So it's 1975 and New York City declares bankruptcy. I'll leave the PoD for open discussion.
Okay, the POD is NYC decides to call the Feds bluff and refuses to make the financial changes the Fed's demanded as part of the loan package.
No changes, no loan, NYC declares bankruptcy.
What the Feds knew would happen if NYC didn't play ball: Albany steps in.
People often talk about how governance in the US is split between the federal, state, and local levels, but people forget that the relationship between states and their local governments is nothing like the relationship between states and the federal government.
Simply put, state governments wholly control local governments. Local governments cannot even be established without state approval, it's called "home rule", and states can remove that approval at any time. In the end, the state government calls all the shots.
You know why NYC has a borough named Brooklyn? Because back around the turn of the last century, Albany told Brooklyn it was no longer a city, it was now part of NYC, and Brooklyn could do nothing about it. That's how much power a state has.
So, NYC bluffs at the Feds daring them not to hand over the money. The Feds call the city's bluff, no money arrives, and, after a day or so when subways stop running, cops aren't getting paid, and brown-outs start to occur, Albany steps in, suspends home rule, and
mandates the changes the Feds wanted in return for the loans. NYC would have no say in the matter. Albany is the boss and what Albany says is final.
The loan comes in, NYC gets back to business, and a more bad blood exists between NYC and Albany. Not that it matters because there's always bad blood between NYC and Albany.