Urban 10-21

Urban 10-21 - Urban Economics Lecture 10-21 Local and State...

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Urban Economics Lecture 10-21 Local and State Governments (cont.): Fiscal Crises 1- NYC 1975 2- Analysis 3- What next? Orange County- went bankrupt, they were investing in derivatives NYC October 30, 1975: city was almost in default went to government for loans and help President Ford said no, "vows he'll veto the bail-out" current account- operating account 1961- first deficit (not much) every year there is another deficit until a big one in 1974 at same time they are doing capital expenditures and more borrowing BAN: bond anticipation note (build a school with a 20-30 year bonds) borrow in June, pay back in September supposed to smooth cash account kept rolling over adding deficit on top of deficit and on and on but banks were happy to do it bond ratings started to go down a little in the 60's why were cities running on these deficits? do not know Why didn't they just raise taxes? Why did NY keep borrowing? Bc it could (like people taking sub-prime loans in pre-2008) spreads start going up- despite the ratings by late 74, bigger issues outstanding short term debt gets to be 5 or 6 billion dollars (compared to operating budget of 11 billion) NYC stood for 29% of outstanding short term notes 74-75: big recession nominal interest rates going up city selling BAN 3rd worst recession since Great Depression (real GDP went down for first time sine WWII) inflation going on at same time federal debt goes up in 74-75 Mayor Beane told he can't let debt get that high (Govenor Carey) bank says you can't buy anymore notes- March
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Urban 10-21 - Urban Economics Lecture 10-21 Local and State...

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