New York City has long been dependent on Wall Street for much of its tax base, but few have been able to quantify this dependence.  In fact, tax revenue generated by New York City’s finance industry has changed dramatically over the last two decades.

Using data from the New York City Department of Finance, we were able to show the volatility in tax revenues generated by finance firms.  We also quantified how deeply the recent financial crisis hurt city tax collections in 2008 and 2009.

The pending financial regulatory reforms are aimed to curb the industry’s volatility which should rein in profits for Wall Street firms in the short term but should stabilize revenues in the long run.  The stock market’s recent bounce suggests that the new reforms will likely go easy on the industry and that the city will likely have to endure the continued roller coaster ride of the last 20 years.

The correction in Manhattan’s office property sales market looks painfully obvious in retrospect. It was difficult to predict if or when the bubble would pop. But there are lessons that can be learned from the implosion in real estate values aside from the obvious evidence of too much easy money, overly generous loan-to-value ratios and other weak lending standards.