Abstract:
In February of 1975, New York City found itself on the verge of insolvency when its $260 million bond issue was cancelled after the underwriters withdrew from the sale. The case explores how the city's financial crisis came about and the efforts that led to its resolution. It provides background on the political and fiscal issues of the 1960s and early 1970s--labor relations, the budget, short term debt, and city politics--that precipitated the crisis, and then traces the city's attempts to address its problems through negotiations with labor, banks, the state, and the federal government. It concludes with New York on much sounder financial footing in 1981 and ready to re-enter the credit market.
Learning Objective:
The case illustrates the essential interdependence of the public and private sectors. While each of the major constituencies involved in the crisis--politicians, unions, banks, state government--continued to push for their own interests, each group both supported, and was supported by, the city. Their mutual interest in seeing the city pull through allowed them to form the working coalition that demanded compromise from all sides and eventually saved the city from bankruptcy.
