Wall Street profits increased more than 79 percent in the first of half of the year compared with the same period last year — and annual profits are expected to finish the year much stronger than 2023’s mark. That’s according to a new report from New York State Comptroller Tom DiNapoli. The Democrat says the upward trends will help boost state and New York City tax revenues. DiNapoli spoke with WAMC's Ian Pickus.
Hey, Ian, always good to be back with you, especially when we've got some good news to report.
Yeah, so what's driving this good news, as you say?
Well, you know, there's been a lot of macro changes that have benefited this industry, the securities industry in New York City, obviously coming out of the pandemic and more stability with the economy. All of the money that the federal government has pumped into the economy in recent years. I certainly think more recently, why we're optimistic this trend will continue, the interest rate cut. You know, all of this certainly has been benefiting the profit levels. But I would also add the word of caution that there's still a ways to go before this year closes out. We know we live in a challenging geopolitical climate with everything going on, world events, and let's just say, a fair amount of uncertainty in our own country with the national election not too far away, we'll see what that all means, but certainly in terms of profits, with the first half of the year being so strong, that's positive news.
You know, folks need to keep in mind when Wall Street's doing well, the taxes that we derive for New York State, for New York City coffers as well, it really is what helps to fund all the other important parts of the budget, like school aid, support for healthcare, senior programs. So we really do depend on the profitability of this industry, not only the corporate profits, the business profits, the taxes that derive from that, but the personal income tax revenue. These jobs in this industry are very well compensated and therefore taxed accordingly. And the rest of us benefit when they're doing well.
This report notes that the securities industry contributed 19% of total tax collections in the state fiscal year 2023-24. So if things are on the upswing, as this report suggests, what might that mean for New York state budget makers in the new year?
Positive news, and actually we've seen that percentage go up in recent years a bit, and I think that at least as we're projecting, if the profit levels hold up as strong as they have been for the first half of the year, that will also mean the bonus pool for next year will probably be higher than we've first been projecting. Again, there’s still time for this year to play out. We don't put out our report on Wall Street bonuses until March of the following year, but I think that means there's more upside possibility in terms of more revenue coming from the securities industry than had been anticipated. And I think the fact for at the state level, we will start the new budget cycle with a budget gap, this could help to make that more easy for us to close that gap.
So what's been going on in the past few years? Because obviously it's been a whirlwind since COVID, as you say, and 2020 had an unprecedented impact, and then things kind of leveled off recently. Now 2024, or at least the first half of the year, as your report notes, things are way up. Is this increase a flash in the pan, or is this just how things are going to come?
Well, we see the profit level as kind of going back to pre-pandemic levels, although it is a bit higher, no question about it, but I do think it's suggesting that we could be on a pattern of sustained growth and growth that we could count on. You know, we look as well at the employment numbers, and certainly for 2023 where we do have full year data, we actually saw an increase in the number of securities jobs in New York City. There's always a concern, are we losing these jobs to other parts of the country? What's happening is that there is greater growth in these finance jobs in other states. But actually, New York has not been losing the jobs. Our growth has not been as high as other states’. So I first would look to keeping those job numbers stable. We'll see how the rest of 2024 plays out. Hopefully we'll see an increase in employment. It's too soon to tell, but I think that's an important part of the picture as well. What are the employment numbers? You know, there's no doubt there's more growth happening in other parts of the country, but still the place where most of these well-paying jobs are located, it's still in New York City. We're still the global capital for finance. We certainly want to keep it that way.
I was really surprised to read that Utah is making gains in the securities industry.
Well, look, you know what wealth is moving to different parts of the country. Texas also is another place that you've seen significant growth. So you know the jobs will follow where the wealth is, and we know population trends have been shifting more to the west and southwest over a period of time. So some of that, we shouldn't be shocked about, but we still want to hold on to what we have. We have a smaller percentage of the national jobs in this regard than we've had, you know, going back a decade or two ago, but we still have a substantial number and they're very high paying jobs.
I know there's a lot of attention lately on the political situation in New York City, and everyone's wondering, you know who's going to be the mayor, what will happen with Eric Adams. But what is the impact on New York City's finances of the Wall Street industry?
Wall Street contributes significantly to the city budget as well. The city is less dependent on this sector of the economy than the state is because New York City, in addition to having an income tax, they have the property tax, and that's actually the big driver of revenue for the city. So it's a little different. The state is more dependent, because we're largely dependent on the on the personal income tax. So that's where, again, these high-paying jobs contribute an outsized amount. But still, for New York City, you're talking about it contributing to about 7% of tax revenue for New York City. So the fact that New York City also has out-year budget gaps that they have to contend with, it's very important when we have good news that that Wall Street is doing better than first projected, that's going to help the city with its financial plan as well.
How do you feel the November election could impact long-term budget planning and priorities, given how it could turn out either way?
There are a lot of unknowns there. I mean, I think certainly in terms of support for projects that New York has benefited from, in terms of federal expenditures, infrastructure in recent years, public transit, obviously, for the MTA, a big issue downstate, but upstate public transit as well, we've seen a lot of support from the federal government, not to be partisan about it, but those have been items that the Democrats have delivered more so in a way that's benefited New York than the other side. So I do have a concern, depending on who wins, what the impact may be.
What's interesting in New York has been a big debate about the SALT deduction, and now you're at a point where candidate Trump now says he would restore that, you know, he would take away the cap on SALT, which is interesting because he's the one that put it in. So you know, we'll see what happens, depending on who wins, whether there'll be a change as far as the state and local tax deduction. So I’m not sure if we can project, because a lot of this will depend not only on who wins the White House, but who's going to control the Congress. You know, right now, you have a very slim majority in the Senate that's produced Chuck Schumer as the Senate Majority Leader. Obviously, that's helped New York. There's a good chance that the House, if it goes Democratic, the probability is that Hakeem Jeffries from New York would be the speaker of the house. So from a New York state perspective, again, I don’t say it in a partisan way, I'll say in a parochial way, it would be quite something if we had the Senate Majority Leader and the House Speaker both coming from our own state. I think we would reap some benefits from that, but we'll see how it all plays out.
A lot on the line. You know, Governor Hochul has punted a decision, it looks like, on congestion pricing, which she paused. It had been slated to take effect back in June, until sometime later this year, presumably after the election. But you've been warning about the impact on the MTA finances of the suspension of that plan. Do you have any advice for what you think the governor should propose when it is unpaused?
Well, we laid out a series of options looking at existing revenue streams. You know, it really gets back to the question of congestion pricing. If you're not going to have congestion pricing, and obviously many people are not in favor of it, you have to come up with Plan B, and perhaps the easiest way to do that would be to look at existing tax revenue streams and increase that level. This is the prerogative of the governor and the legislature. I'm not recommending one way or the other. What we have been saying consistently is that the $15 billion hole that the pause, or the stopping, of congestion pricing created, really creates a big challenge for the current capital plan for the MTA, they proposed a new capital plan, but there are implications for that new plan if we don't have the funding to complete the current plan. So whatever your whatever your choice is in terms of how to backfill that gap or go back to congestion pricing. I mean, the challenge is really for the legislature and the governor to deal with this and if they do not, you really run the risk of the system going back into a state of poor repair.
Already, we do not have everybody back using the trains and the subways and the busses. You know, based on pre- pandemic ridership, you know, we're about 70% give or take, sometimes a little higher. If people feel the system is not in a state of good repair and other issues, you know about cleanliness and safety and so on, because so much of the MTA financial strength depends on the fare box. People have to use the trains, have to use the busses, have to use the subways, and if they don't have confidence in the system, and if we don't do the kinds of things we need to do, resilience, right? We're all concerned in recent days about these big storms that are happening down south, but we know climate change has affected us as well with past bad storms in New York. We need to make the system more resilient in the face of weather patterns that are changing. ADA accessibility for people with mobility and disability issues, we've made big commitments to change the system in that regard, but if you don't have the money to do the improvements, to put in the elevators, you're not going to meet those goals. So, you know, we have aging subway cars that need to be replaced. You go down a long list of capital needs. There's a lot that needs to be done. The money has to be there. There's no two ways about it. If it's not going to be congestion pricing, the legislature and the governor must come up with alternative. It's their choice as to what it's going to be, but you can't starve the system by not having the money in the capital plan.
