New York City faces a “deep and protracted” downturn and potential changes to the financial sector that could drive down profits and future tax revenue, Ronnie Lowenstein, director of the New York City Independent Budget Office, said Monday.
“Just six months ago, New York City appeared to have dodged the worst of the economic problems plaguing much of the country,” she said, according to prepared testimony. “We now expect the city economy to contract more sharply and recover more slowly than the U.S. as a whole.”
Testifying at the City Council’s budget hearings yesterday, she said the downturn will cost New York City a projected 270,000 jobs, 30,000 more than the IBO, an independent fiscal watchdog agency, projected in January. The city has lost 59,900 jobs since January 2008 and can expect deeper declines this year, she said. The financial industry will be hit the hardest, losing a projected 77,300 jobs by 2011.
Once the financial sector recovers, it will likely be more highly regulated, use less leverage, and be less profitable, she said. “If these structural changes occur, Wall Street will no longer generate the levels of city tax revenue that it has in the recent past,” Lowenstein said.
Job losses in the current fiscal year will contribute a $2.6 billion drop in tax revenue this year to $34.7 billion, she said. The city’s budget gap in the next fiscal year has grown to $4.8 billion, $1.6 billion more than Mayor Michael Bloomberg projected in his preliminary budget in January, Lowenstein noted.