New York City's continued solvency ran up against several new obstacles yesterday, including the possibility, however slight, that the city pension funds might not purchase the $700 million in city securities they are pledged to buy in April.
Furthermore, top congressional leaders involved in pension legislation suggested yesterday that it might not be a good idea to continue to exempt New York City pension plans from federal rules requiring the plans to be administered solely for the benefit of their beneficiaries.
Such an exemption is required under plans presented by both the federal government and the city to pump funds into New York City needed to prevent bankruptcy during the next four years.
New York City Comptroller Harrison Goldin told a House Banking Committee subcommittee that, in the absence of strong signals that Congress will approve a long-term program to keep New York from bankruptcy, pension fund trustees would have serious questions about investing the $700 million they are supposed to under the current New York financing operation.
Under the current program, the federal government will loan New York City up to $2.3 billion to help the city meet its seasonal cash needs, but the other borrowing needs must come from other sources: the state and the pension funds. New York City has been unable to go to the market on its own to borrow for three years.
Goldin said that the signals the trustees would look for include action by congressional subcommittees or committees or statements by congressional leaders such as Senate Banking Committee chairman William Proxmire (D-Wis.) supporting a continued federal role in New York City's financial situation.
Proxmire and every member of his committee have approved a banking committee staff study that said New York City does not need further federal help to avoid bankruptcy. The seasonal loan program expires June 30.
Should the pension funds decline to buy the $700 million in city securities they pledged to, the city could go bankrupt before June 30. It seems doubtful that the trustees would translate the questions Goldin said they would have into an actual refusal to participate in continued New York financing, however.
Treasury Secretary W. Michael Blumenthal noted at a Senate haring that, if New York went bankrupt, the "viability of those (pension) funds is really in doubt and many of the beneficiaries would not be paid."
Blumenthal also warned that a New York City bankruptcy would have international implications and would hurt the already weakened American dollar on world money markets.
Sen. Lloyd Bensten (D-Tex.), chairman of the Senate Finance Committee's pensions subcommittee, said that continuing to exempt New York pension fund trustees from laws requiring pensions to be administered solely for the benefit of pensioners might not be a good idea.
Rep. John Erlenborn (R-III.), a member of the House subcommittee on labor standards, said the exemption was a mistake in the first place and that, while a speculator might find city or state paper "an interesting investment a prudent man would not buy 15 cents worth."
He told Bensten's subcommittee that "saddling these (pension) funds with an even larger amount is clearly not to the exclusive benefit of the plan participants; it is clearly not a prudent investment; it is clearly wrong."
New York City Mayor Edward Koch testified before the House subcommittee that the city would prefer to have some ability to borrow from the federal government to meet its seasonal financing needs but that it desperately needs help for its longer-term borrowing, as the administration has proposed.
Rep. William Moorhead (D-Pa.), subcommittee chairman, has suggested that the $2 billion program proposed by Blumenthal last week include both long-term guarantees and seasonal financing, with $2 billion being the most of the city could tap the federal government for at any one time.