ECONOMIC IMPACT OF 9/11: NYC MEASURES, ISSUES, RESPONSE - - PowerPoint PPT Presentation

ECONOMIC IMPACT OF 9/11:

NYC MEASURES, ISSUES, RESPONSE John Tepper Marlin, Ph.D. Chief Economist Office of NYC Comptroller

Email: TepperMarlin@aol.com

Presentation to the FEMA Urban Hazards Forum John Jay College, January 22-24, 2002

Economic Analysis of WTC Attack Is a Tiny Part of the Story

The WTC attacks have many effects and raise many issues But the City must understand the economic impact to recover

Three Topics

• 1. WTC Economic

Impact

• 2. Measurement Issues
• 3. Response

WTC Impact: 1993 vs. 2001

• Terrorism ROI vastly increased in 2001.
• Loss of life: 500 times greater.
• Economic damage: 100 times greater.
• Cost to terrorists only about 5 times

greater.

WTC Impact: 1993 vs. 2001 (Cont.)

In 1993, terrorists were viewed as having failed. Insurance cos. did not raise rates across the board in 1993. (They raised PA deductible.) Attack even looked foolish. WTC took the hit.

WTC Impact: 1993 vs. 2001 (Cont.) Terror Technology Intensified in 9/11 Hybrid – hijacking + kamikaze Coordinated, timed Three planes, 19 hijackers.

WTC Impact: 1993 vs. 2001 (Cont.)

Terrorists in 9/11 attacks were diabolically clever Much higher loss of life Increased sense of insecurity Demand for insurance up, supply down

WTC 1993: 2 Impact Estimates

• 1. NYC Comptroller’s Office, February 1993

Range, Depending on Speed of Repair to Hotel $900-$1,100 mil.

• 2. Port Authority NY-NJ, May 1993

Estimate, Excluding Impact on Individuals $600 mil.

Revisit of 1993 Estimate in 1998

• 1. Capital Loss

$ 237

• 2. Business Interruption

$ 523

• 3. Extra Security in NYC

$ 390

• 4. Ongoing WTC Losses

$ 150 Total ($ mil.) $1,300 (NYC Comptroller’s Office)

WTC Impact 2001: Comptroller

• 1. Capital: Property ($17 bil. insured)

$30

• 2. Capital: Human ($4 bil. insured)

$ 6

• 3. Continuing: FY 02 ($15 bil. insured)

$42

• 4. Continuing: FY 03 ($1-$3 bil. insured) $ 3- $23

Total, November 2001 update $81-$101 (Original October 4 Total $90-$105)

NYC Comptroller, FYs 02-03, using lower City estimates of capital costs $81-$101 NYC Partnership, thru 2003 $83 (up to $100)

NYC Partnership Feb. 2002 “More than $83 billion.”

WTC Impact: Comptroller and NYC Partnership

$ billions, November 2001

Economic Issue 1: Net City Product

“Better Off?” NO Will the City see a boost in jobs to repair damage from the bombing? Maybe. But the destruction of the WTC was a major capital loss. NCP would dip deeply in 2001.

Net NYC Product, Pro Forma, 1971-2002

• 40
• 30
• 20
• 10

1 20 30 40 50 60 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 50 100 150 200 250 300 350 400 450 500 Construction GCP NCP

Issue 2. U.S. Loss from 9/11

Milken Institute - Includes $1.7 tril. stock market loss (short term) and $2.0 tril. lost economic growth. Loss: “$1.8-$4.0 trillion”

WEFA-DRI, Jan. 28, 2002 Loss: 2 million jobs $639 billion

Issue 3: Measuring Economic Impact

• f WTC Attack on NYC

p

NYC Comptroller did not try to separate out effects of a possible continuing recession (or recovery) from losses after 9/11. p NYC Partnership team compared a projected pre-9/11 trend with projected post-9/11 results. But data were scarce.

Issue 3: Impact of 9/11 on NYC vs. US Two Impacts on NYC:

• First, directly from the WTC attack.
• Second, from indirect effects from the

national impact of the 9/11 attacks.

Need to Compare Post-9/11 Impact

• n NYC with Impact on Nation.

NYC Job Gain Higher than U.S. in ’00, Loss 4 Times Greater in Late ’01 &’02, Monthly, YoY

00 f m a m j j a s

• n

d 01 f m a m j j a s

• n

d 02 f

• 4%
• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5%

NYC U.S. NYC Less U.S.

NYC’s 4Q01 Job Loss Greatest of 20 Largest Metros

2.0% 2.0% 1.9% 1.5% 1.3% 0.1%

• 0.1%
• 0.2%
• 0.2%
• 0.2%
• 0.5%
• 0.5%
• 0.6%
• 0.6%
• 0.8%
• 0.9%
• 0.9%
• 1.6%
• 1.7%
• 1.9%
• 2.1%

San Diego Dallas Miami Houston Washington, D.C. Baltimore Boston Newark Los Angeles Philadelphia Seattle Pittsburgh U.S. Cleveland Chicago San Francisco Minneapolis

• St. Louis

Detroit Atlanta New York City

• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% Yr/Yr, Percent Change

Issue 4: Human Capital

Are worker deaths an economic loss? Yes.

• NYC and regional labor pools suffered.
• Basic measure of loss: salary times

expected remaining working life.

• NYC’s competitiveness hurt.
• Marine insurance, govt bond trading

major hits.

Issue 4: Human Capital

Issues (Cont.) What is the appropriate salary multiple?

• NYC Comptroller used 20 years expected life,

average of $100,000 a year, $2 million per life; 3,000 lives, $6 billion.

• The Milken Institute used high estimates based
• n self-valuations of a life. For 9/11, total $20-

$40 billion economic value, 5 to 10 X their life insurance valuation of $4.25 billion.

Corporate Responses

Employee security is Priority 1 - top of Maslow's

hierarchy of needs.

Compensation of victims created fairness issues

after 9/11, has forced new thinking.

Risk management issues, only one of which is

cost and scope of insurance coverage.

Corporate Responses (cont.)

Redundancy a major issue with crucial

implications for NYC.

Redundancy: 2nd or even 3rd HQ. Usually in

region, but Wall Street firms used London.

More IT redundancy needed. Story of WTC firm

with all its backups on another WTC floor.

Companies now treat contingency plans more

• seriously. Morgan Stanley WTC drills worked.

NYS Govt Impact: Workers' Comp

yNY State's Workers' Compensation had about 2,200 death claims from the WTC attack. y More than four years' worth of normal death claims. y State will need to replenish the fund.

NYC and NYS Responses

NYC and NYS both have major budget gaps, and lag the nation in recovery from recession.

• NYS in some ways worse off, without a

property tax base. NYS PIT volatile.

• Mayor Bloomberg heavily subsidizing

commitments to stay by downtown firms.

NYC Fears Increased by Anthrax and Nuclear Scares

• Anthrax initially seen as another terrorist attack.
• NYC nuclear bomb scare kept secret for months.
• US officials tipped terrorists had 10-kiloton bomb.
• Russian general said 10-kiloton bomb missing.
• NYC Mayor Giuliani not informed.

NYC Response

• Sept. 11, besides being the NABE annual

meeting, was Mayoral Primary, postponed.

• Mayor has hired CIA official for NYPD.
• World Economic Forum a major test of the

Mayor and NYPD. No incident, a success.

• Continuing strong support for NYC by U.S.
• Government. Major focus on rebuilding
• downtown. Support still needed!

Future of NYC?

Rebuilding plans will probably include economic development component. NYC will seek to retain its existing strengths in finance, communications. Will also add to its role as a source of new technology development.