Treasury Secretary W. Michael Blumenthal, after two days of meetings here with city and state officials, has asked them to draw up a new long-term budget and financing plan to once-and-for-all deal with New York City's ficals crisis.
"Blumenthal wondered if a package could be put together that, if Congress approves it, would assure the federal government could liquidate its role within a specified period of time," according to a source who sat in on one session. "Such a plan, he said, "would have good prospects in congress as long as it could accurately be presented as a final plan."
The Treasury meanwhile said he would consider - but withheld endorsement of - a proposal drawn up by Municipal Assistance Corp. chairman Felix Rohatyn and presented by Gov. HughL. Cary to have the federal government buy $2.25 billion in long-term MAC bonds to replace the short-term federal loans to the city which expire next June 30.
The idea behind the complex financing proposal is to allow the city to restructure its balance sheet, doing away with an $800 million annual state advance and hastening the removal of hundreds of millions of dollars in expense items from its capital budget so that New York City can more credibly reenter the public debt markets which remain closed to it.
Two weeks ago a $200 million city note issue was withdrawn after Moody's Invertor Services,a credit rating agency, gave the notes its lowest rating and stated that the city still faced the possibility of bankruptcy down the road.
But Treasury officials reportedly expressed skepticism that such a plan could get through Congress in the first place, and wondered if it was sufficient to rehabilitate the city and keep its budget balanced over the longer-term in the absence of further measures.
Rohatyn today argued that merely extending the season loans, perhaps at a reduced level from the current $2.3 billion amount, might more easily pass Congress, but would not fundamentally solve the city's long-term problems since these loans must be repaid annually and can only be used to help smooth out cash-flow problems.
"For the same amount of money you can build a shack or build a house, so why not build a house?" Rohatyn said. "Blumenthal, at the meeting, was saying 'we want to work with you but we don't wnat another piece-meal solution,.' But the administration is going to have to decide how much political capital they want to spend here," he added.
It was almost exactly two years ago that President Ford, after initial opposition, finally backed the season loan program to avert a New York City bankruptcy and was able to swing sufficient Republican votes in the Congress to narrowly pass the legislation. Considerable doubts have been expressed, however, that Congress will be willing to once again pass legislation that would be considered a bail-out for New York City.
Blumenthal, after his series of meetings, said the Carter administration hopes to present a plan to Congtress in january that would involve both short-term financing and a longer-term program for the city.
"The President and his administration are fully committeed to working closely with the city to find a solution to the remaining problems," Blumenthal said, "I am willing to look at any proposal."
Roger B. Altman, the Assistant Secretary of the Treasury with immediately responsibility for the New York City problems, said the Treasury Department plans "to work hand-in-glove with city and state officials for the next two months."
Blumenthal, Altman, and Deputy Treasury Secretary Robert Carswell met with Mayor-elect Ed Koch Monday night, had a breakfast session with Gov. Carey and Rohatyn today, and later met with current Mayor Abraham Beame and Controller Harrison J. Goldia.