Tuesday, July 29, 2008

Re-post - Wall Street's Woes to Impact NY State

A couple of weeks ago I covered the impact Wall Street's troubles will have on New York State. Today's news that Gov. Paterson and Mayor Bloomberg are sounding the alarm that budget deficits are growing beyond expectations are a further signal that services and jobs are likely to be cut and taxes raised in the near future as result of the NYC's economic troubles.

Friday, July 11, 2008

Wall Street's Woes Will Impact Upstate NY
It's hard to sympathize with the Bankers and Analysts on Wall Street as their jobs and bonuses evaporate faster than the $80 you just put in your F-150, but the impact of lower profits and smaller salaries on Upstate will be real in the very near-term.

The numbers thus far are staggering - nearly 60,000 positions eliminated and perhaps over 100,000 by the end of the year (NY Times - 5/08). I think that might even be conservative. The average salary in Manhattan (this includes everyone - Wall Street, Ad execs, chefs, etc) was over $146k in 2006 pre-bonus and on Wall Street bonuses of 100-200% were not uncommon in recent years.

If we assume a conservative 40,000 positions eliminated in 2008 (with more likely in 2009) with an average total comp package of $200,000 - You could see a $600 million drop in state tax receipts just from positions eliminated. It takes a lot of jobs at Texas Roadhouse to make up that kind of tax revenue.

Recently the NYS Budget office put out the following outlook which highlights the problems facing NYS if Wall Street continues to struggle."New York State receives about 20 percent of its tax revenues from Wall Street in the form of taxes on bonuses, income, capital gains and large real estate transactions."

"Financial giants such as Morgan Stanley, Merrill Lynch, Bank of America, Citigroup, Lehman Brothers and others have reported disappointing earnings and are preparing for potential layoffs."

My real concern is with the tax collection in future years as Wall Street dramatically shifts it's bonus structure. *** Update - I think today's news on Merrill Lynch further emphasizes that payroll at the big firms are going to fall sharply in coming years ***.

So when you read tonight another story about the struggles at Lehman Brothers or Merrill Lynch or Fannie Mae or Freddie Mac, don't think we live in vacuum here in Upstate NY for all the complaining local politicians do about "Downstate" that's where the money comes from to support our statewide economy. Their struggles are our struggles.

There is one very large domino (lower tax revenue) that could start a chain of events that will lead to lower spending, reduced services and possibly one higher taxes at the local level as state aid is reduced for schools.


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