NEW YORK -- When finalized this spring, the deal was so secret the mayor did not know about it. A group of major financial companies had agreed to pay $5 million to build a new police museum, to be run by New York Police Commissioner Howard Safir's wife in a nonsalaried post. In return, the Police Department brass would shift 200 patrol officers to Wall Street.
This agreement -- cash for city police protection -- is only one example of how the stock market boom has changed the balance of power in America's largest city.
As U.S. households have nearly quadrupled their investment in Wall Street -- from $3.1 trillion in 1990 to $11.4 trillion last year -- the financial-services industry has gained overwhelming influence over New York matters, private and public.
Some experts argue that with the surge of foreign investment in U.S. stocks, New York City's economy has become tied as never before -- and perilously -- to the performance of the financial markets.
Official analyses of the city budget include sections on Federal Reserve Chairman Alan Greenspan and the Asian financial crisis.
H. Carl McCall, the state comptroller, says Wall Street and its attending financial services accounted for a record 17 percent of wages earned by residents of New York City last year, up from 11 percent before the stock market crash of 1987. Rising wages in financial services, coupled with record bonus payments of $11 billion, has left the New York City government with a record surplus of $2 billion.
"New York is a precursor of what will happen to the rest of the nation," says William DiFazio, chairman of the sociology and anthropology departments at St. John's University. "We're becoming so tied to the market that Wall Street and financial firms will have more and more power over everyday life."
In the past four years, DiFazio points out, Wall Street firms have been granted $1 billion in city tax breaks, not including the estimated $300 million that has been quietly promised to the New York Stock Exchange to help with a coming relocation.
The firms are able to demand the breaks in part because Wall Street's boom has touched far more than the one in seven New Yorkers who work in financial-services firms.
The hand of the market can be seen in the hiring of new police officers in the South Bronx, in the redevelopment of an apartment building in Greenwich Village, in the fund raising of Harlem nonprofits and in a dilapidated school in Brooklyn.
The boom also masks the fact that the much-touted turnaround of New York City runs deep but not wide.
The city, which has regained only half the jobs it lost during recent recessions, has the highest unemployment rate (about 9 percent) of any major U.S. city. The percentage of New York City residents whose income qualifies them as middle class has dropped by one-quarter in less than a decade, according to a city survey.
"The fear," says New York City Council Speaker Peter F. Vallone, "is that the city is becoming hollow in the middle."
Driving out drug dealers
Through a public housing complex on 147th Street and up Webster Avenue, the undercover and uniformed police officers are fanned out these days in the South Bronx, looking for drug dealers. "We have the resources to drive them out of every neighborhood in New York City," says Safir, the police commissioner. "If that means driving them to Baltimore, that's fine with me."
New York police praised Mayor Rudolph W. Giuliani when he committed millions of dollars to successful anti-drug initiatives in Brooklyn and Manhattan in 1995 and 1996. Then, late last year, $80 million from Wall Street tax revenues -- a windfall that had not been budgeted -- allowed the department to add anti-drug initiatives in the South Bronx.
Since Giuliani took office in January 1994, public safety has been the top budget priority for the mayor.
When the city faced a $3 billion deficit in his first year, Giuliani cut back every part of city government except for the Police Department. In the past four years, the number of homicides in the city has fallen 60 percent. Now, with Wall Street profits producing a city budget surplus, most of the new spending is going to police.
"The mayor was smart," says Safir. "We've reduced crime, so more businesses and residents move into New York and pay taxes, which allows us to do more to reduce crime."
But Safir also notes that only 19 percent of the $2 billion surplus is going to new spending. Giuliani, a Republican, has dedicated most of the money -- about 73 percent -- to what many Wall Street analysts see as the most prudent strategy: closing projected budget gaps in future years.
Holding this money in reserve has hurt other services -- parks and libraries face cuts -- but has earned the respect of bond firms, which raised the city's credit rating this year. For example, Moody's raised the city's rating to A3 from Baa1.
"I don't understand the city budget, but I know that now in the South Bronx, you can't go anywhere without seeing a police officer," says Aureo Cardona, who has lived in the area for 26 years.
No one has lived in TriBeCa, in lower Manhattan, longer than Martin Mayer, 91. He has been there so long that the monthly rent for his rent-controlled, two-bedroom apartment on Greenwich Street is $145. But by fall, the bachelor with severe arthritis will have to pack and move out.
"It's hard to move at my age, much less move out, but this East Side real estate company bought the place and is going to renovate," says Mayer. "They see dollar signs. My building will turn into big fancy condos they can sell to Wall Street people."
The displacement of Mayer is part of a trend prompted by the surge in the markets and the decline in crime in the city. Brokers and traders who once lived in New Jersey want places in Manhattan. The rising rents are pushing older, poorer people and firms into the outer boroughs or out of the city.
The demand for luxury apartments is such that a 14-room co-op on East 67th Street sold this year for $2,400 per square foot. In commercial real estate, an Indiana company bought the GM building in June for nearly $500 a square foot, and a buyer has snapped up a Fifth Avenue store space for more than $1,000 a square foot.
Those displaced by rising prices are pushing up costs outside Manhattan: 35 of 36 Brooklyn ZIP codes reported double-digit increases in home prices last year.
The A. L. Bazzini Co., a candy-maker that had been based in TriBeCa for 30 years, moved its operations to the Bronx last year. The building of luxury apartments helped push the company's annual property tax bill from $50,000 in 1983 to more than $200,000 in 1996. "This area is Wall Street chic now," says owner Rocco Damato.
Darren Walker, vice president of the Abyssinian Development Corp., an arm of Harlem's famous Abyssinian Baptist Church, recently had an unexpected visit from the chairman of the European American Bank. "How can we give more money away?" the banker asked.
"At tax time the past couple years, we've had Wall Street firms calling us and asking if we need more money," says Walker, who once worked at the Union Bank of Switzerland. "Even here in Harlem, we check the stock market reports every day."
Wall Street firms and their employees are giving more than ever to New York charities, although the companies' giveaways don't approach the amounts they receive in local tax breaks. Even with a recent rise in donations, many nonprofits and some Wall Street executives think the firms have been stingy.
"Most Wall Street banks don't like philanthropy, and giving has been surprisingly flat despite the boom," says Myra Alperson, senior research associate at the Conference Board, which includes philanthropy in its economic surveys. "If the firms do give, it's often part of a marketing strategy."
When companies give, their donations tend to target economic development. Garry Hattem, managing director at BT Alex. Brown, points to a Harlem doughnut shop and a Ponderosa Steakhouse in Brooklyn's Bedford-Stuyvesant section as projects supported by philanthropic funds.
J. P. Morgan declines to underwrite disease research other than for AIDS and focuses much of its resources on redevelopment, housing and the arts.
Walker says social-service groups find it nearly impossible to get Wall Street money. "Even when the firms are giving out, they have a very bottom-line orientation," he says.
No library
Ten miles east of Wall Street, 300 youngsters crowd into the Public School 65 annex in Brooklyn, a mile bus ride from the elementary school's main campus. There is no room for a playground, library or auditorium. Coal is used for heat. The school has to defy the city fire codes to put on an annual play in the lunchroom.
Even with the extra tax revenue from brokers' bonuses, New York City has not been able to maintain its infrastructure. If anything, the prosperity in the city has exacerbated the problem. There are more schoolchildren than ever filling century-old schools, more commuters jamming the subways, more cars rolling over the roads.
Giuliani, citing public safety and the city's fiscal health as his top priorities, has focused his resources on police, tax cuts and budget-balancing.
As a result, library service could be limited to five days a week. New York City plugged half as many potholes in 1997 as in 1996. The mayor cut funds for the City University of New York, and reduced per-pupil spending last year by $70 for kindergarten through eighth grade.
Naomi Spielvogel, the principal's liaison at Public School 65, lights a cigarette to calm herself as she drives between the school's two campuses each day.
At the annex, she steps over two second-graders who are having a reading lesson in a hall. One teaching area blocks an emergency exit. The walls of Mohamed Orabi's second-grade class are used for storage, so he must hang student artwork on clotheslines that extend across the room.
"Our school is not big enough," says Principal Porfriro Plasencia. "I see these Wall Street profits and the budget surplus, and I wonder, 'When is that money coming to us?' "
Pub Date: 8/02/98