New York Feels the Pinch From Wall Street Downturn
Monday, August 4, 2008
NEW YORK -- Wall Street's woes are mounting. Investment banks are swamped by bad mortgage debt. Profits have fallen. Tens of thousands of jobs are being cut. And those lucrative year-end bonus checks are likely to be the stingiest in more than a decade.
And when Wall Street sneezes, New York catches pneumonia.
The city and state economies are inextricably linked to the health of the Street. Those reduced bonuses mean fewer dollars to be taxed -- and fewer dollars to be spent in high-end restaurants, boutiques and bars.
"You can feel it affecting the regular lunch crowd," said Corrado Goglia, the general manager at Delmonico's, a steakhouse in the financial district. "There's been about a 20 percent decrease in sales at lunch. People are doing away with larger lunches, the $40 to $50 steaks. They're going down to lighter burgers."
Last Tuesday, Gov. David Paterson (D) made a rare televised address to issue a somber warning that tumbling revenue from the Street means tough times ahead for the state. "The damage on Wall Street is affecting all of our communities," Paterson said, "and the effects on our New York state financing are devastating."
Paterson used one particular statistic to illustrate the depths of the crisis. In June of last year, the state's 16 largest banks paid about $173 million in taxes into the state treasury. This June, those same banks paid in $5 million -- a 97 percent decrease.
The impact on the state's budget is nothing short of calamitous. When Paterson took office a few months ago, after predecessor Eliot L. Spitzer became embroiled in a sex-for-pay scandal, the state was facing a $5 billion revenue shortfall. In a few months, that projected shortfall has grown to $6.4 billion.
New York City is bracing for a hit, too, but is in somewhat better shape. The financial services sector is estimated to account for about 10 percent of city tax revenue and about a fifth of the state's tax revenue, according to economists. "The state does not have the property tax to fall back on like the city does," said Nicole Gelinas of the Manhattan Institute, a conservative-leaning think tank.
Gelinas, for one, blames the city and the state for using Wall Street's boom years to essentially get drunk on spending, allowing government payrolls and expenditures to grow while avoiding tough decisions on reining in costs. Now, she said, "this cash cow could be in for a period of . . . decline."
"This is not the old 'crying wolf' kind of stuff," she said.
Paterson, in his address, said he is calling the state legislature back for an emergency late-August session to deal with the unfolding financial crisis, and he said he expects lawmakers to make tough budgetary decisions. "We will cut spending," he promised. "It is time for New York and other governments to cut up our credit cards. The era of buy now and pay later and later is over."
In tackling the issue now, Paterson is following the lead of a neighboring governor. Jon S. Corzine similarly warned New Jersey residents to expect hard times as the state's finances are a mess and are expected to get worse amid a declining national economy.