As Wall Street faced the ongoing financial crisis yesterday, a vestige of another troubled time closed its doors. The Municipal Assistance Corp., which was created to save New York City from bankruptcy in 1975, held its final board meeting last week and its staff is now gone. Though MAC will continue to exist on paper for another year, it has now essentially become a part of history.
Felix Rohatyn, a banker and former U.S. ambassador to France who served as MAC's chairman from 1975 until 1993, said that the years of the fiscal crisis "were probably the most exciting years of my professional life."
The city is in better position to handle this current crisis because of measures that came out of the crisis in the 1970s, he said.
"First of all you have numbers that everybody trusts in terms of the city finances," Rohatyn said. "The city operates on a much more transparent basis, on a much more understandable basis."
It's still too early to know how the current crisis will evolve and what its impact will be, he said. "It's only when you see that, that you can tell whether the structures we have today are adequate."
Rohatyn recalled that the first sign he saw that the city was in trouble was from a pitch he received trying to sell him New York City tax-exempt bonds in the spring of 1975 at 9.75%.
"At that time it was very high and I thought if that's what they're paying they must be in real trouble," he said.
New York Gov. Hugh Carey called on Rohatyn, who was banker at Lazard and had served on the board of the New York Stock Exchange, and asked for his advice as the city was weeks away from bankruptcy.
"We never really said this publicly, there was a real chance that if the city went bankrupt the state would go bankrupt because so much of the state's revenues come from the city," Rohatyn said. "We felt this was just too much of a gamble to declare bankruptcy and see what happened. We just weren't going to do that."
Part of the problem was the city had been using about 10% of its capital budget for the city employee payroll, he said. Year after year the underwriters kept selling the city's bonds and notes but that spring the banks decided the city couldn't repay and cut off its credit.
"The city clearly had been cooking its books and pretty much everybody knew it," Rohatyn said. At the same time the governor's office was working with banks to come up with a new agency that would be able to sell bonds against dedicate city sales taxes and stock transfer taxes. The Legislature quickly acted to create that agency, and MAC was born.
On June 11, 1975, The Bond Buyer's lead story said: "Virtually by the skin of its fiscal teeth, the city of New York will today, thanks to a series of fiscal maneuvers, be able to meet $792 million in short-term debt, including interest due." The creation of MAC had been essential for the banks to give the city a bridge loan to make a portion of that payment, the paper said.
MAC went to market that summer, giving the city some breathing room but it didn't have full market access and needed to come up with a billion dollars a month.
"We had to rely on private placements and financing with the union pension fund and with the banks, the state came in with a loan that was helpful, so we limped through the summer," Rohatyn said.
The creation of a financial control board to oversee the city's budget gave the banks some more confidence but the crisis wasn't over. The Ford administration wasn't interested in helping the city, and "Ford to City: Drop Dead" was famously emblazoned on the cover of the Daily News that fall.
By December the city was on the verge of bankruptcy again and the Ford administration relented, giving the city a loan. The city went through tough times and it took about four years to balance the budget, but the crisis was over.
"We did well enough so that after that we had really beaten the bankruptcy risk as much as we could," Rohatyn said.
MAC sold roughly $7 billion of new-money bonds during its life and has now defeased all of its debt though some of it will live on: In 2004, the New York City Sales Tax Asset Receivable Corp. refinanced $2.5 billion of MAC debt.
At a party celebrating the end of MAC this past June, Mayor Michael Bloomberg praised life and death of the agency.
"The city's finances back when big MAC was formed were in terrible condition, the health of the city was on life support," Bloomberg said. "Thankfully from the very first MAC was led by people who believed in the city, who loved the city .... The city owes a great debt of gratitude to Hugh Carey and Felix Rohatyn,"
"MAC fulfilled its role successfully, said MAC's final chairman, Jonathan Ballan, "We're shutting down and we're proud of that."