States are reeling from an over-reliance on both excessive leverage and also the excessively leveraged:
The crisis in the financial system will almost surely blow gaping holes in the already tattered budgets of New York, Connecticut, New Jersey and other states that rely heavily on tax revenue from investment banks and the big salaries and million-dollar bonuses doled out to Wall Street professionals.
Even before the crisis, many state governments had been forced to cut spending because of the shaky economy, soaring gasoline prices and the rising tide of foreclosures earlier in the year. How much damage the latest trouble will cause is not yet clear.
New York and other states could be forced to make even deeper spending cuts and take money from such things as schools, road repairs and health and welfare programs.
In New York, New Jersey, Connecticut and Massachusetts alone, the securities sector last year employed 338,000 people and generated $104 billion in payroll, according to the U.S. Bureau of Labor Statistics.
About a fifth of New York state’s revenue comes from Wall Street.
In a forecast that came out even before the turmoil of the past few weeks, New York state projected a deficit for 2009-10 of $5 billion and growing. On Sept. 16, the day after the Dow Jones average fell more than 500 points, the steepest plunge since the 2001 terrorist attacks, state officials estimated New York could lose up to 40,000 private-sector jobs and $3 billion in tax revenue over the next two years.
New Jersey faces the fallout on two fronts: as the location of many Wall Street spinoff firms, and as home to thousands of financial sector employees. An estimated $8.4 billion a year in payroll in New Jersey is derived from Wall Street.
Ouch.
via the AP’s “Financial Crisis blows holes in state budgets.“ The photo is not directly related to this item.
