When Wall Street sneezes, New York catches cold

DESPITE a bit of grumbling that the federal bail-out of Wall Street is a handout to the wealthy, most New Yorkers realise the crisis affects everyone, from the trader making a six figure salary to the coffee vendor stationed outside the old Lehman Brothers building. As David Paterson, New York’s governor recently said, “every time you hear Wall Street’s having a bad day, just know that New York is having a worse day.”

The securities industry, according the city’s Independent Budget Office (IBO), accounts for 25% of the wages paid in the city. It generates 27% of its direct tax revenue. The city’s unemployment rate rose last month to 5.8% from 5% in July, the largest monthly increase on record. Some 40,000 of the city’s 185,700 Wall Street jobs could be lost. Doug Turetsky, of the IBO, says every thousand jobs lost on Wall Street translates into a roughly $50m loss in tax revenue.

Even before the crisis, City Hall was predicting a budget deficit in the 2010 fiscal year of $2.3 billion. Nicole Gelinas, of the Manhattan Institute, thinks this could increase by between $1 billion and $2 billion. The budget, as it stands, assumes a $7.1 billion securities industry profit, which is no longer possible.

Michael Bloomberg, New York’s mayor, has directed all city agencies to cut their budgets by 2.5% this year and 5% next fiscal year. He also wants to increase property taxes by 7% in January. The mayor got New York out of its last downturn, in 2002. But he must leave office next year, unless the mayoral two-term limit is scrapped. Now there’s a thought.