"The mayor and the City Council have taken a proactive approachto the city's budget problems," DiNapoli says in a release. "Butthe economic outlook continues to deteriorate with every newforecast. We don't know how long the recession will last, or howdeep it will be, but it's clear that New Yorkers should bracethemselves for possibly the worst fiscal crisis since the 1970s.And the city cannot look to Albany for much help. The state facesits own fiscal crisis. Balancing the state budget will requiresacrifices that could hinder the city's efforts to balance nextyear's budget."

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While the city has enough cash to balance this year's budget, areport issued late Monday afternoon by DiNapoli forecasts a gap of$3.5 billion for fiscal year 2010 and $8 billion the followingyear. The report says the weakening real estate market could causereal property tax collections to fall $425 million short of thecity's forecasts by fiscal 2012-- although the decline incommercial and residential prices has lagged the rest of thenation--while taxes from Wall Street-related activities couldplummet by 40% over the next two years. Overall, DiNapoli projectsthat tax collections could be lower by $575 million in the currentfiscal year, $450 million in FY '10 and as much as $950 million byFY '12.

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Reiterating his earlier forecast thatthe city could lose 175,000 jobs over the next two years, DiNapolinotes that last month's loss of 19,800 jobs was the largest sinceOctober 2001. "Job losses will continue to accelerate as theretrenchment on Wall Street and in other financial servicescompanies ripples through the economy," the report states.

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DiNapoli's report notes that the city's November 2008 financialplan assumes the average rent in the Manhattan office market willdecline by 12.3% and the vacancy rate will climb to 12.4% in 2010.The state comptroller's report, which does not dispute thoseestimates, notes that during the 2000 to 2003 recession, averagerent fell 18% and the vacancy rate increased to 12.3%.

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"The city's financial plan is based on conservative economicassumptions, but the economic news since the release of theNovember plan suggests that the recession may be deeper and lastlonger than the city has projected," according to the DiNapolireport. "The November plan assumes the recession will end duringthe first quarter of 2009, while Global Insight now believes therecession may last until the end of 2009. The national recessionsin 1990 and 2001 had a much larger impact on New York City than onthe rest of the nation. With the collapse of the financial industrygreatly contributing to the current recession, the economic impactmay again be greater in New York City than in the rest of thenation."

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.