Senate Banking Committee Chairman William Proxmire (D. Wis.) yesterday appeared to soften his opposition to continued federal aid to New York City after the current loan program expires on June 30.
During the first of four days of hearings the Senate Banking Committee has scheduled to consider the aid question, Proxmire seemed to favor an extension of the current shortterms loan program for the city in contrast to the $2 billion in long-term federal guarantees that the city wants and the Carter administration is backing.
This represents a shift for Proxmire who until recently had said he was totally opposed to any kind of assistance to New York City.
After yesterday's hearing, Proxmire said he was still "learning" against providing aid, but said he retained "an open mind" on the question.
he also said he would not oppose a favorable vote on the legislation in the Banking Committee so the wholeSenate would consider the matter. But he added that the committee was narrowly split.
New York City Major Edward Koch, who testified, said the city probably would face bankruptcy early in July if no further federal aid is granted. And he specifically asked the panel to back the $2 billion in federal guarantees for New York City securities, saying such guarantees would "mean the death for the city."
"Without long-term financing, the city's physical plant-its infrastructure-will continue to deterioate economic development will be stifled and the city will stumble from crists to crisis with no permanent solution in sight, "Koch said.
New York Controller Harrison Gildin said continuing short-term aid like the current program, which provides New York City with $2.3 billion in loans that must be repaid annually, "would as sure the city is a permanent fiscal cripple, without access to the private credit markets."
But Proxmire said he had "grave misgivings" about the 15 year guarantee legislation. He expressed concern about the "terrible precedent" guarantees would set for other cities who might also turn to Washington "for a long-term bail-out." And he said the federal loan backing "would remove the pressure" on New York to continue fiscal stringencies.
At the same time Proxmire introduceda recent letter to him Arthur Burns, former chairman of the Federal Reserve Board, who advised that "the potentialeffects of a New York City bankruptcy are so serious that the Congress would be wise to take resonable stepe to prevent it."
But Burns went on to oppose long-term guarantees, calling them "a radical departure from the principles of fiscal federalism that have guided this nation since our earliest days." Instead he recommenced extending the current legislation perferably at a reduced level succeeding year so it would phase itself out.
"Such legislation would avoid untried fiscal adventures," Burns wrote.
When Proxmire commended what he termed Burns' "wiser" view to Koch for consideration, the New York City mayor said the analysis by the former Fed chairman was "erroneous," and said the Senate often has tried to do something for the first time.
The New York City officials also said they doubted other cities would choose to go through what New York has gone through in order to qualify for federal assistance.
Sen. Edward Brooke (R. Mass) also spoke in opposition to federal loan guarantees, calling the "a step backwards" for the city.
But after providing Koch and other officials with some of the toughest questioning at the hearing, Brooke told the mayor he had "made a very strong case, it's been a compelling argument."
Koch spent part of the time at the hearing defending the two year labor contracts city negotiators reached with unions for 207,000 minicipal employers Monday evening, just in advance of yesterday's hearings.
The mayor said the $1.1 billion agreement-with $757million to come from city tax levies and the rest in state and federal funds-was "a reasonable one, not all I would have wanted, but a resonable one."
Koch explained that though the new contracts call for two separate 4 per cent wages increases, the hikes will be phased in over the two years and equal an actual increase of 5.5 percent over 24 months.
Asked what he would do if Congress passed no legislation to help New York City after June 30, Koch said he would initiate "massive layoffs" and do everything in his power to avoid a default.
"I will not be the one to precipitate the bankrupty," the mayor said.
Proxmire seized on this reply to say that if Congress did not act, Koch would be forced to entact economies that he otherwise would not put into effect, and that the city's banks and pension funds would provide the funds the city otherwise expects to get through federal guarantees.
"If the "Big Event occurs and Congress doesn't provide assistance, I predict we will have a different scenario," said proxmire forecasting there would be no bankruptcy.
However, this was vigorously disputed by Koch and Goldin, who said the banks and pension funds could not be expected to put up funds when the federal government had backed off, and that no amount of cutbacks could provide the $2.3 billion in financing the city will require in the coming fiscal year.
The House meanwhile started debate yesterday on the loan guarantee legislation, with a vote scheduled for tomorrow. The bill is expected to pass the House where the legislation cleared the Banking Committee in May by a 32-9 vote.