Published December 19, 2008
ALBANY, N.Y. – Underscoring how closely the fates of Wall Street and New York are intertwined, Gov. David Paterson said Friday that a single moment in the financial crisis — the decision by Goldman Sachs executives to forgo bonuses — cost the state $178 million.
The executives complied with the urging of New York Attorney General Andrew Cuomo and others who said in November that major Wall Street companies benefiting from federal bailouts shouldn't pay out the usual huge bonuses to executives.
Paterson says it was the right thing to do, but the result is a further hit to the fiscal crisis of state government.
"Things could go even more south in a big hurry," Paterson told reporters.
Losing tax revenue from bonuses was a big hit to New York's finances because Wall Street taxes accounted for 30 percent of state revenue in the last fiscal quarter.
"I think it was the right urge," he said, but "the state lost $178 million in that moment."
The decision by Goldman Sachs' top executives to forgo bonuses in 2008 forced other investment bank bosses to follow suit. Thousands of lower-tier brokers will still collect their hefty bonuses, however, because their employers don't want to lose their top talent.
It was not clear whether the $178 million figure Paterson gave referred solely to Goldman Sachs executives or also to other investment banks that followed its lead. Paterson spokesman Errol Cockfield said he could not immediately clarify how the figure was calculated.
Seven executives at Goldman Sachs Group Inc., including Chief Executive Lloyd Blankfein, were to get no cash or stock bonuses for 2008. Blankfein received total compensation of $54 million last year, according to calculations by The Associated Press, making him the sixth-highest-paid CEO of a Standard & Poor's 500 company in 2007.
It's the first time top Goldman Sachs executives have not received bonuses since the 139-year-old investment bank went public in 1999.
Wall Street employees often receive up to 80 percent of their total compensation from year-end bonuses. Now those payments are attracting more scrutiny from lawmakers and consumer groups because taxpayers are footing the bill for the government's $700 billion financial bailout.
The Democratic governor projects the current deficit and the 2009-10 deficit to be $15.4 billion right now, but said that could get worse. On Tuesday he proposed a mostly flat-growth 2009-10 budget, due April 1, of about $120 billion.
"This is a very, very difficult year for Americans," Paterson said. "But I don't think it has been fully realized ... it could theoretically become another depression, it is that difficult."
He said the state's spending has to be cut, and he needs the $4 billion in fee increases and narrow tax increases he proposed in his budget Tuesday, to keep bond raters from downgrading New York's credit rating. Tight and more expensive credit could further lead to a cash-flow problem.
"Then we will be on the brink of insolvency," he said.