New York officials yesterday again warned that the turmoil in the financial sector could go deeper, hitting state and city revenues.
"Every time you hear Wall Street's having a bad day, just know that New York is having a worse day," Gov. David Paterson said yesterday on WNYC radio. "We've already lost 11,000 jobs in financial services since last year."
Paterson said he believed Wall Street bonuses and capital gains will be down 40% this year, an increase over the currently projected 24% and 25% respective drops. The state looses $750 million every time bonuses or capital gains decrease by 10%, he said.
This would mean a $6 billion drop in revenue, compared to the last fiscal year. Budget cuts made in a special Legislative session last month will diminish the impact of the deficit opened up by the lost revenue, he said. The state gets 20% of its revenue from Wall Street.
Market disruption caused the delay of one New York deal that had been scheduled to begin institutional pricing next week. The New York City Transitional Finance Authority yesterday announced it was delaying a $700 million building aid revenue bond deal that had been scheduled to begin a retail sale period tomorrow due to adverse market conditions. The TFA expects the sale to take place a week or two later.
As of yesterday, New York State planned to go ahead with the refunding of $148.7 million of tax-exempt general obligation bonds next week to take out auction-rate securities. The state also plans to sell $13.7 million of taxable GO refunding bonds next week.
"Clearly, there is a lot of uncertainty and volatility in the market right now," division of budget spokesman Matthew Anderson said in an e-mail. "For the time being, we're planning on going forward with that sale, but we will continue to evaluate our options as further developments occur."
In a dramatic week two of the city's largest investment banks - Lehman Brothers and Merrill Lynch & Co. - disappeared as independent entities and American International Group Inc., which employs 7,500 people in the city, was saved from bankruptcy by a federal bailout.
"I don't think we have see the bottom yet," said New York City Comptroller William Thompson. "We are going to see firms that are going to have to do layoffs or take tough steps."
The comptroller's office had projected that the city would lose 25,000 finance sector jobs during this downturn, about a quarter of the total. In turn, another 37,000 jobs would be lost due to the multiplier effect from the finance sector that creates 1.5 jobs for every finance sector job. Thompson said that those projections may need to be revised. He also said that a temporary 7% property tax cut may have to go.
New York City Mayor Michael Bloomberg said that Barclays PLC's purchase of bankrupt Lehman Brothers' trading and investment banking business in the city was the positive news of the past two days.
"That's very good news because otherwise 10,000 people would have been out of work and we would have had to deal with that and we would have had another million square feet of office space on the market," Bloomberg said. "This deal means the building stays full, the people stay employed."
Bloomberg cautioned against cuts to services to balance the budget and said the city may need to find new sources of revenue.
The impact on the city's finances could lag behind layoffs because of severance packages from financial firms, said Nicholas Samuels, an analyst at Moody's Investors Service.
"The effect may be delayed and will probably have the greatest magnitude in fiscal 2010," he said.
"The city began making budget adjustments last fall and even before that it recognized that Wall Street revenues were extraordinary and would not continue at the levels they had been," he said. "Certainly the events of this week make the situation more difficult."