Financial Control Board, New York State

In the late 1960s and early 1970s, the City of New York began to face serious financial strain due to a number of factors including increased demand upon social programs, job loss, middle-class flight to the suburbs, and over-reliance on short-term bonds. In 1975, the strain became a crisis when the Urban Development Corporation defaulted on some of its bonds, and the City's own bonds and financing came under closer scrutiny. In April 1975, the State advanced {dollar}800 million to keep the City operating, and the Governor's Advisory Panel was established to study the City's financial problems. The panel consisted of four individuals from private business and finance (Simon H. Rifkind, Felix G. Rohatyn, Richard M. Shim, and Donald B. Smiley). Based on their recommendations, the Legislature set up the Municipal Assistance Corporation for the City of New York (MAC) on June 10, 1975 (Chapter 165). The MAC was set up to issue bonds backed by State revenues, but the investing public was unreceptive. In September 1975, the Legislature passed the Financial Emergency Act for the City of New York (Chapters 868-870), which created the New York State Emergency Financial Control Board. The board was given oversight powers with respect to financial management of the City of New York and certain related public authorities. The board took control of the City's finances and would not distribute monies to the City without first approving the City's budget. In November 1975, the Legislature passed the Emergency Moratorium Act for the City of New York (Chapter 874, amended by Chapter 875), which relieved the city from paying principal on notes for three years after they came due. In 1976, this act was declared unconstitutional (Flushing National Bank v. Municipal Assistance Corporation for the City of New York), but it provided a window for the MAC to get a foothold. In December 1975, President Ford signed the Seasonal Financing Act, which authorized the Treasury to make almost {dollar}6 billion available to the City over the next two and a half years. In 1978, the City tried again to sell its own bonds, but once again the public would not buy them. In September of that year, the Legislature revisited the Financial Emergency Act for the City of New York. Among other changes, it removed the "Emergency" from the Financial Control Board's name and required the City to submit a four-year "rolling" financial plan to the board before each the start of each fiscal year. The board was to operate until July 1, 2008, when the last of the MAC bonds were set to mature. On June 30, 1986, the board determined that the control period should terminate; as a result, its power to accept or reject City financial plans and borrowing was suspended. However, the board was still required to review the City's four-year financial plans at least quarterly and to notify the City if a given plan or modification failed to meet the provisions of the Financial Act for the City of New York. The board was also obligated to determine annually whether to declare a new control period.