelson Rockefeller and New York City mayor John Lindsay, both liberal Republicans, the newly elected Carey and Beame arranged to borrow millions of dollars in the tax-free municipal bond market. Still unable to meet its obligations, the city was told by several banks that it could no longer borrow in the market. Both Carey and Beame called upon the Gerald R. Ford administration for a $1 billion 90-day loan for the city. Ford felt the request was “ridiculous.”
In the summer of 1974 the city created the Municipal Assistance Corporation to change the city’s long-term debts into short-term ones. In September the aid increased, with the state approving a $2.3 billion aid package. By October, however, the city was facing default. New York senator James Buckley pleaded with the administration to provide federal aid to the city, but Ford declared in a speech on October 29 to the National Press Club that “the people of this country will not be stampeded” to any federal bailout of New York City. The next day’s headline in the New York Daily News declared, “Ford to City: Drop Dead.”
Faced with a crisis that had national ramifications, Ford finally relented and agreed to a modified form of bailout. On November 11 he announced his support of a plan by which the federal government would loan money to New York with the stipulation that the city impose certain fiscal disciplines. As a consequence, New York City improved its financial position and was able to pay back its debt.
—Leah Blakey
World History
