Reports

The worst recession since the Great Depression appears to be coming to an end, but it has cost the nation 8.4 million jobs. While the downturn has been less severe in New York State and New York City than in the nation, the impact has been painful nonetheless. New York City lost 186,900 jobs and tax revenues fell by 7.1 percent in FY 2009 ($2.8 billion)—the steepest decline in at least 30 years.

The nation is slowly emerging from the worst recession since the Great Depression, but the recovery is expected to be slow and uneven. Although the national economy grew at 5.9 percent during the fourth quarter of 2009, the strong growth could not offset the deep contractions that occurred in the first half of the year. As a result, the economy contracted by 2.4 percent in 2009, the largest annual decline in 63 years.

The nation is emerging from the worst recession since World War II. While New York City was hit hard, the impact has not been as severe as initially feared or as painful as elsewhere in the nation. The City has lost 125,000 jobs, and the November Plan assumes that job losses will peak at 220,000 during the third quarter of 2010—fewer losses than in either of the past two recessions.

Two years ago, New York City’s economy was booming and the City’s coffers were overflowing with record budget surpluses. Today, the recession is rippling through the local economy and taking a heavy toll on tax collections. Tax collections, excluding recent tax increases, were down last year by $3.3 billion and are projected to decline by another $2.4 billion in FY 2010—a cumulative two-year drop of $5.7 billion.

New York City is managing its way through its greatest fiscal challenge in decades as the recession ripples through the local economy and takes a heavy toll on tax collections. To help balance the FY 2010 budget in the face of a $6.8 billion drop in anticipated tax revenue, as well as to narrow the out-year budget gaps, the City has raised property taxes, slashed agency and capital spending, obtained extraordinary federal assistance, reached agreement with the municipal unions to reduce health care costs, and drawn down reserves built up during the last economic boom.

Just a few years ago, New York City posted record budget surpluses, but now the City is facing its greatest fiscal challenge in decades. Tax revenues are projected to fall by $5 billion over a two-year period as a result of the rapid deterioration in the national and local economies, particularly on Wall Street, the City’s economic engine.

The financial crisis gripping the nation is the most serious since the Great Depression, and this recession is shaping up to be the worst in the post–World War II era. Events are transforming the Wall Street industry, which accounts for up to 20 percent of State revenue and 12 percent of City tax revenue.

Last summer the subprime mortgage crisis sent shockwaves through the national and local economies. Over the past year, credit has tightened; financial institutions have written off more than $200 billion in bad debt and posted record losses; home values have dipped nationally and have begun to weaken in New York City; job growth has weakened; and inflation has strengthened, particularly for energy and food prices.

Last June, New York City’s four-year financial plan was based on what appeared to be very conservative economic and revenue assumptions, given the economic environment at that time. During the summer, however, the subprime mortgage crisis sent shockwaves through the national and local economies. As a result, over the course of the current fiscal year the City revised its economic and revenue outlook to keep ahead of adverse economic developments.