Manhattan’s financial services industry will not lift New York State and New York City’s tax revenues because of a “lackluster” performance from Wall Street last year, according to a new report.
Moody’s Investors Service analysts Marcia Van Wagner and Nicholas Samuels, in Tuesday’s report, said major banks reported lower 2015 revenues and profits due to a changing regulatory landscape. New York State Comptroller Thomas DiNapoli reported Monday that the average Wall Street bonus declined by 9% to $146,200 in 2015 as industry-wide profits dropped by 10%. New York State’s fiscal 2016 budget factored in finance and insurance industry bonuses declining 2.5% and then growing 3.9% in fiscal 2017, according to Moody’s.
“The securities sector is an important source of state and city tax revenues,” Van Wagner and Samuels wrote. “Stagnant revenues do not augur well for New York State and New York City tax revenues because both rely heavily on the securities industry to bolster personal and corporate tax collections.”
Securities industry tax payments to New York City averaged $3 billion per year, or about 7% of tax revenues from fiscal years 2010 to 2014, according to Moody’s data. For New York State, these payments average $10 billion annually, or more than 16% of tax revenues, according to estimates from DiNapoli’s office. Securities industry wages accounted for about 20% of total 2014 wages in New York City wages and 12% statewide, Van Wagner and Samuels wrote.
Moody’s emphasized that cautious budgeting and accumulated reserves will mitigate securities industry uncertainties for New York City and New York State. The state received more than $8 billion in financial settlements from numerous banks and other financial institutions in fiscal years 2015 and 2016 that helped offset some of the risk it faces from potential revenue losses from bonus cuts. Most of these funds were set aside into an infrastructure investment account, but will be paid out over several years so there is an option to use the monies toward general fund reserves if needed.
New York City has also bolstered reserves to withstand securities industry volatility with its budget maintaining a projected $1 billion general reserve for four years, Van Wagner and Samuels note. The city has also increased the balances in its Retiree Health Benefit Trust Fund, which it uses as a reserve.
