Comptroller: Crisis Could Cost N.Y.C. 48,000 Jobs and Lower Tax Revenues

The current fiscal crisis could cost New York City 48,000 jobs in the financial sector, and changes in the industry could mean lower profits and lower tax revenues going forward, New York State Comptroller Thomas DiNapoli said yesterday.

" '08 is going to go down as one of the worst years in Wall Street history," DiNapoli said on a conference call with reporters.

Declining Wall Street profits have opened budget gaps of $1.5 billion in the state's current year budget and $12.5 billion in next year's budget. After near-record profits of $20.9 billion in 2006, Wall Street firms lost $11.3 billion last year and $20.7 billion in the first half of this year. The state gets 20% of its personal income tax and business tax revenue from the city's financial sector.

State tax collections from Wall Street could fall by $4.5 billion in fiscal 2010, a 38% drop from the $12 billion collected in fiscal 2008 , according a report issued by DiNapoli yesterday. State and city projections that bonuses could see declines of between 48% to 54.6% over the next two years were reasonable assumptions, the report said.

The projection for financial sector job loses includes 38,000 in the securities industry, a 20% decline. The city never fully recovered the jobs it shed after the dot com crash and the Sept. 11 terrorist attacks. The securities industry lost 40,800 jobs during that downturn and by October 2007 had regained only 28,100 jobs.

The comptroller's numbers are higher than those released earlier this month by the city budget office that projected a loss of 31,000 jobs in the securities industry. DiNapoli's office projects the state will lose 225,000 private sector jobs during the current downturn, compared to 329,600 jobs lost in the last downturn.

DiNapoli said that job loses could grow if the downturn turns out to be longer and deeper than currently projected.

Declining personal income tax revenue has forced the state to reexamine its future borrowing. The state will exceed its statutory debt limit, which is in part based on a percentage of personal income in the state, in fiscal 2013, according to the state's Division of Budget.

Though the projections of lost jobs and lost tax revenue for this downturn are not as bad as the actual figures from the downturn from 2001 through 2003, each new report from city and state budget agencies paint a progressively darker outlook.

"It feels like it could be worse, but that's 'a feels like,' not the actual numbers," said Charles Brecher, executive vice president and director of research of the Citizens Budget Commission, a business-oriented fiscal watchdog. The city recovered from the last recession quicker than people expected, he said, but this time "we still don't know where the bottom is and we don't see the turnaround in sight so it could take longer to recover."

The changing business model on Wall Street as firms transform from highly leveraged investment banks to a "better-capitalized commercial banking model" will lead to job losses and lower profits and compensation, the report said.

"We know that Wall Street is going to look different than it did before we went into this and that's probably different from the last cyclical downturn that we had," DiNapoli said. "The plus side of that is a more stable sector."

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