Crains New York - January 21, 2013 - (Page 11)

Shrinking bonuses are troubling signal L ast week was bonus week on Wall Street, when the people who work in the securities industry found out how much they were awarded for their work last year.The headlines focused on the huge pay cut for JPMorgan Chase CEO Jamie Dimon, but the news was bad for lots of people who work on Wall Street. For those who think the Street is the source of all evil, what happened was a step in the right direction. For New York, it was a signal of what is to come. The two biggest Wall Street firms clearly show what is happening. Morgan Stanley, where business more or less stinks, is handing out IOUs instead of cash to anyone who makes more than $350,000 annually. These people will get their money in four installments over the next four years. Goldman Sachs did a lot better last year, and its bonuses will be slightly larger than they were at this time in 2012. However, the percentage of revenue Goldman paid out in compensation fell to 38% from 42%. So Wall Street firms are moving toward a new world in which they pay most of the bonus money in restricted stock that can’t be sold for GREG DAVID several years, reduce the cash portion by a lot and in some cases don’t even pay out the cash right away. The theory is that this will deter risk-taking because traders and investment bankers will care about the long term, not just goosing this year’s pay. Here’s the kicker.Restricted stock isn’t usually taxed until it is sold, and deferred pay doesn’t get taxed until it winds up in somebody’s check. The amount of money Wall Street sends to Albany (in personal and business income taxes and capital gains) declined from more than $12 billion in 2008 to less than $9 billion last year,and is almost certain to fall again, given last week’s bonuses. In percentage terms, the Street used to account for 21% of all state revenue; today, the number is 13% and sliding. It is the same story for the city, which collected almost $5 billion in 2008 (from personal income, general incorporation and unincorporated business taxes) and now gets less than $3 billion a year. The great unknown is where we are headed. If Wall Street shrinks to the size and profitability of 1996, just before the Internet boom really took off, the state revenue it provides will fall by more than half, to $4 billion annually. The city’s take will fall by two-thirds. Even as other industries grow in the city, they won’t take up the slack because they just aren’t as profitable and don’t pay their employees anywhere near what Wall Street does. DAVID R. JONES Sandy offers chance to rebuild economy A s our attention turns toward the election of a new mayor this year, let’s hope that Hurricane Sandy—which illustrated in stark and sobering terms the vulnerability of our infrastructure—will not become a mere footnote. It should be an opportunity to rebuild, and at the same time create jobs for those out of work long before the storm hit our region. Gov. Andrew Cuomo’s decision to use $27 million in federal emergency funds to hire 5,000 unemployed New Yorkers for Hurricane Sandy recovery work offers a case in point. This is the best type of public policy because it invests not just in our physical infrastructure,but also in the human capital that drives our economy. But why stop there? Now is exactly the right moment—with a slack labor market, historically low interest rates and the great need that Sandy made apparent—to invest heavily in a much larger effort. We can put the unemployed and new labor-market entrants to work building the power and transportation infrastructure that can withstand extreme weather and meet 21st-century needs. That includes everything from burying power lines to protecting transportation routes from flooding. A world-class city deserves a world-class airport, and a way to get to and from it. We need to speed up subway construction that is sinking retail businesses and property values. We need safe and welcoming school buildings with state-of-the art labs and facilities for all kids in central Brooklyn, the Rockaways, the South Bronx and hard-hit Staten Island— not just Stuyvesant stars. We need to rethink building codes. We need to replant thousands of trees and dream up the next High Line. If any place can figure out how to use federal storm aid to seed a massive public-works effort, it is New York. We have the best financial minds in the world. Many of these projects can provide good-paying jobs to unemployed skilled tradespeople and create new apprenticeships for low-income New Yorkers and young people with few prospects. The city can implement local hiring requirements that offer a path to the middle class. That a massive stimulus for jobs is needed is clear. My organization’s reports have shown how these groups have struggled since the Great Recession. About half of the 380,000 unemployed city residents have been out of work for more than six months, and a third for at least a year. In addition to helping the longterm jobless, targeting jobs to people 18 through 24 makes sense. In New York City alone, more than 170,000 in this age group are neither in school nor working. To ignore them would not only put their futures in peril, but our city’s and state’s, too. It is harder than ever for young adults, especially those without college educations, to find employment. Having this experience will build their skills, résumés and social networks, giving them a springboard to their next job. With federal jobs legislation doubtful due to Republican obstructionism, it is up to the state and city to invest in our labor force and put people to work making vital improvements to our infrastructure. We should expand on the governor’s WPA-style initiative, taking advantage of low interest rates to finance a large-scale investment in public works that could provide jobs not only to 5,000 of New York’s longterm unemployed and jobless youth, but also to thousands more. What started as an idea for storm recovery can become the bigger plan needed to stimulate real economic recovery. David R. Jones is president and CEO of the Community Service Society of New York. January 21, 2013 | Crain’s New York Business | 11 http://www.crainsnewyork.com/insider http://www.crainsnewyork.com/insider

Table of Contents for the Digital Edition of Crains New York - January 21, 2013

Crains New York - January 21, 2013
In the Boroughs
In the Markets
The Insider
Business People
Corporate Ladder
Opinion
Greg David
Real Estate Deals
Report: Small Business
Classifieds
New York, New York
Source Lunch
Out and About
Snaps

Crains New York - January 21, 2013