Wall Street, the goose that laid golden eggs for New York’s public sector for more than 25 years before the Great Recession, is “still working through the fallout from the financial crisis,” as Comptroller Thomas DiNapoli reported earlier this week.  The problem, as the Manhattan Institute’s Nicole Gelinas writes in the Post today, is that “both the state and city governments, which depend on Wall Street to pay the bills, are still partying like it’s 2007.”

“Unless they sober up soon,” she adds, “they’re in transition to nowhere.

Her article underscores what is probably the single most important point to grasp about the outlook for government finances in Albany, in New York’s City Hall, and in localities throughout the state: while the private sector is adjusting to the Great Recession economy because it has to, government — despite all the headlines about cutbacks — is still far behind the curve.

Think the state under Governor Cuomo or the city under Mayor Bloomberg have fully recovered from the 2008 financial sector meltdown?  Think again.  From Nicole’s summation:

In 2008, Wall Street covered about $4.5 billion of the city’s tax payments — 12 percent of the total. Last year, it was $2.8 billion — 7 percent.

The state, meanwhile, got $8.7 billion from the securities industry last year, or 14 percent of its tax dollars. That was down from $12 billion — or 20 percent — in 2008. (The state numbers are bigger because Albany relies so heavily on income taxes.)

New York’s private sector can adjust to all this perfectly well. Yes, the conventional wisdom is that every Wall Street job creates two other jobs in the city (and one in the suburbs), through outsized spending and tax payments.

But Wall Street’s shrinking means cheaper real-estate prices, both residential and commercial — which will bring new people in new industries. Global tourism, too, supports retail jobs.

It’s government that’s refusing to adjust. Those new jobs will never pay what bubble-era Wall Street paid — and so tax revenues will stay slumped.

But the state and city haven’t cut spending accordingly. The state will spend $59.2 billion from its general fund this year — up 11 percent from $53.3 billion in 2008, when the crisis was setting in. The city has goosed spending 17.4 percent, to $52.7 billion from $44.9 billion in 2008.

For all the hand-wringing we’ve heard about belt-tightening and pension reforms in the past few years, mostly what the pols have been doing is waiting for Wall Street to return to the bubble years. They’ve replaced the “temporary” loss in revenues with a variety of one-shots, raids on rainy-day funds and similar gimmicks.

But it’s not temporary — even Wall Street is giving up getting back to bubble-era prosperity. As DiNapoli put it, the financial industry has had a chance to “restructure and position itself.”

New York government had the same opportunity — but didn’t seize it.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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