New York State Comptroller Thomas DiNapoli outlined much of the gory details about the state’s economy including his projection that the state will be facing a $27.5 billion deficit over the next three years at a breakfast yesterday held by the Association for a Better New York. 

But DiNapoli also highlighted that the financial industry, the city’s most important taker of office space and contributor of tax revenues, has rebounded from dire upheaval last year.

Among the encouraging statistics that DiNapoli referenced was that broker-dealer firms, financial companies that trade securities for both their own investments and for clients, had earned $35.7 billion in the first half of 2009, one and a half times the previous six month record.

Wall Street’s four largest investment firms Goldman Sachs, Merrill Lynch, Morgan Stanley and JP Morgan Chase Investment Bank together earned about $22.5 billion through the first nine months of 2009. 

The profits are a notable upswing from 2008 when Merrill sustained a disastrous $41.3 billion loss for the year, JP Morgan Chase lost $3.5 billion and Goldman Sachs and Morgan Stanley earned $2.3 billion and $2.2 billion respectively. 

So far in 2009, according to a November report on the securities industry issued by DiNapoli’s office, Merrill Lynch has earned $2.4 billion, Goldman Sachs has earned $12.5 billion, JP Morgan Chase has earned $7.6 billion and Morgan Stanley has earned $114 million.

DiNapoli also said that the 35,000 jobs lost in the sector were less than originally anticipated and that Wall Street appears to have begun adding back jobs.  In September he said, the financial industry in New York City hired 3,600. 

Wall Street is of prime importance to the city’s real estate market, not to mention the city and state governments’ fiscal health.  Before the economic downturn, its soaring profits padded the city and state’s coffers with cash, comprising 20 percent of state tax revenues and 12 percent of the city tax revenues.

Even though there are signs that the industry is in recovery, its contribution to revenues has dipped given the damage it has sustained.  DiNapoli said that since the downturn Wall Street’s share of state revenues has fallen to 12 percent. 

DiNapoli said that the November securities report provided some outlook for a key January analysis of the industry’s bonuses.  The extra pay that financial industry employees take home at the end of the year boosts their salaries significantly and is important to the income taxes the state draws.  DiNapoli pointed out that nearly a quarter of the city’s wages are paid by financial firms even though it employs only about 5 percent of its workforce.

DiNapoli appears to be turning a careful eye to this data at a time when income taxes have fallen as a result of job losses across the state.  DiNapoli said that there have been 274,000 layoffs so far during the recession.  Unemployment has risen to 8.9 percent in the state and 10.3 percent in the city. 

With respect to the state’s daunting deficits, DiNapoli said that the recession has laid bare the dire consequences of Albany’s dependence on Wall Street earnings to fuel outsized spending.  DiNapoli said that the budget last year “failed to make the hard choices” about cuts and that the state needed to cut its budget.