ECONOMIC IMPACT OF 9/11: NYC MEASURES, ISSUES, RESPONSE Presentation to the FEMA Urban Hazards Forum John Jay College, January 22-24, 2002 John Tepper Marlin, Ph.D. Chief Economist Office of NYC Comptroller Email: TepperMarlin@aol.com
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)
WTC Impact: Comptroller and NYC Partnership $ billions, November 2001 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.”
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 60 500 50 450 40 400 GCP 30 350 20 300 1 0 250 0 200 Construction -10 150 -20 100 NCP -30 50 -40 0 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
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 of 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 on NYC with Impact on Nation.
NYC Job Gain Higher than U.S. in ’00, Loss 4 Times Greater in Late ’01 &’02, Monthly, YoY 5% 4% 3% U.S. 2% 1% 0% NYC Less U.S. -1% -2% NYC -3% -4% 00 f m a m j j a s o n d 01 f m a m j j a s o n d 02 f
NYC’s 4Q01 Job Loss Greatest of 20 Largest Metros San Diego 2.0% 2.0% Dallas 1.9% Miami 1.5% Houston 1.3% Washington, D.C. 0.1% Baltimore -0.1% Boston Newark -0.2% Los Angeles -0.2% Philadelphia -0.2% Seattle -0.5% Pittsburgh -0.5% U.S. -0.6% -0.6% Cleveland -0.8% Chicago -0.9% San Francisco -0.9% Minneapolis St. Louis -1.6% Detroit -1.7% Atlanta -1.9% New York City -2.1% -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 on 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 (c ont.) � Redundancy a major issue with crucial implications for NYC. � Redundancy: 2 nd or even 3 rd 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 y NY 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.
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