Mayor Bloomberg is warning that the past week’s stock market nosedive will have “immediate consequences,” including lower tax revenues for the city.

Mr. Bloomberg said that while the city has worked to diversify the economy so that it is not completely dependent on Wall Street, a downturn could mean smaller bonuses and fewer real estate transactions. That, he said, is “going to hurt.”

“If they make less money there’s just less tax revenues for us and we’ll have to adjust as we go along,” the mayor said yesterday morning.
While the city ended fiscal year 2007 with a $4.7 billion surplus and a flooding of tax revenue from real estate transfers, Mr. Bloomberg pointed to the budget shortfalls on the horizon. The city is predicting a $1.5 billion gap for 2009 and a $3.4 billion gap for 2010.

“With a downturn in Wall Street profits it’s going to be worse,” he said.

His comments come after a tumultuous week for the Dow Jones Industrial Average, spurred by the concerns about the subprime mortgage market and credit woes. The last few weeks have seen triple-digit swings for the Dow. Yesterday, the index seesawed, before surging 150 points during the last 20 minutes of trading, to end the day at 13,362.37.

In a column in the Wall Street Journal yesterday, James Stewart, a prominent financial journalist, declared the “great asset boom is over.”
“For now you can say goodbye to the $5,000-a-square-foot Manhattan condos, the $10 million midlevel Wall Street bonuses, the $8 billion private equity moguls, the Wall Street bashes with live appearances by aging rock stars, and the $70 million Andy Warhol car-crash painting,” he wrote.

The director of the city’s Independent Budget Office, Ronnie Lowenstein, said that while the latest stock market trend is troubling, the city’s economic and fiscal fortunes don’t necessary rise and fall with the market.

“Although we remain very dependent upon the financial sector, there is a lot more to the financial sector than the stock market,” she said.
Still, she said, a protracted decline will have an impact on mergers and acquisitions and other activity.

“If Wall Street profits decline — and remember we are coming off an extraordinarily good year — there is going to be less money in salaries and bonuses out there bidding on apartments and houses and everything else,” Ms. Lowenstein said.

The director of the Jack Tilton Gallery on the Upper East Side, Janine Cirincione, said there is no way to determine what effect a stock market dip would have on purchases because “we haven’t had this kind of crazy art economy before.”

But she said: “The fact is people at the high price range generally aren’t as hurt as other people by dips like this in the market. It’s more the mid-range and lower-end buyers that are affected.”

The chief economist at Reis Inc., Sam Chandan, said the recent market swings are prompting investors to re-examine their financial exposures.

He said that while the market is up for the year, that financial firms, including those located in New York, that have exposure to the sub-prime market could feel the financial effects of that crisis.

“Those risks are real and the market’s response to them will impact the rate of job creation. That will include cities such as New York, which have a concentration of financial service firms,” Mr. Chandan said.

Three hedge funds operated by New York-based Bear Stearns have been hard-hit by losses, and in the past two days, losses have been reported at other hedge funds.

Meanwhile, the market sputtering comes at a time when New York is fiercely competing with cities such as London to keep its position as the financial world capital.

The backdrop for all of this is a record-breaking 2006, which saw $23.9 billion in Wall Street bonuses and profits for New York Stock Exchange member firms at $17 billion.

Ms. Lowenstein said the city has revised projections down this year. She said the city estimates Wall Street profits at $16.8 billion for 2007.

Mr. Bloomberg said that consequences will not be felt “overnight,” but will be evident in the next budget. He said the city’s pension fund, which is invested in the market, would lose value. And, he said, “You can’t help but believe that the downturn in Wall Street hurts the number of real estate transactions.”

Last year, Mr. Bloomberg said that the “real-estate market is slowing down dramatically and we’re going to have a real problem down the road.” While the market has softened slightly, that dire prediction has not yet come to fruition in the city. The city’s real estate market has defied national trends in that regard.