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Is Wall Street roaring back — as a revenue-generating force for New York’s insatiable state and city governments, that is?  You might get that impression from glancing at today’s press release from state Comptroller Thomas DiNapoli, which headlines the finding that the average bonus for securities industry employees in New York “grew by 15 percent to $164,530 in 2013, which is the largest average bonus since the 2008 financial crisis, and the third highest on record.”

But as the release also makes clear, the spike in bonuses paid came during a year when the profits of securities firms actually dropped by 30 percent, to $16.7 billion from $23.9 billion. DiNapoli’s release calls last year’s profit total “still high by historical standards” — but that doesn’t adjust for inflation or market capitalization. (In straight nominal terms, 2013 profits don’t look far off the average for the late 1990s.)

So if profits are down, how can bonuses be up?  The comptroller’s report provides two answers.

First, “in response to compensation reforms, firms now pay a smaller share of bonuses in the current year and a larger share is deferred to future years.” Over the past two years, the comptroller said, the bonus pool has expanded by 44 percent, “driven by compensation from prior years.”

Second, securities industry employment is down 12.6 percent since the financial crisis of 2008. The bonus pool is bigger, but the number of people earning bonuses is about 14,000 smaller.

The hike in bonuses could translate into $100 million in higher tax revenues for New York City next year, because the city budget assumed a 5 percent decline in the pool, DiNapoli said. Since Governor Cuomo’s budget assumed bonuses would increase 7.8 percent, there is also “some potential for some additional state tax revenue,” the comptroller said.  DiNapoli didn’t mention a figure, but since the state taxes more bonuses (including those of non-residents) at a higher rate than the city, the increase might also translate into another $100 million for Cuomo’s fiscal 2015 budget pot.

The bottom line: last year, the securities industry accounted for 16 percent of all state revenues, down from 20 percent at the pre-recession peak. Given the compensation reforms and employment trends cited by the comptroller, Wall Street is highly unlikely to return to that 20 percent level anytime soon, if ever.

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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