New York City's new mayor, Edward I. Koch, today proposed a four-year budget and financing program "to get this city back on its feet."
The plan would require a continuation of federal short-term loans to the city plus new federal and state guarantees on $2.25 billion in long-term borrowing.
Koch also said the city faces billion dollar deficits over each of the next four years but proposed a series of cuts in the work force, reductions in city government spending and increased aid from the state and federal government which he said would produce "a truly balanced budget by the end of 1982 fiscal year."
The $2.3 billion three-year federal seasonal loan program to the city - meant to cover temporary short falls between revenues and expenditures - is scheduled to expire June 30, and early indications are that Congress may resist renewing the program, let alone enacting additional borrowing guarantees.
But Koch, in a press conference at City Hall where the program was unveiled to reporters, emphasized "that the federal guarantee of long-term debt, with state's backing, is critical to this plan."
Koch estimated the city's long-term borrowing requirements over the next four years total $5.1 billion. He said this includes funds necessary to maintain and upgrade the city's deteriorating capital plan which is now being replaced at a snail's pace 300-year rate because of the fiscal crisis. In addition, the money would accelerate the phase-out of nearly $1 billion in expense items that are now buried in the city's capital budget, and convert an $800 million annual state advance into a long-term, bond.
The $2.25 billion in borrowing guarantees constitutes the centerpiece of the Koch program. Under the plan, the federal government would back 90 per cent of the total, with the state providing guantees for the other 10 per cent. The state would actually set aside $225 million in a special contingency fund. And the city would pay an annual fee of 0.25 per cent of the amount guaranteed.
All of the $2.25 billion would be ear-marked for purchase by New York City and state employee pension funds. The guarantees are considered necessary to permit the trustees of the funds to increase their holdings of the city debt without risking legal challenges that they are jeoparding the future pensions of beneficiaries.
In addition, the city's commercial and savings banks and insurance companies would buy $1 billion in new Municipal Assistance Corp. bonds, and the remainder of the long-term financing would come from public investors.
"The participation of pension funds, financial institutions and public investors in this finance plan is completely dependent upon the federal guarantee," according to the four-year plan document, which is being submitted to the Treasury Department in Washington.
Koch said that short-term federal assistance also would continue to be needed by the city. But he proposed that the seasonal loan program could be scaled down to $1.2 billion in fiscal 1979. with further reductions in the following three years. Under the current seasonal loan legislation, the city must repay Washington what it has borrowed at the end of each fiscal year.
To further supplement New York's short-term financing needs, the mayor proposed that the city's big banks establish a $600 million line of credit which the city could draw down to cover temporary short falls.
The Carter administration was awaiting receipt of the plan which it had requested and had no immediate reaction. President Carter, in a message to Congress Thursday, said his staff was "studying closely the possible need for extended federal lending to New York City," but did not explain whether this went beyond a mere extension of the present seasonal loan program.
"We are committed, along with the state and the city, to preserving the city's solvency," he added, and said that "all the interested parties" must be part of the "permanent solution."
However, Senate Banking Committee chairman William Proxmire (D-Wis.), who helped shepherd the present New York City assistance program through Congress in 1975, recently conducted hearings and concluded later that no further federal aid to the city was necessary because local sources of financing were adequate to see it through.
Committees in both the House and Senate have scheduled hearings for February and March on the new Koch plan, and the Carter administration should have its own recommendations ready by then.
Koch, in his presentation, meanwhile said New York City faces an "adjusted" budget gap of $457 million for fiscal 1979 - nearly double what his predecessor Mayor Abraham Beame, estimated. And if general accounting principles are used, which would take into account the expense items hidden in the budget and unfunded pension commitments, the deficit for the next fiscal year balloons to $1.02 billion. Deficit estimates for fiscal 1980, 1981 and 1982 are $1.1 billion, $1.06 billion and $954 million, respectively. To bridge these deficits, Koch said the city would first use attrition to continue to cut back on its work force. He projected a decrease of 10 per cent, or nearly 20,000 employees, over the next four years, on top of the 60,000 in cuts that have occurred over the past three years. Koch said the new reductions would be "selective" so essential fire and police services would not suffer.
He also said he would require city agencies to achieve "a 23 per cent cut in real purchases of supplies, utilities and contractual services over the next four years. In addition, the city, he said, would keep trying to reduce welfare ineligibility and overpayments.
The city actions, however, would only result in savings of $174 million. To make up the remainder of the gap Kock said he would ask the state and federal governments "to redress inequities."
For the state he proposed increases in its share of the Aid to Families with Dependent Children welfare program, the support of the city university, mental health programs, and altered highway maintenance reimbursement formulas.
The federal government was urged to accelerate welfare reforms, fund medicare payments for skilled nursing, provide more money for drug law enforcement, and change its revenue sharing, population estimates.
Finally, Koch proposed that some new fiscal monitor be put in place to serve as a watchdog over the integrity of this plan to balance the budget, replacing the state's Emergency Financial Control Board which is due to expire at the end of 1978.