Jan. 28 (Bloomberg) -- Cash bonuses paid to New York City employees of Wall Street firms declined 44 percent last year amid record losses in the securities industry, state Comptroller Thomas DiNapoli reported today.

Financial firms disbursed $18.4 billion compared with $32.9 billion in 2007, DiNapoli’s office calculated, basing its estimate mainly on personal income-tax collections. While the decline represents the most ever in total dollars, the bonus pool remained the sixth-largest ever, the comptroller said in a yearly report.

“It’s more bad news,” he said in an interview today on Bloomberg TV, referring to declining tax collections as the recession deepens. “This just makes a bad situation even worse.”

DiNapoli said the diminishing bonuses were “confirmation” that the payments will drop as much as 50 percent over two years. The decline in revenue collections for the city and state will likely reach its nadir this year, he said.

“The federal Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing,” DiNapoli’s office said in a news release. “TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.”

Growing Bonuses

While salaries of between $150,000 to $250,000 are typical for a wide range of Wall Street executives from vice presidents to managing directors, bonuses -- sometimes of $1 million or more -- make up most of their compensation, said Jeanne Branthover, managing director in charge of global financial services for Boyden Global in New York, an executive search company.

President Barack Obama’s administration is weighing a plan to allow the Federal Deposit Insurance Corp. to manage a so- called bad bank to buy toxic assets harming financial services companies, sources familiar with the matter said. He is considering new restrictions on bailout funding as the federal government prepares to release the second $350 billion of the rescue package.

The Treasury this month agreed to provide $20 billion in capital and $118 billion in asset guarantees to Bank of America Corp., which acquired Merrill Lynch & Co., after Merrill reported a $15.4 billion fourth-quarter loss. The transaction closed on Jan. 2.

Cuomo Inquiry

New York Attorney General Andrew Cuomo said yesterday that he subpoenaed former Merrill CEO John Thain and Steele Alphin, the bank’s chief administrative officer, for more information about bonuses Merrill paid just before its acquisition. Thain said Jan. 26 that he’d kept the bank informed about the brokerage’s finances and compensation.

Now that the government has a stake in the financial industry, compensation practices will change, employees will be paid less, and firms will have to prove they are rewarding talent based on formulas that more accurately grade employee performance, Branthover said.

“It was always said to investment bankers, ‘try to live on your base and you’ll be OK,’ but somehow that changed when bonuses soared into the millions of dollars,” Branthover said. “You won’t see compensation packages anywhere near what they were. The firms can’t explain it, the profits won’t allow it and shareholders won’t stand for it.”

Reduced bonuses will cost New York state almost $1 billion in personal income tax revenue and New York City will see about $275 million less than in 2007, DiNapoli said. Losses among financial firms based in New York City resulted in a cumulative $31.3 billion tax credit that they may carry forward to reduce tax payments to the city and state for several years, he said.

Tax Revenue

In the most profitable years, high levels of compensation, corporate earnings and capital gains from Wall Street-related activity accounted for as much as 20 percent of the state’s total tax revenue and 12 percent of the city’s collections, the office has said.

In 2008, the average bonus of $112,000 represented a 36.7 percent decline from 2007. The percentage decline in the average bonus doesn’t reflect the overall pool reduction because fewer workers shared the money as the industry shed jobs, DiNapoli said. The global financial industry has lost more than $1 trillion, mostly since the third quarter of 2007.

Employment in New York City’s securities industry fell to 168,600 in December 2008 from 187,800 in October 2007, a decline of 19,200 jobs, or 10.2 percent, the report said.

Jobs Eliminated

The state will have lost as many as 225,000 jobs and $6.5 billion in securities industry-related tax revenue by Oct. 31, DiNapoli has said. Positions eliminated in the financial industry alone may total 38,000 by then, he said.

“Wall Street is the engine that drives the economies of New York state and New York City, but the global credit crunch has slowed that engine down,” DiNapoli said Nov. 24 when he released a Wall Street report. “This year is on pace to be one of the worst years ever on Wall Street.”

Personal income and business tax revenue from Wall Street- related activities may drop by $4.5 billion for New York state and $2 billion for New York City by 2010, the office said last month. The city’s budget gap may reach $8 billion by the July 1, 2010, start of fiscal year 2011.

New York Mayor Michael Bloomberg has scheduled his annual preliminary budget presentation to the City Council for Jan. 31. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

To contact the reporter on this story: Henry Goldman in New York City Hall at hgoldman@bloomberg.net.

Last Updated: January 28, 2009 13:23 EST