The impact of the U.S. housing market’s meltdown on New York City’s financial services industry will push the city’s budget gap in 2009 to $3.1 billion and create a massive slowdown in job growth in the current year, according to a New York City Independent Budget Office report released yesterday. The estimated budget gap is about $360 million more than the city budget office projected in October.
“Weakening U.S. and local economic growth is taking a toll on the city’s revenues, and if Wall Street’s mortgage- and credit-related woes worsen, it will further depress city tax revenues and deepen our projected budget gaps for the coming years,” the report states. “Rising labor costs, which already play a significant role in growing budget shortfalls in the out-years of the financial plan, could become a larger factor as well.”
While the city gained 62,200 jobs in 2006 and is expected to have gained 41,100 in 2007, the IBO projects job growth in 2008 to be less than 500. Job growth would pick up again in 2009 with 20,800 new jobs, according to the report.
Wall Street firms’ profits will decline 75% in 2007 to $5 billion compared with $20.9 billion in 2006, according to IBO projections. Profits would rise to a projected $8.8 billion in 2008 and $12.2 billion in 2009. Wall Street’s decline would push personal income tax revenue down by $642 million this year to $7.1 billion, according to IBO projections. Total tax revenues will slip in 2008 to $35 billion, a 6.5% drop compared with 2007, the IBO projects.
Demand for commercial real estate will continue to be strong through 2011 but will grow at a slower pace than in the past two years as job growth slows, the IBO projects. High demand for Manhattan residential real estate, in part from foreign buyers taking advantage of the dollar’s weakness relative to European currencies, will partially offset declines in other parts of the city. Mortgage recording taxes and real property transfer taxes hit a record $3.3 billion in 2007 and the IBO projects those taxes will decline by 29.1% this year to $2.3 billion and 13.5% in 2009 to $2 billion.
The city’s financial plan assumes average growth in salaries and wages for city employees will grow by 6.2% a year from 2008 through 2011, despite no growth in the labor force.