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A YEAR AFTER

New York a City in Flux as Its Economy Struggles

Jobs lost after the attack have yet to return, businesses are cautious and government budgets are being cut

September 15, 2002|THOMAS S. MULLIGAN | TIMES STAFF WRITER

NEW YORK — Had the terrorists' goal been sheer economic destruction, they hardly could have hit a bigger target.

Where else in the United States--or the world, for that matter--could such a strike cause losses approaching $100 billion?

One year after the World Trade Center attack, New York City's economy is struggling, lagging behind the nation in job creation and economic output after several years of stock market-fueled brilliance.

Gotham's troubles are more than symbolic, however, because the half-trillion-dollar regional economy represents about 5% of total U.S. gross domestic product.

Job losses due to the attack have been estimated at more than 86,000, including 13,000 jobs shifted to other areas, said the Fiscal Policy Institute, a private research group. In a local economy of more than 5 million jobs, that amounts to less than 2%.

Even before the attack, though, New York's economy was slowing, partly because of the stock market's doldrums and a wave of layoffs underway in the financial sector. Pushed largely by Sept. 11-related job losses, the city's unemployment rate hit 8.0% in June, up from 5.7% a year earlier.

Manhattan's downturn began in January 2001, two months ahead of the nation's, said regional economist Jason Bram of the Federal Reserve Bank of New York. The city's slump isn't officially over, but experts are cautiously optimistic that New York will continue a moderate recovery next year, along with the nation.

Despite severe stress on municipal finances, the city's credit ratings have held up well. Moody's Investors Service lowered its outlook on the city's general obligation bonds to "negative" in November, but did not downgrade the bonds.

Although experts say some economic effects of the terrorist attack may continue for years, it's unlikely that the city will face a financial meltdown like the one it endured in the 1970s. Even during the '90s stock market boom, the city's budget projections were fairly conservative, and so it hasn't fallen into a comparable debt squeeze, Bram said.

"If you were told, 'We're going to have a recession, the stock market's going to fall and the World Trade Center's going to be destroyed,' you could imagine a much worse scenario for New York City than what we see now," Bram said.

The local industries hardest hit by the terrorist attack include tourism, transportation, retailing, commercial real estate and, of course, financial services.

Economist Celia Chen, who follows New York for research firm Economy.com, noted that finance, insurance and real estate jobs--those most directly affected by the attack--represent 12% of the metropolitan area's employment base but 32% of its income.

City Comptroller William C. Thompson Jr. estimated the total cost of the attack at $83 billion to $95 billion. Of that, $30.5 billion represents property damage and lost "human capital," or the productive capacity of the 2,800 people killed in the attack.

By contrast, Hurricane Andrew, which struck Florida in 1992 and was the most expensive natural disaster in the U.S., caused total losses of about $30 billion. Damage from the 1994 Northridge earthquake was placed at about $20 billion.

By Thompson's calculations, New York's "gross city product" over the next two years will be down $25 billion to $37 billion because of the attack.

The final tally, he said, will depend on how many relocated jobs return to New York.

Budget Gap

The loss of tax revenue and additional expenses has hobbled city government, costing an estimated $3 billion, which with the already-weak economy, led to a $6-billion budget gap for the current fiscal year--a shortfall that is being made up through borrowing and spending cuts in city departments.

Mayor Michael R. Bloomberg is slashing 20% from the budget of his own office, aide Jordan Barowitz said. Libraries and cultural affairs agencies face 10% cuts. The public safety and school departments will fare slightly better, with cuts in the single digits, he said. "We're doing as much as we can not to have it affect the quality of life, but it gets increasingly difficult as more cuts need to be made," Barowitz said.

Outside assistance has been slow to have an effect, local officials say. Although more than $21 billion in federal aid has been pledged, only $2.7 billion has been released, according to Comptroller Thompson's report.

There also has been controversy over how the aid has been targeted. One group representing small-shop owners in the devastated Financial District contends that big Wall Street firms are getting a disproportionate share of the aid--and getting it quicker--than mom-and-pop retailers.

Vacancy rates for prime commercial real estate in downtown Manhattan more than doubled to 11.5% in July 2002 from a year earlier, despite the elimination of 13 million square feet of office space at ground zero and damage to a nearly equal amount of space in the surrounding area.

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