Municipal bonds played a key role in New York City's rebound from the Sept. 11, 2001, terrorist attacks on the World Trade Center.
The federal government delivered with a $20.5 billion aid package for the city that included $8 billion in so-called Liberty Bonds, which Washington authorized to encourage commercial and residential development in lower Manhattan through triple-tax-exempt private-activity bonds.
The Liberty Bond program, now expired, enabled developers to access tax-exempt financing. Roughly $1.7 billion of Liberty Bond authority went to Goldman Sachs Group Inc. for a lower Manhattan tower on the so-called Site 26. About $2.6 billion went to developer Larry Silverstein to help him refinance construction of World Trade Center towers 2, 3 and 4.
Silverstein had signed an agreement with the Port Authority of New York and New Jersey to manage the Trade Center before the attacks.
Some critics railed at Bank of America, which used $650 million of Liberty Bonds to put up its a new building at Bryant Park in Midtown, three-and-a-half miles from Ground Zero.
Two days after the attacks, the state legislature authorized the New York City Transitional Finance Authority to issue an additional $2.5 billion of bonds and notes – so-called recovery bonds and notes -- to fund the city's costs related to the events.
Proceeds helped the city meet immediate cash-flow needs for cleanup and recovery efforts, with expected federal and state aid securing them in part.
The TFA issued $1 billion in short-term recovery notes on Oct. 3, 2001. The notes, backed by the anticipated aid, received the highest short-term ratings from all three major ratings agencies, according to the watchdog Independent Budget Office. Retail participation, said IBO, exceeded that of any previous New York City bond issue.
TFA also issued $2 billion of long-term recovery bonds in July and September 2002, with $1 billion used to redeem fiscal 2002 notes, according to IBO. The other $1 billion gave the city an operating cushion for fiscal 2003.
State lawmakers also overrode a veto from then-Gov. George Pataki to enable the city to raise sales and property taxes.
"The state and federal governments got behind the city, rallied around the city," said Howard Cure, the director of municipal bond research for Evercore Wealth Management.
"I continue to marvel about how the federal government came to help the city," said former state General Assembly House, Ways and Means Committee Chairman Jerry Kremer.
"Unlike 'Ford to city, drop dead,' this was the opposite," said Kremer, an attorney with Uniondale, N.Y., firm Ruskin Moscou Faltischek PC and president of lobbying group Empire Government Strategies.
"The money helped revive downtown development and helped legitimate businesses get back on their feet," Kremer said. "Some things dragged on, such as money for first responders, but initially the federal government responded as quickly as possible."
Beyond the direct aid, the feds also provided aid to survivors, relatives, and businesses through the Victims Compensation Fund and extended medical monitoring and treatment programs, according to a report from the watchdog Independent Budget Office.
"It's clear that one of the big factors was federal aid, about $20 billion, a combination of direct and indirect aid," said IBO president Ronnie Lowenstein.
After the initial shock of the attacks, uncertainty set in.
"Would residents and businesses pack up and leave? There was discussion over whether it would be safe for the financial industry to be concentrated in such a small geographic area," said Lowenstein. "There was real concern about another fiscal crisis. We were going through a dot-com recession even before we went through the shock of 9/11."
Transportation infrastructure was also an emphasis.
The Port Authority spent nearly $4 billion on a transportation hub, the so-called Oculus, which connects PATH, or Port Authority Trans Hudson, commuter rail riders to the Fulton Center and nine subway lines by direct underground link. Nearly three-fourths of the cost came from the Federal Transportation Administration .
The Metropolitan Transportation Authority spent $1.4 billion on the Fulton Center, of which $847 million came from a lower Manhattan recovery grant -- part of the federal package. Co-called stimulus money – formally the American Recovery and Reinvestment Act -- accounted for $423 million in 2009, and the MTA itself kicked in $130 million.
The final cost of the South Ferry Terminal was $527 million. Of that, $420 million was a Lower Manhattan Recovery Grant and the remaining$107 million is described as "local funds."
"From where we sit now, the city has recovered," said Lowenstein. "Employment is at an all-time high. There are a half a million more jobs than when all this started. Businesses and workforces have changed. This is not the only crisis the city has faced. Superstorm Sandy is the other massive disruption."
Several municipal analysts say that because of 9/11 and Sandy, New York and other municipal issuers are earmarking funds for emergencies and resiliency, even amid budgetary strain.
"I think the institutional budget controls that go back to the city's financial crisis in the 1970s really help," said Cure. "Clearly you need reserves because the city's financial condition can still be volatile on the revenue side.
"The city would get help from the federal government and the state for natural disasters and acts of terrorism. Financial problems because of the economy are different. I know Mayor [Bill] de Blasio has been building up reserves. Is it enough? I'm not sure."
According to Scott Frantz, the markets are still adjusting to 9/11.
"Financial-market wise, interest rates have remained historically low," said Frantz, the president of Greenwich, Conn., investment firm Haebler Capital and a Connecticut state senator. "I don't know about what that means for the longer term, but we've had boom after bust, boom after bust, and I feel it's directly related."
