Wall Street's Losses Might Give It A Tax Holiday
Some Wall Street companies might not resume paying New York City taxes for "a number of years'' because they can offset future profits with the losses they are currently suffering, Mayor Michael Bloomberg said on Monday.
"I think it will be a number of years before they start paying taxes again,'' the mayor told a news conference. "Look at those losses. They can carry them forward for a number of years.''
New York City relies heavily on its hometown financial industry for its tax revenues. The mayor added that some banks and brokerages already were asking the city to return some quarterly tax payments because they had overpaid.
Many companies rely on safe harbor rules, basing their estimated quarterly tax payments on what they paid in the previous year. This saves them from any penalties if their profits -- and their tax bills -- unexpectedly zoom higher.
But this time around, with many Wall Street companies still wandering in the subprime mortgage swamp, their earnings likely will fall below last year's results.
Bloomberg was responding to questions about New York Gov David Paterson's decision to ask the Legislature to slice aid for counties, cities and towns as part of a $1 billion menu of budget cuts that the Democratic governor wants them to enact in a special session.
Feeling the Pain
New York state must close an estimated $26 billion deficit over the next three years, thanks to Wall Street's sinking profits and the government's years of overspending.
"I am worried about the state's bond rating. It could start to fall if the state doesn't do something about its budget problems,'' Bloomberg said, noting his administration has already deepened spending cuts.
The mayor, an independent, will finish his second and final four-year term in January 2010.
The state relies more heavily on Wall Street than the city does for its tax collections, the mayor said, estimating that the city sends 50 percent to 60 percent of its revenue to the state.
New York state now is rated "AA-'' by Fitch Ratings, which on August 6 gave it a positive outlook and saluted its budget-gap closing steps, noting the state has "meaningfully'' cut estimates for tax collections.
In late July, New York City got an equivalent rating of ''AA3'' from Moody's Investors Service, which cited its conservative budgeting as a strength and its "cyclical'' economy, driven by Wall Street, as a challenge.''
Economists say New York state gets one out of every five tax dollars from banks and brokerages, and Paterson on Monday estimate this industry lost $40 billion in the last three quarters. This sector also is New York City's most important bedrock industry.
"If they (the state) cut back, we're going to feel it, no question about it,'' Bloomberg said. "They can find a way to economize more,'' he added later.
New York City's budget gap next year is estimated at $2.5 billion to $3 billion, and cuts will be particularly painful if the state does indeed slash aid to local governments, he said.
"I'm not preaching gloom and doom. (Our) commitment is to maintain services in the city at a level where the public expects them to be,'' Bloomberg said.