New York state’s deficit may be 22 percent wider than estimated by the Budget Division because tax revenue, including from Wall Street bonuses, may be less than expected.
The division has forecast a 13 percent increase in taxable cash bonus payments to $39.7 billion, according to Erik Kriss, a spokesman. By contrast, Options Group, an industry consultant, estimates the annual payments will drop from a year earlier. Capital gains revenue also may fall short of estimates.
“The next administration will have to contend with a snowballing budget deficit that’s growing fast and picking up speed,” Dennis Tompkins, a spokesman for state Comptroller Thomas DiNapoli, said Dec. 10 by e-mail. “Next year’s deficit could total $11 billion or more.”
Last week, Morgan Stanley told bankers and traders to expect 10 percent to 30 percent smaller payouts than for 2009, according to two people briefed on the matter. The compensation pool for bankers and traders at JPMorgan Chase & Co. fell 10 percent in this year’s first nine months, while at Goldman Sachs Group Inc. the amount available was 18 percent lower, according to company reports last month.
At least $1 billion of the fiscal 2012 gap is a carryover from the current year’s imbalance, Tompkins said. “Nothing has been done to address that deficit and it doesn’t appear that the Legislature is going to take any action,” he said.
Report in January
Tompkins declined to comment on Wall Street pay beyond what DiNapoli said last month. The comptroller plans to issue a report in January on securities-industry compensation, he said.
The decline in bonuses “is going to be street-wide,” said Michael Karp, the chief executive officer of Options Group, a New York-based recruiting and compensation-consulting firm. His company estimates overall pay for investment-banking and trading employees at Wall Street firms will be down 22 percent to 28 percent from 2009.
The projected decline may occur as Wall Street’s largest banks seek to cut costs and boost stock prices, even as they are set to close the second-biggest year for revenue, trailing only 2009, according to data compiled by Bloomberg. The five largest U.S. firms by investment-banking and trading revenue are Goldman Sachs, JPMorgan, Citigroup Inc., Morgan Stanley and Bank of America Corp., which owns Merrill Lynch.
Hard to Estimate
“I like bonuses,” Robert Megna, the state budget director, said last month at an Albany hearing on next year’s spending plan. He said it’s difficult to estimate revenue at the end of the year because neither the amount of bonus payments nor capital gains is known. Both are subject to state income taxes at rates of as much as 8.97 percent.
Wall Street companies and workers accounted for about 15 percent of the state’s tax revenue in the 2010 fiscal year, which ended March 31, down from 20 percent in years before the financial crisis, according to DiNapoli.
The state estimates the growth in bonuses will produce $400 million in income-tax revenue, Kriss said. He didn’t immediately respond to messages left after normal business hours seeking comment about bonuses and the deficit.
Governor-elect Andrew Cuomo is required to present the Legislature with a balanced budget by Feb. 1, a month after taking office. The spending plan must cope with the loss of $5.4 billion of temporary economic-stimulus aid from federal sources, as well as a chronic imbalance between revenue and spending. Tax receipts are projected to grow 6.7 percent next year, or about half the rate of spending under current mandates.
After deferred spending in past years, school aid would increase $2.9 billion, or 14.6 percent, next year, according to budget documents. Spending on Medicaid, the health-care program for the indigent, would rise $5.7 billion, or 48 percent, according to projections for operating expenses.
The state also may collect less than forecast in capital- gains taxes, DiNapoli has said in a report.
“There will be additional risks” to the state revenue forecast if Congress extends the current 15 percent U.S. capital-gains rate, he said. Congress is debating a plan to prevent taxes from rising next year. Current law calls for the federal levy to jump to 20 percent on Jan. 1.
New York has estimated $200 million to $225 million in additional revenue from investors accelerating sales to take advantage of this year’s federal capital-gains rate, according to Kriss. The Budget Division has projected a surge in capital gains, to $57.7 billion in 2010 from $36.4 billion in 2009.
If lawmakers in Washington pass an extension of unemployment benefits and a 2 percentage-point cut in employees’ Social Security taxes, also in the plan now being debated, state revenue may increase because of increased retail sales, taxed at 4 percent, and from faster economic growth.
The tax accord may raise the nation’s gross domestic product next year by as much as half a percentage point to about 3.1 percent, said Michael Feroli, chief U.S. economist at JPMorgan in New York. Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York, is increasing his growth forecast for 2011 by one point, also to 3.1 percent, because of the proposed tax bill.