Bonds News

UPDATE 1-NYC surplus grows $2 bln despite downturn-source

(Adds Bloomberg plans, background, Weprin comment, byline)

NEW YORK, April 30 (Reuters) - New York City will capture nearly $2 billion of extra tax revenues this year, a financial source said on Wednesday, a fresh sign that corporate tax declines warned of by the mayor could take some time to show up.

For months, Mayor Michael Bloomberg has been warning that the U.S. housing-led economic downturn will hurt New York City. On Monday, the independent mayor warned corporate tax payments could “fall off a cliff.”

A factor driving up the tax surplus is a long-standing policy of New York City mayors to underestimate tax revenues to prevent the city’s Council from spending too much, explained the financial source who requested anonymity.

The law-making Council oversees New York City agencies, and has sole responsibility for approving the city’s budget.

Bloomberg plans to prepay debt with the windfall, getting a jump on slicing next year’s deficit, the source added.

The mayor plans to unveil his revised $58.5 billion budget plan on Thursday. A spokesman declined to comment.

Bloomberg appears likely to keep a 7 percent property tax cut enacted previously for the new budget that starts on July 1, but he might rescind that popular tax break in the following year, the financial source added.

Banks and brokerages based in the city are a cornerstone of its economy, with their employees earning an average salary and bonus of $340,312 in 2006, according to the state labor department. Their workers account for 35 percent of all wages and salaries earned in the city, and high taxes paid by the individuals and companies often determine whether the city gets a surplus.

Since last summer’s credit crunch began, Wall Street companies have written down hundreds of billions of dollars of securities tied to subprime mortgages, and fiscal watchdogs have warned this could widen future budget gaps.

Democratic Comptroller William Thompson on March 4 estimated the deficit in 2010 could widen to $4.8 billion, which would be $567 million above Bloomberg’s forecast.

Federal and city authorities are probing how Council members spent funds they control, following the April 16 federal indictment of two staff members for embezzling $145,000.

David Weprin, the Democrat who chairs the Council finance committee, said the budget deadline will be met despite this distraction.

“We will have an on-time budget,” Weprin said, explaining that missing the deadline might open the door for the state financial control board to step in under certain conditions.

Editing by Richard Chang