As the Legislature slouches into its second week past the April 1 deadline to pass a $233 billion or so budget for fiscal year 2025, disagreements are over non-spending issues, such as housing, and whether to add spending.
Nobody is asking: Where does the money come from?
They should, because New York’s cash cow — Wall Street — has been finding greener pastures.
The securities industry — issuing and trading stocks and bonds and providing companies advice on mergers and such — has had a soft couple of years.
Nationwide pre-tax profits hit records a few years ago, reaching $58.4 billion in 2021.
Wall Street benefited from the trillions in cash both the Trump and the Biden administrations pumped into the economy during the pandemic.
Low interest rates encouraged companies and people to keep borrowing and investing, paying fees to Wall Street.
But as the Federal Reserve started raising rates in 2022, the profits shrunk by more than half, to $26.6 billion.
They remained flat last year, reports the Securities Industry and Financial Markets Association.
As profits fell, high-paid New York workers’ bonuses fell, too.
Bonuses for 2023 were $33.8 billion in New York City, the state comptroller estimates, flat from the previous year and 21% below 2021’s record $42.7 billion.
These numbers are important because Wall Street is responsible for a huge share of our budgets.
The reasons the city and state didn’t have to cut spending during the pandemic were twofold: extraordinary federal aid but also extraordinary Wall Street revenues.
Wall Street has always made up a small fraction of state and city jobs — 2.1% and 4% of private-sector jobs, respectively.
But because of high salaries and bonuses — a half-million-dollar annual average — and New York’s high personal-income taxes, the industry makes up an outsized share of tax revenues.
As the comptroller notes, the state reaped $28.8 billion in tax revenues from Wall Street in fiscal year 2023 (when taxes on that record 2022 year were paid).
That haul represented a full 27.4% of state taxes — mostly paid in nosebleed personal-income taxes on bonuses and salaries, via the 10.9% state levy on top earners (and an additional 3.9% city level).
In its own record year, 2022, the city took in $6.4 billion in taxes from Wall Street, or 9.3% of total taxes, mostly personal-income taxes and commercial-property taxes for the offices Wall Street firms occupy.
(The city’s windfall came earlier than the state’s due to budget-timing differences.)
These tax revenues are shrinking, contributing to the city’s deficits.
The city estimates personal-income tax and related revenues will fall 7%.
The state, too, “began to experience a precipitous drop in tax receipts” this year, budget officials report, with personal-income taxes down 11%.
Both the city and state expect tax revenue to recover quickly, which is why they keep spending away; the governor’s budget proposal increases spending 4.5%.
But these projections may prove optimistic.
In a city and state economy supposedly on the upswing, the securities industry shed jobs in New York last year — with 5,200 jobs in the city, or 2.7% of industry positions, disappearing.
That might not be alarming by itself.
But nationwide, the industry grew by 3.4%, or nearly 30,000 jobs.
Put another way, the industry isn’t losing jobs; it’s moving them to other states.
Taking the long view, SIFMA observes, “The national landscape of the securities industry has changed significantly over the past 10 years,” with “most of the growth happening outside” New York.
Over the decade, the state added just 11.5% more jobs to its securities industry, less than half the nationwide growth of 28.7%.
Texas, the biggest gainer, added 36,900 jobs.
It would be one thing if the state budget were late because lawmakers and the governor were concerned about these trends and debating how to restructure rates and provide a better quality of life for the taxes the state and city levy, to retain higher-income people.
Instead, they’re obliviously preparing their next round of milking while the cow is already partway out the barn door.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.