Wall Street dominates Big Apple Financial sector wins huge tax breaks while schools fall apart

Unequal worlds side by side

Jobless rate stays high, middle class dwindles as stock market zooms

August 02, 1998|By Joe Mathews | Joe Mathews,SUN NATIONAL STAFF

NEW YORK -- When finalized this spring, the deal was so secret the mayor did not know about it. A group of major financial companies had agreed to pay $5 million to build a new police museum, to be run by New York Police Commissioner Howard Safir's wife in a nonsalaried post. In return, the Police Department brass would shift 200 patrol officers to Wall Street.

This agreement -- cash for city police protection -- is only one example of how the stock market boom has changed the balance of power in America's largest city.

As U.S. households have nearly quadrupled their investment in Wall Street -- from $3.1 trillion in 1990 to $11.4 trillion last year -- the financial-services industry has gained overwhelming influence over New York matters, private and public.

Some experts argue that with the surge of foreign investment in U.S. stocks, New York City's economy has become tied as never before -- and perilously -- to the performance of the financial markets.

Official analyses of the city budget include sections on Federal Reserve Chairman Alan Greenspan and the Asian financial crisis.

H. Carl McCall, the state comptroller, says Wall Street and its attending financial services accounted for a record 17 percent of wages earned by residents of New York City last year, up from 11 percent before the stock market crash of 1987. Rising wages in financial services, coupled with record bonus payments of $11 billion, has left the New York City government with a record surplus of $2 billion.

"New York is a precursor of what will happen to the rest of the nation," says William DiFazio, chairman of the sociology and anthropology departments at St. John's University. "We're becoming so tied to the market that Wall Street and financial firms will have more and more power over everyday life."

In the past four years, DiFazio points out, Wall Street firms have been granted $1 billion in city tax breaks, not including the estimated $300 million that has been quietly promised to the New York Stock Exchange to help with a coming relocation.

The firms are able to demand the breaks in part because Wall Street's boom has touched far more than the one in seven New Yorkers who work in financial-services firms.

The hand of the market can be seen in the hiring of new police officers in the South Bronx, in the redevelopment of an apartment building in Greenwich Village, in the fund raising of Harlem nonprofits and in a dilapidated school in Brooklyn.

The boom also masks the fact that the much-touted turnaround of New York City runs deep but not wide.

The city, which has regained only half the jobs it lost during recent recessions, has the highest unemployment rate (about 9 percent) of any major U.S. city. The percentage of New York City residents whose income qualifies them as middle class has dropped by one-quarter in less than a decade, according to a city survey.

"The fear," says New York City Council Speaker Peter F. Vallone, "is that the city is becoming hollow in the middle."

Driving out drug dealers

Through a public housing complex on 147th Street and up Webster Avenue, the undercover and uniformed police officers are fanned out these days in the South Bronx, looking for drug dealers. "We have the resources to drive them out of every neighborhood in New York City," says Safir, the police commissioner. "If that means driving them to Baltimore, that's fine with me."

New York police praised Mayor Rudolph W. Giuliani when he committed millions of dollars to successful anti-drug initiatives in Brooklyn and Manhattan in 1995 and 1996. Then, late last year, $80 million from Wall Street tax revenues -- a windfall that had not been budgeted -- allowed the department to add anti-drug initiatives in the South Bronx.

Since Giuliani took office in January 1994, public safety has been the top budget priority for the mayor.

When the city faced a $3 billion deficit in his first year, Giuliani cut back every part of city government except for the Police Department. In the past four years, the number of homicides in the city has fallen 60 percent. Now, with Wall Street profits producing a city budget surplus, most of the new spending is going to police.

"The mayor was smart," says Safir. "We've reduced crime, so more businesses and residents move into New York and pay taxes, which allows us to do more to reduce crime."

But Safir also notes that only 19 percent of the $2 billion surplus is going to new spending. Giuliani, a Republican, has dedicated most of the money -- about 73 percent -- to what many Wall Street analysts see as the most prudent strategy: closing projected budget gaps in future years.

Holding this money in reserve has hurt other services -- parks and libraries face cuts -- but has earned the respect of bond firms, which raised the city's credit rating this year. For example, Moody's raised the city's rating to A3 from Baa1.

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