Rana Foroohar
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Apr 15, 2009 12:41 PM
I went to see the new production of West Side Story at the Palace Theatre this weekend. The singing (much of it in Spanish this time round) and the dancing were amazing (female viewers will immediately want to buy flouncy skirts and take mambo lessons). But the storyline -- love and ethnic gang warfare in 1960s Manhattan -- left me thinking not so much about Romeo and Juliet as about the future of New York city, post financial crisis. In the musical, the Jets and Sharks duke it out in what was then a gritty urban jungle, now the Lincoln Center area, a sanitized tourist zone in which Doc's Candy Shop has been replaced by Barnes and Noble's and Pottery Barn. With the demise of Wall Street, there's been a lot of soul searching about whether New York City could ever go back to those bad old days, or even face bankruptcy, as it did in the 1970s.
My verdict is no, although I do think that the city is never again going to be as completely defined by Wall Street as it has been over the last few years. One of the chief reasons for this, pointed out by mayor Bloomberg in a speech recently, is that New York City entered the financial crisis in much better shape than it entered the recession of the 1970s. "We are going through an economic downturn," he told folks at a panel on the future of New York, "but we are going through it from a much higher base than ever before."
It's true that NYC tax revenues were at record levels pre-crisis, but since the downturn, they've plummeted. Wall Street accounts for about 12 percent of the City's tax base, and 20 percent of New York state's. This year, about $1 billion in tax revenue will be lost thanks to squashed bonuses. This isn't likely to be a short term phenomenon, because stricter regulation is going to change how banks do business. I spoke today to Jim Reynolds, the chairman of Loop Capital Markets, a Chicago based investment bank, and a member of Obama's finance team during the campaign. His take was that return on equity (a measure of income) for banks will go from the boom days rates of 30 to 40 percent down to 12 to 15 percent, and that the shift will be permanent, as banks go back to the basics -- vanilla trading, giving M & A advice, underwriting debt, etc. Bottom line - lower income equals lower tax revenue.
What's New York to do? Clearly, diversify, as Chicago and other cities have down in downturns. Bloomberg is already moving on this, a mark of difference between the 1970s, when the city government was fairly ineffectual. Bloomberg is setting up a fund to help laid off bankers start businesses, and talking up the potential for new green industries in New York. He's also negotiating with the unions to cut labor costs on much needed infrastructure improvement projects -- in my view, one of the most important things that needs to be done to improve prospects for the City. I live in Brooklyn, and am reminded of New York's third-world infrastructure every time I drive across pot-holed streets to take a flight from one of our aging airports. It's not quite as dismal as West Side Story's under-the-bridge rumble ground, but close.
