NYC's current budget perils may be worse than 2002

By Joan Gralla

NEW YORK, Nov 5 (Reuters) - New York City's current budget crisis may be even worse than the one Mayor Michael Bloomberg inherited in 2002 from Republican Mayor Rudy Giuliani.

Today's budget repair kit also has fewer tools.

Bloomberg has already overseen multiple cuts in spending and raised income, sales and property taxes to close previous deficits.

On Thursday, Bloomberg highlighted the paucity of budget fixes.

"We can't afford to cut the critical services," he told reporters, a day after winning a third term.

"We don't have any more money and we certainly don't want to raise more taxes," Bloomberg said.

The mayor began his first term at a time when the city's future as a global capital was in doubt following the Sept. 11, 2001, attacks.

The last time around, "it was a very quick recovery," Laura Porter, an analyst with Fitch Ratings said by telephone. That was partly because Wall Street recovered its footing so swiftly.

"This time ... if you're looking forward, I don't think there's the expectation of a quick rebound," she said.

The difference between then and now is again due to Wall Street, which pays about 9 percent of the city's taxes. Banks and brokerages moved employees to the suburbs after the 2001 attacks, but later brought many of them back to the city. The city's economy shared in the national upturn.

This time, however, the financial sector is undergoing what New York state's budget office called a "fundamental restructuring" that could clip the bonuses that analysts say can average more than $400,000 in profitable years.

THE DOWNSIDE OF REFORM

A newfound zest for financial regulation may reduce risk-taking and bonuses -- and companies may replace some of the cash with stock, which often delays the tax bill.

Still, Steven Cohen, a Columbia University professor of public affairs, noted that the financial industry's prospects look brighter than in the depth of last year's credit crunch.

"Wall Street and the financial industry have certainly taken a body blow, but it's not getting worse, and in some places, it's starting to improve," he said.