NYC faces 'extreme' risk from Europe's debt crisis

(Dec 15): New York City's economy faces an "extreme downside risk"
from Europe's debt crisis because its banks hold over $1 trillion of
assets in the city, where they are active lenders, according to a new
report released on Thursday.

The city's economy is intertwined with Europe's because non-financial
companies have significant ties to European companies while millions of
tourists from this region visit the city every year, according to the
report by City Comptroller John Liu.

"In light of these widespread commercial interactions, adverse
effects on the City's economy from Europe's debt crisis appear alarming
and lend greater urgency to addressing existing budget issues," Liu said
in a statement.

This potential problem could bedevil New York City's finances, which
already are being pressured by the job-cutting downturn of its prime
industry: Wall Street.

The Democratic comptroller warned that Mayor Michael Bloomberg might
be underestimating some risks. The list includes the difficulty of
negotiating labor contracts for teachers and supervisors with no wage
increases for the past round of bargaining and the possibility that
cash-poor New York state will cut $200 million in aid.

These kinds of possibilities could help widen the city's budget gaps
to $1.7 billion in the current accord, $3.2 billion in fiscal 2013, $4.4
billion in 2014 and $5 billion in 2015.

The city's current budget is balanced.

Bloomberg, a political independent, has forecast smaller gaps of $2
billion in 2013, $3.8 billion in 2014 and $4.9 billion in 2015.

On the positive side, the comptroller estimated that the city's five
pension funds will cost less than Bloomberg predicted, which could save
more than $1 billion from the current fiscal year to 2015.

Though New York City typically benefits when the stock market rises,
as it sweeps in higher tax collections from profitable banks and
brokerages and individuals with capital gains, there is a plus to the
market's current roller-coaster ride.

"The Comptroller's Office believes that continued stock market
volatility and low interest rates will further encourage institutional
investors to shift portfolios towards commercial real estate, especially
in premium markets such as New York City, thereby stimulating
transactions of commercial property," the report said. - Reuters