After the record jump in Wall Street bonuses early this year, a slowdown in personal-income growth in New York and other finance-intensive states was inevitable in the second quarter.

But it turns out that income growth in the Empire State didn’t just subside – it came to shuddering halt.

According to data released yesterday by the U.S. Commerce Department’s Bureau of Economic Affairs (BEA), New York incomes fell by a seasonally adjusted annual rate of 0.1 percent during the three months ended June 30. It was the state’s first quarterly decline in personal income since the end of 2002 (see chart).

And New York was the only state to see a drop. Nationally, personal-income growth merely slowed – to 1.2 percent in the second quarter, from a rate of 2.5 percent in the first quarter.

The finance and insurance sector has been responsible for the lion’s share of increases in New York personal incomes since 2005 – reflecting strong profits, capital gains and merger-and-acquisition activity among firms based mainly in Manhattan.

But in the second quarter, the BEA estimates showed, earnings in that sector fell by the equivalent of 1.78 percent of the total for all industries in New York. In most other sectors, New York incomes rose – including construction and professional and technical services, where New York’s growth actually exceeded national averages. But those gains weren’t enough to pull the state’s overall income growth into positive territory.

To be sure, when measured on a year-to-year basis, personal income in New York state in the second quarter of 2007 was still 7.8 percent higher than a year earlier. That was ahead of the national average year-over-year change of 6.4 percent.

Yet the income data is a sign of potential trouble ahead, underscoring the fiscal challenges facing both Gov. Spitzer and Mayor Bloomberg – whose budgets are inordinately dependent on tax revenues generated in the finance sector.

The taxes generated by personal-income growth over the past year have already been spent or committed in the current state and city budgets. That spending can’t be sustained – much less increased, as Spitzer and Bloomberg both plan – if income growth isn’t relatively strong in the year ahead.

Even as the new earnings data were being released, state Budget Director Paul Francis sounded a warning at an Albany conference sponsored by the Citizens Budget Commission. Noting that “the windfall of added revenues has largely absolved the legislature from having to make hard decisions when it comes to the budget” in recent years, the governor’s budget director said “all indications are that next year will be different.”

Francis said there was “significant risk” that the state will increase its $3.6 billion budget-gap estimate for fiscal 2008-09.

The budget director, a former investment banker himself, noted: “The crisis in sub-prime mortgage lending and the virtual shutdown of the market for highly leveraged financings has had a serious impact on the performance of some of our most important sectors in terms of tax revenue: financial services, private equity and hedge funds.”

Meanwhile, in a speech Wednesday night to the annual meeting of The Business Council of New York State, Gov. Spitzer renewed a pledge he’d made to the same group during last year’s campaign: “Next year, we must not, we cannot and we will not raise taxes.”

Spitzer and Francis both insist that personal-income growth – projected at 5.3 percent for the current fiscal year, twice the inflation rate – is the most appropriate benchmark for growth in the state’s operating budget. But the governor’s first budget increased state funds spending by 8 percent, including 7 percent in operations alone.

If the weakness in financial-sector earnings persists through the second half of 2007, Spitzer had better be prepared to shrink his next spending plan if he really means to live up to his no-tax-hike pledge.