Gregory J. Heym
Executive Vice President, Chief Economist
By SARA KUGLER
Associated Press Writer
Eye-popping bonuses on Wall Street and a sharp increase in multimillion-dollar building sales are stimulating the city's finances beyond expectations, Mayor Michael Bloomberg said Thursday.
Bloomberg's presentation for next year's $57.1 billion budget plan included a surprise windfall from an extraordinary number of large building sales _ transactions that the city is mining for billions of dollars in tax revenues.
Those include two recent record-setting purchases: a reported $1.8 billion for a Fifth Avenue skyscraper and $5.4 billion for a massive Manhattan apartment complex, which was the biggest real-estate deal of any kind in the country. Based on the trend, the city estimates there will be more than 300 commercial real estate purchases of $25 million or more this fiscal year, compared with fewer than 100 in 2004.
On top of that, more than $25 billion in bonuses was handed out to Wall Street bankers and traders at the end of last year. And when they spend their money on new apartments, jewelry, cars, expensive dinners and other luxuries, the city enjoys a slice of the good times.
"The bonuses are so big, and the earnings on Wall Street are so big, which we love," Bloomberg said. "I'm glad that people are having these transactions at higher and higher prices because we get a piece of every single deal."
Greg Heym, chief economist for Terra Holdings, a real estate holding company and parent company of Halstead Property and Brown Harris Stevens, explained that the growth in real estate sales has much to do with companies' faith in the city.
Amid the recession after the Sept. 11 attacks, businesses were trying to get rid of space and cut down their employment rolls, he said. But now, companies are growing again, hiring more and looking to expand.
"There's a lot of confidence right now in the city, and companies feel better taking space now than they would a few years ago," Heym said.
Buoyed by all the extra cash, the city has a nearly $4 billion surplus for this fiscal year ending June 30, part of which can be rolled over to balance the 2008 budget.
Bloomberg, a billionaire and former CEO who is credited with reversing the city's economic slump after Sept. 11, 2001, said the city is now on stable enough footing to allow for some breaks to taxpayers. The $1.2 billion relief package includes slashing property taxes and eliminating the city's portion of sales tax on all clothing and shoes.
"We are doing well, and we want people to share in that," he said.
The 2008 budget plan includes a projected surplus of about $1.4 billion to carry into the next year, but larger deficits loom: $2.6 billion in 2009, $3.7 billion in 2010 and $3.6 billion in 2011.
On Wall Street last year, markets rallied, volatility was low and bonuses were huge, but the city is mindful about how long the good times will last. The health of the securities industry is crucial to the city, accounting for a major portion of its economy.
The real estate market also has to slow down at some point and catch up with nationwide trends, city forecasters say. And on top of all of that are the traditionally unavoidable expenses including pensions, debt service and Medicaid.
"There are some things on the horizon that give us reason to be cautious," Bloomberg said. "We don't want to put ourselves in a state of wanting to provide services, but don't have the revenue to do it."
Keeping that in mind, the property tax cut is a one-time break. Officials will decide again next year if they can afford to extend it.
Bloomberg's budget plan also sets aside another $500 million for a trust fund created last year to pay health benefits for retired city employees. The mayor created the fund, which now totals $2.5 billion, with the long-term goal of easing the pain of those costs, which could grow to $50 billion by some estimates.
Over the next few months, the Bloomberg administration and the City Council will hammer out the details of the 2008 budget, which must be formally adopted before the next fiscal year begins on July 1.
Copyright 2007 Newsday Inc.
Friday, January 26, 2007