Citing Markets, Mayor Curbs Spending
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Citing worries on Wall Street, the city today warned of possible budget reductions, and called for city agencies to curb hiring and spending.
“The City’s economy depends in no small measure on the profitability and success of Wall Street and the financial services industry,” Mayor Bloomberg wrote in a memo sent to city agencies. “Recent events in the financial markets are, therefore, a subject of deep concern.”
While he did not call for immediate budget cuts, Mr. Bloomberg wrote “such reductions may be necessary in the coming months.”
The warning was not uncommon for the mayor. He has sought to craft restrained budgets in a time of record revenues and multi-billion dollar surpluses. Even as the projected surplus for the past fiscal year grew by more than $2 billion between November and June, Mr. Bloomberg insisted that most of the unexpected revenue go not toward increased spending but be rolled into future year budgets.
The memo lacked details any specific cuts or freezes, other than the instruction to “avoid entering into non-critical additional spending commitments.”
“He is raising the issue, but the substance of what he has said here is pretty mild in terms of trying to constrain the spending,” the vice president of the Citizens Budget Commission, Charles Brecher, said.
The mayor frequently sends out a memo asking agencies to curtail spending.
“I don’t think it’s anything to be alarmed about,” the chairman of the City Council finance committee, David Weprin, said. “I think it’s actually very fiscally responsible.”
At $59 billion, the city’s budget is the largest it has ever been, as a booming Wall Street, a hot real estate market, and overall strong local economy have helped the city establish a strong fiscal footing.
But a growing credit crunch, created in large part by a collapse of the subprime mortgage market, has sounded alarm bells on Wall Street. Analysts fear the lending crisis could worsen, causing turmoil in the financial industry.
Some of the financial giants with large holdings in subprime loans have already taken a hit, and budget experts say the city’s revenues could dwindle should Wall Street suffer further setbacks. Revenues such as the corporate income tax, the unincorporated business tax, and real estate transfer taxes tend to mirror the health of the financial industry.
The chief economist of the Fiscal Policy Institute, James Parrott, said the city’s record $4.4 billion surplus in 2007 was due in large part to the $20 billion profit claimed by Wall Street for the year.
“In 2008, what are Wall Street profits going to be?” Mr. Parrott said. “I don’t think they’re going to be $20 billion, and they could be $18 billion and they could be $8 billion. The difference means a lot to city tax collections.”
The state, Mr. Parrott noted, is likely at greater risk, as its tax collections do not come from property tax, which provides about one-fourth of the city’s revenue.
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