Summary of the New York City Financial Crises

Summary of the New York City Financial Crises



The largest city in the nation was running out of money by the end of 1965. It was not able to meet the normal expenses, and the obligations were it not for timely revival actions by the state and the federal government. The city was running a deficit budget since 1961 during the reign of Mayor Robert Wagner. Contrary to the state law, the city was using the traditional accounting and budgeting techniques that were confusing and obsolete. The city accumulated large amounts of debts totalling to $14 billion where $6 billion was short-term. The federal government, however, stepped in by November 1975 in a bid to save the city. The city was put under receivership and an emergency financial control board established. By the end of 1979, the city was able to recover and re- enter the financial market. It issued its first short-term debt in the same year and a long term board in 1985.




Impact Of The Financial Crises



The financial crises had serious implications for the state government, other federal governments, and the bond market. The stock market almost closed due to the bankruptcy. The state government had to fund the city to save it. Other borrowers including other states were adversely affected. The bond market experienced liquidity concerns and loss of bond value in the open bond market. The general economy of the New York economy was weakened.




Implications on operational/ capital budgeting processes, future indicators, and remedies



The financial crises called for strict procedures as the investors did not receive this concern warmly. The traditional budgeting and accounting techniques were abandoned and new efficient ways adopted. The government may anticipate for such a crisis through the use of the budget as a tool. Deficit budgets and accelerated expenditures are indicators of financial crisis. The government can choose to either offer no financial assistance, offer assistance on essential services or offer essential support to such a city.



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