Wall Street, the bedrock of New York City's economy, earned $7.3 billion in the first quarter, a "significant rebound" from a $2 billion loss in the fourth quarter of 2011, the state comptroller said.
But the rebound in the financial sector's earnings may not be sufficient to sustain Mayor Michael Bloomberg's $68.7 billion budget plan, noted New York State Comptroller Thomas DiNapoli.
In a report, the comptroller cited a number of budget risks, including rising spending, the possibility that a lawsuit will block a $1 billion sale of taxi medallions, and the continued reliance on one-shot deals.
Further, the city may have to increase contributions to its five pension funds in future years because their investments have lagged.
"We estimate that, as of May 31, 2012, the pension systems have not realized any gain on their investments," for the current fiscal year ending June 30, the report said.
A spokesman for the city comptroller, who oversees the pension funds, had no immediate comment.
Wall Street's broker/dealers and the industry's highly paid workers drive the city's tax collections. But the financial sector has a history of volatile profits, and this could cause problems for the new budget that starts on July 1, DiNapoli said in his report.
JPMorgan Chase's recent revelation of $2 billion in trading losses "could be a harbinger of reduced profitability in subsequent quarters," the report said.
Last year, New York Stock Exchange member firms earned $7.7 billion, which was 72 percent less than the previous year, the report said.
In job creation, New York City's economy has outperformed the nation, which has regained only about half of the jobs cut during the recession.
"Although employment data suggests that New York City has regained 129 percent of the jobs lost during the recession, the city's economy is heavily dependent on the financial sector, which could be adversely affected if Europe's turmoil spreads to U.S. financial markets," DiNapoli said.
Bloomberg's budget is based on a forecast that Wall Street profits will total $10 billion this year and rise to $13.4 billion by 2016, the report said.
Business tax revenue also could take a hit from any weakness on Wall Street or at hedge funds. The mayor now only sees these collections rising 1.6 percent in the new fiscal year to $5.5 billion - still below the peak hit in 2007.
The city's unemployment rate has recently ticked up, hitting 9.5 percent in April, probably because more people have resumed looking for jobs, the report said.
The mayor is relying heavily on $4 billion of non-recurring funds to balance the next budget, and the comptroller said Bloomberg should develop a back-up plan in case the courts block him from selling taxi medallions.
The city can sell only 400 of a planned 2,000 new taxi medallions until the state approves a provision to offer the disabled "meaningful accessibility" to all taxicabs, for-hire vehicles and hail vehicles, the report said.
Contract negotiations with the city's labor force are another potential risk. About 97 percent of the city's work force does not have a current contract, and the mayor wants to freeze wages for three years.
Bloomberg's budget plan assumes that wages will rise 1.25 percent a year for three years, starting in 2013. But if workers' pay were boosted to the expected inflation rate, the city would have to spend billions of dollars more by fiscal 2016, the report aid.
Outstanding debt of the city and related entities could top $108 billion by fiscal 2016, up from $93.2 billion in 2011.
Spending is expected to rise at an average annual rate of 3.8 percent during fiscal years 2014 through 2016. That tops the forecast for annual revenue increases of 2.9 percent, which means the city's budget gaps should average $3.3 billion in that period.
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