N.Y. Loses Tax Revenue As Wall St. Bonuses Shrink

ALEX COHEN, host:

From NPR News, it's Day to Day. Bonuses paid out to Wall Street employees fell by nearly 50 percent last year. You may or may not have sympathy for bankers who weren't able to rake in a few extra million dollars. But consider this. Smaller bonuses mean less income tax for the state of New York. For more on this, we're joined now by Brett Philbin. He's a reporter with the Dow Jones News Wires. And Brett, when we say bonuses are down nearly 50 percent, how much money are we talking about?

Mr. BRETT PHILBIN (Reporter, Dow Jones News Wires): So it will cost the state one billion in personal income tax revenue. And for New York City, it's 275 million in tax revenue.

COHEN: I would imagine a lot of this is concentrated in New York City.

Mr. PHILBIN: That's right. It looks like, I guess about a fifth of its New York City. Unfortunately, we're not sure yet where the money will go until the budget presentation, which is the 31st, but it's definitely a steep decline for the city.

COHEN: So what kind of cuts might they need to make with this much less coming in?

Mr. PHILBIN: You know, I'm not sure exactly where the cuts will take place. I know they've got several issues in mind. I think it's definitely a reflection upon the times right now, and how difficult the environment is for financial service firms.

COHEN: You wrote in your piece today that the bonus pool is still the sixth largest on record. How much money was it overall?

Mr. PHILBIN: Overall, it was 18.4 billion, but it was down from about 33 billion last year. So it's a decline, but it's still, like you said, the sixth largest, so there's been thoughts that the past compensations have gotten a little excessive. So there's definitely an argument that that was the case.

COHEN: And all of this in the wake of a bonus scandal at Merrill Lynch. What's been going on there?

Mr. PHILBIN: So John Thain resigned. He was the former chief executive of Merrill Lynch. And basically, before he left, he allocated the pay outs of bonuses to be set for the end of the year before the deal closed, when Bank of America acquired Merrill Lynch. And there was dispute upon who decided what. Basically, Bank of America said the decision was made by Merrill Lynch's Compensation Committee.

They had no right to challenge it, and then John Thain said that he had made the decision with Bank of America. So I guess the issue was kind of who was deciding what. And basically, he wanted to make the payments set before he left just because the firm would be integrated after January first.

COHEN: Going back to the drop in bonuses for a moment, were there fewer bonuses because people were getting laid off? Were people given smaller bonuses? What does the breakdown look like?

Mr. PHILBIN: Well, it's really a combination of factors. I mean, because the firms had so many credit losses and writedowns. It just had less money to pay out. I mean, certain areas like investment banking, the revenues decline significantly. There's just less money there to allocate. And the bonus pool itself was down actually 44 percent, but the average person's bonus was down 36 percent.

So, because less employees, the bonus for each person wasn't as much of the pool. So it was down, but it could have been worse. The layoffs, in a sense, helped a little bit.

COHEN: In addition to state and city coffers, what about local businesses, especially the high end ones? Isn't that where most of these Wall Street executives would spend a good chunk of their bonuses?

Mr. PHILBIN: Yeah, there's definitely been, you know, reported all over the place that there's less business, that some of the major restaurants and other shops and areas around New York City. So it's definitely taking a hit in all kinds of areas. You know, real estate's one big part of that, too. You know, a lot of these executives and Wall Street employees, you know, buy expensive condos, and it takes a hit there too, as well.

COHEN: Brett Philbin is a reporter with the Dow Jones News Wires. Thank you so much, Brett.

Mr. PHILBIN: Thank you very much. Transcript provided by NPR, Copyright NPR.