State of the City's Economy Conference
Federal Reserve Bank
33 Liberty St., 12th Floor

Tuesday, January 14, 2003
8:00 a.m.

Good morning. It is my pleasure to welcome you to this conference on New York City's economy.

I would like to thank the New York City Partnership for co-sponsoring the conference and the Federal Reserve Bank of New York for hosting the event. The leadership and staff at both institutions provided invaluable assistance throughout the planning stages, and I thank them for their help.

I would also like to thank our panelists, and all of you here in the audience, for taking the time to join us this morning.

We all know that our city is facing one of the greatest fiscal challenges in decades. We have far to go, but we have made great strides in the last fourteen months.
Although I'm the city's chief fiscal officer, I am also an optimist - I know that tends to be a contradiction -- and I know we will rebuild, recover and grow stronger in time.
But in order to move forward, we must take stock of where we stand now.
Today, we want to engage you in a dialogue on New York City's economy, with a particular focus on the interdependent relationship between the economy and the City budget.

We all know that periods of recession place a great strain on the City's budget. And we know that budget-closing measures such as raising taxes and reducing services run the risk of having a negative effect on the economy.

How can we find the right balance? What are the challenges? What are the opportunities?
These are some of the questions we will address today.

As Comptroller, I look closely at economic indicators for the city. Before the events of September 11th, 2001, the city's economic activity was generally following national trends.
After September 11th, however, the national economy began rebounding from recession, whereas New York City experienced tremendous job loss - 113,000 jobs since September 11th -- and slowed economic activity. The total economic loss related to the events of September 11th is estimated, through 2004, to reach 83 to 95 billion dollars.

My most recent economic report indicates that the third quarter of 2002 marked the seventh consecutive quarter of decline in New York City's Gross City Product. Our unemployment rate reached eight percent. Since September 11th, the city's job growth has consistently lagged behind the nation's on a percentage basis.
Recent economic news has not given me any reason to expect that the fourth quarter numbers will show significant improvement.

The news in the Finance, Insurance and Real Estate sectors is mixed: real estate remains stable, but the insurance and finance industries are still suffering. In October and November alone, that sector lost 2,000 jobs.

Despite the cloudy forecast, there are, in fact, some good signs for our
region: the healthcare industry is growing in the northeast corridor, and now accounts for one out of almost ten jobs in the region.

Here in New York City, healthcare jobs remained stable despite September 11th: in 2001, 4,600 healthcare jobs were created, and from January to November 2002, the industry grew by an additional 4,700 jobs.

One of our other strongest sectors, tourism, has shown some signs of recovery, but is still struggling in the aftermath of September 11th. Hotel room occupancy rates in March and April of 2002 were on par with the same period in 2001, but other figures related to tourism remain low.

I am pleased that we will benefit from some of the good things happening for the city. New York City's selection as the site of the 2004 Republican Convention is a good sign; it's something positive for the city.

I am also pleased that New York City was selected as the United States' candidate to host the 2012 Olympic summer games. We'll have to wait until 2005 to see if the city is selected, but it's a good shot in the arm for New York.

One of the things I think we should all do is to spread the word that New York City remains one of the world's greatest tourist destinations.

Looking at the stock market, which has been in decline for three years, and which we hope will rebound, it is stunning to realize that the last time the market underwent four consecutive years of decline was seventy years ago, during the Great Depression.

Overall, many economists believe 2003 will be a better year than 2002. Will it be? Will it be better in New York City? And if so, how much better? We hope to talk about some of these questions as well.

In terms of the City budget, we covered the gap for Fiscal Year 2002, which ended last June, with surplus funds. The city covered the gap for the current fiscal year, F.Y. '03, by cutting spending by 2 billion dollars, raising taxes, and borrowing funds through the Transitional Finance Authority.

For the first time since the 1970's, the city issued bonds to cover operating expenses. While I recognize that extraordinary times call for extraordinary measures, New York City's debt service burden continues to pose a serious threat to the city's long-term fiscal health. We borrowed 2 billion dollars to get through the year, but we won't do it again.

Now, we need to face the hard realities of the gap projected for Fiscal Year 2004, which begins in July. It is important to note that revenue increases and expense cuts have already reduced the projected gap for F.Y. 2004 from 6.4 billion dollars to an estimated 3 billion dollars.

Closing a budget by more than 3 billion dollars is no small feat. Many difficult decisions have been made, and it is a testament to the cooperation shown by city leaders that we have been able to come this far in closing the deficit.

The remaining portion of the gap is directly attributable to costs and lost revenue resulting from the events of September 11th. New York City taxpayers cannot, and should not, stand alone in shouldering the burden of that devastating attack on our nation.

The federal government has a responsibility to provide disaster relief that reflects the magnitude and unique nature of the damage suffered by our city. Last year, I said that the city would need federal assistance to close the F.Y. '04 budget gap.

Today, we recognize that even if both the national and local economies grow stronger, the city will still face massive budget gaps. We certainly can't count on an economic turnaround to help fill the city's coffers in the short term.

The economic impact of the attack is a national issue, and demands a national response.
After September 11th, leaders in Washington promised they would stand by New York City. It's time to keep that promise.

Leaders in Washington should work with city and state leaders to provide additional assistance to the city. There are a few ways to do this.

First, there's legislation that's been introduced by Senators Clinton and Schumer in the Senate and Congresswoman Maloney in the House: the Community Disaster Loan Equity Act of 2002.

The measure would provide us with significant, timely, and well-deserved financial assistance by raising the cap on federal loans and grants available to the city. It would help make up for the revenue that New York City lost and help us close the final 3 billion dollars of our budget gap.

It is the best thing that Washington could do for New York right now, and I urge leaders in D.C. to act right away. We will be even stronger if all of you in the business community join us in urging Washington to pass this measure.

There is nothing more important to New York City right now.

In addition, exempting the City from restrictions on narrowly-defined uses of federal funds such as the Community Development Block Grant would provide much-needed budget relief. An increase in the federal Medicaid contribution would also help the city tremendously.

The questions are many. We're looking at the President's budget plan to restart the economy; I hope the panels will address that question today. We don't have all of the details, but I would welcome your comments about how, if at all, you think the plan would benefit New York.

One local revenue measure that would help our city greatly would be the reinstitution of the Commuter Tax. In this time of recovery, the many people who benefit from employment in our city, but choose to live elsewhere, should invest in our city's future alongside those of us who live and work here.

If the law had not been repealed in 1998, the Commuter Tax, at its original rate, would now be generating between 400 and 500 million dollars a year.

I urge our legislators in Albany, as well as the Governor, to pass this crucial measure, even if it's passed with a sunset provision. Give the tax four or five years to help New York City get back on its feet.

My office has been engaged in numerous initiatives to help the city navigate through these challenging times. First and foremost, we are committed to serving as a source of accurate, detailed, and timely information on the city's budget and economy.

We are also helping the city identify ways to reduce waste, cut costs, and increase revenue. For example, last year, my Audit Bureau issued audits identifying close to 60 million dollars in actual and potential revenue and savings.

As in the first year of my administration, input and contributions from concerned leaders in the public and private sectors, including those of you here today, will be an integral part of the work we do.

It is my hope that today's conference will help us start the new year with the same sense of dialogue and collaboration.

I look forward to hearing everyone's comments today, and to working with you to pave the way for a better, stronger New York City in the future.

###