This week's Wall Street tumble has evoked memories of the October 1987 crash and its impact on New York City finances. After the 22 percent meltdown in the Dow on Black Monday, the stock market took roughly a year and a half to regain its pre-crash high. Largely as a result of this, most of the city's cyclically-sensitive income tax revenues for fiscal year 1988 fell short of the levels forecast when the budget was adopted in June 1987. Personal income tax (PIT) revenues fell 4.3 percent short of adoption, general corporation tax (GCT) revenues fell 10.3 percent short, and unincorporated business tax (UBT) revenues fell 12.3 percent short. (Bank tax revenues, which are notoriously volatile, were actually 16.9 percent higher than forecast that year.)

As of today's writing, the Dow Jones industrial average stands 18 percent below its July peak. A protracted recovery would, as in 1987, dampen Wall Street earnings-which now make up an even larger share of total city income than a decade ago-and negatively impact city tax revenues. Applying the 1988 percentage declines to projected revenues for the current fiscal year-in what we must stress is still only a "what-if" exercise-would reduce expected 1999 PIT revenues by $207 million, expected GCT revenues by $149 million, and expected UBT revenues by $79 million-a total hit of $435 million.

However, in contrast to 1988, such worst-case revenue impacts would not punch a sizable hole in the 1999 adopted budget. Instead of creating large shortfalls in 1999, Wall Street-related revenue losses would only eat up surpluses that would have otherwise resulted from the extremely conservative revenue estimates underlying the adopted budget. Thus the adopted budget's personal income tax total was $313 million below IBO's May forecast ($4,502 million versus $4,815 million, excluding TFA), the general corporation tax total was $53 million below forecast ($1,391 million versus IBO's $1,444 million), and the unincorporated business tax total $59 million below forecast ($582 million versus $641 million). This added up to a $425 million cushion, for just these three taxes.

Thus there is a good chance that a bearish market scenario would not subject the city to much fiscal pain in 1999. However, it would be another story in 2000, which had a projected budget deficit even prior to the market slump and would not have the previously anticipated 1999 surplus to apply to deficit reduction.