December 24, 2014
By Marc Bussanich
New York, NY—That was the message Comptroller Thomas DiNapoli gave when he spoke before business and labor leaders on December 12 about how the securities industry is a major tax revenue source for both New York City and State.
According to Mr. DiNapoli, Wall Street profits totaled about $8.7 billion for the first half of this year, which is about 13 percent less than the same period last year.
“Despite that loss, the securities industry remains a very important source of tax revenue, accounting for 19 percent of revenues going to the state and 7 percent going to the city. The state is particularly sensitive to the revenues derived from Wall Street,” said DiNapoli.
The Comptroller’s Office recently released a report on the importance of the securities industry to New York and some of the challenges it’s facing.
He noted some of the report’s highlights, including how New York should spend the $5 billion windfall it received in the form of financial settlements from the big banks for their role in the 2008 financial crisis.
“Following record losses in 2008, the securities industry has been profitable for five consecutive years including the best three years on record. In 2013, securities industry profits were about $16.7 billion, a decline of about 30 percent [before 2008] due to higher non-compensation expenses such as rent, commissions and of course the costs of the legal settlements. The six largest banking holding companies including their securities operations have agreed to pay a total of more than $130 billion in settlement costs,” DiNapoli.
While there’s a lot of talk from different corners about how New York should spend that money, DiNapoli said there are infrastructure projects that are on the drawing board but aren’t funded.
“I think we shouldn’t look at [the $5 billion] as a surplus, but as a windfall, a one-time opportunity. I think a smarter approach would be to use the money on paying down New York’s existing debt, and also spending it on our aging infrastructure—water systems, roads, bridges. We have many plans, but they aren’t funded. We just put out a report about the amount of money that’s needed for local governments to spend on infrastructure, but we’re only spending about one-third of what we really need to do.”
While the securities industry and Wall Street are important for New York’s economy, that doesn’t insulate it from the whims of the market. Indeed, Mr. DiNapoli said that the industry has lost 29,000 jobs from 2009 through August 2014.
“In the last three years the industry lost about 10,000 jobs. So that means the industry, in terms of employment, is about 50 percent smaller than it was before 2008. It’s great work if you can get it, but there are fewer jobs available,” said DiNapoli.
Nonetheless, it’s still an important employment sector, employing about 160,000 people.
“We calculate that 1 out of 9 jobs in the city and 1 out of 16 jobs in the state are directly or indirectly associated with the securities industry,” he noted.
The good news for New York is that it still has many more securities jobs than any other state in the country. And compensation is good!
“The average salary was $355,000 in 2013, which is five times more than the average salary in the rest of the city’s private sector. A part of the salary is derived from bonuses. We found that in 2013 the bonus pool increased by 15 percent to over $26 billion, the third highest level ever,” DiNapoli said.
With profits totaling $11.7 billion in the third quarter, DiNapoli believes that the future of the industry’s profitability will depend on several factors.
“It’s going to be shaped on what’s happening broadly in the market, such as a potential increase in interest rates by the Federal Reserve. But when you take it all together, we’re certainly in a much stronger position than we’ve been in in a number of years in our city and state. We need to recognize that the securities industry is a key part of New York’s economy; we need New York to continue to be the global capital for finance,” he said.