New York State has received a multi-billion dollar windfall from bank settlements this year, but a new report from the State Comptroller shows the settlement took a bite out of Wall Street profits in 2014, which could have repercussions for the state budget in the future.
State Comptroller Tom DiNapoli reports Wall Street profits are down by 13% so far in 2014, compared to the previous year, 2013, when profits had already shrunk by 30%.
“Certainly we’re seeing profits, but down from what we saw last year,” DiNapoli said.
Comptroller DiNapoli says the biggest reason is the large number of bank settlements in recent years. Since
2009, the six largest bank holding companies have agreed to pay an estimated $130 billion in settlement
costs.
The settlements have created an unexpected windfall for New York’s coffers. The state has reaped $4.5 billion dollars from settlements including JP Morgan, Bank of America, and Citigroup. The Comptroller says the industry is “paying a price for behavior that contributed to the financial crisis,” and he predicts there will be more settlements.
“I don’t think we’ve seen the end of it,” the Comptroller said.
But the downturn in profits, as well as the continued decline of high paying jobs in the financial industry could depress tax state collections, and leave less money to spend on things like health care and education. The state gets nearly 20% of its total tax revenues from Wall Street related business. Last year it was about $13.2 billion dollars.
So far, though, the Comptroller says it looks like the state and the City of New York will collect the amount of taxes estimated in their “conservative” future projections.
DiNapoli says the large loss of Wall Street jobs since the 2008 crash is a concern, with 10,500 fewer positions just in the past three years. He says those losses have a ripple effect in the larger economy.
“However you feel about the industry, it’s been a very important part of the economic engine for our city and our state,” DiNapoli said. “We need to not lose sight of that.”
He says while many of the Wall Street jobs have been replaced with low wage positions, there is also growth in the tech industry which may help to diversify the work force.
The Comptroller says despite banks being forced to agree to large monetary settlements, and the corresponding decline in profits, he expects end of year bonuses to be higher than last year.
