(Updates from paragraph 4 onward with details and background on Wall Street and city budget, quotes from the report)
By Joan Gralla
NEW YORK, March 9 (Reuters) - New York City is in a “severe and protracted” retrenchment that will ultimately cost 270,000 people their jobs, including 50,900 securities industry workers whose jobs drive the city’s economy, according to a report released on Monday.
The latest forecast by the Independent Budget Office, a public agency that supplies nonpartisan budget information, increases the number of pink slips that people who work in the city can expect by 30,000 from its January estimate.
Wall Street is expected to keep losing money this year, although the $8.3 billion forecast is dwarfed by last year’s total losses, which should top $45 billion, the report said.
New York City’s financial industry serves the same role that car makers play in Detroit. Until recently, securities workers on average earned about $400,000, and each of their jobs created one to three service positions ranging from waiters to lawyers.
Like many cities and states, New York City must close a deficit, which this report forecast at $1.2 billion for the new budget that starts July 1. The next year’s $4.8 billion shortfall is $1.6 billion more than Mayor Michael Bloomberg projected in January.
Bloomberg, an independent seeking a third term, wants to raise sales taxes instead of income taxes, which is how the Democratic-led City Council plans to raise the extra money.
The mayor says the wealthy will move if their taxes are raised. He notes that not only has much of the upper crust lost money in stocks, but it has become unfashionable to buy luxury goods, a development he bemoans because it hits sales taxes and threatens jobs in the retail sector.
City income tax revenues are expected to fall more than 17 percent in 2009 and nearly 22 percent in 2010, the report said. New York city’s income tax tops out at 3.65 percent.
Wall Street’s borrowing binge magnified its subprime losses, and now the city economy likely will remain in recession for a longer period than the nation, according to the IBO, which mirrors the Congressional Budget Office.
For years, the city shared Wall Street’s roller-coaster profit cycle, reaping extra tax revenues when it outperformed, as it did in 2006 by earning $21 billion. But tougher oversight and a shift to safer but less profitable traditional banking may mean there are no more billion-dollar bonanzas for the city’s tax coffers.
“Even when the national economy does rebound and the financial market revives, the financial industry is likely to be more highly regulated and employ less leverage, and therefore will almost certainly be less profitable,” the IBO’s report said.
“If these structural changes occur, Wall Street will no longer generate the levels of city tax revenue that it has in the recent past.”
Though the financial sector likely will keep losing jobs into 2011, axing a total of nearly 77,300 workers, the outlook is even gloomier for the securities industry subsector.
By mid-2010, it will have cut 48,800 workers or 25 percent of the workforce it had in 2008. And it will probably keep paring its workforce until the third quarter of 2012. There were 172,400 securities workers in January 2009, down 15,100 from a year ago, according to the state Labor Department.
Revenue from three main taxes — personal and business income and property transfers — is expected to shrink 64 percent from 2008 through 2010, the IBO’s report said. (Reporting by Joan Gralla; Editing by Jan Paschal)