NEW YORK New York City cannot cut its way out of a $2.3 billion budget deficit spawned by Wall Street's sliding profits and might have to look at other ways to raise revenues, Mayor Michael Bloomberg said on Monday.
But the mayor, an independent, promised that the city would not repeat the mistakes of the 1970s, when thousands of public workers, including police officers, were laid off and New York City became known for its high crime rates, grafitti-scrawled subways and failing schools.
Bloomberg warned that Wall Street likely will inflict more pain in remarks at a news conference called to address the weekend's stunning developments -- the trifecta of Lehman Brothers Holdings bankruptcy, Merrill Lynch's hasty acquisition by Bank of America and a capital crunch at American International Group, once the world's largest insurer when ranked by market value.
"Other companies are facing serious questions about their future, and the uncertainty in the markets means, in all likelihood, that we still have not hit the bottom of the cycle," Bloomberg said.
The mayor added that New York City is well-positioned to ride out the economic storm because he had already slashed spending. He declined to say whether a tax hike was likely, explaining that the day of investment bank Lehman Brothers' demise was not the time to address that subject.
"We cannot balance the budget just by cutting more ... We're just going to have to take a look at other ways to raise revenue and do other things," he said.
A CRUEL RIPPLE EFFECT
Wall Street's losses sting New York City because this industry's total compensation is about 35 percent of all wages and salaries paid in the city. Each job in the financial sector creates from one to as many as four service jobs, at companies ranging from shops to law firms, economists say.
Bloomberg, a billionaire who founded the news agency that bears his name, disagreed, when asked if this was a dark day for the city. He promised he will keep making the investments that make it what he called the best place to work and live.
"I think that it's not a dark day. It is a sad day," Bloomberg said, referring to the Lehman workers who stand to lose their jobs. "The fact is, our financial system cannot continue to stand this game of speculators preying on the weakest firms -- and trying to destroy them for profit," he said, calling on the U.S. Securities and Exchange Commission to prevent the "short-selling panic we have seen."
Lehman, a 158-year old trading company that withstood two world wars and the Great Depression, has about 12,000 workers in the New York area, the mayor said. That is just under half of the bank's global workforce of 26,000.
Most of Merrill Lynch's nearly 10,000 employees who work in the region should keep their jobs, Bloomberg said, citing his conversations with top officials. Merrill, which has the biggest U.S. network of brokers, has over 61,000 employees around the world.
Insurer AIG has about 7,000 employees in offices around the city.
Bloomberg also stressed his optimism about the city's future.
"The other side of the coin is that if we are going to help these people, we have to make sure that our economy continues to grow," Bloomberg said. "We have to make sure that we still laugh and enjoy ourselves and believe that our economy is going to be better than today.
"If we don't make the investments in our companies, it will be a dark day down the road."
(Additional reporting by Edith Honan)
(Reporting by Joan Gralla; Editing by Jan Paschal)