Report to Congressional Requesters

United States Government Accountability Office

GAO

March 2005 SEPTEMBER 11 

Recent Estimates of 

Fiscal Impact of 2001 

Terrorist Attack on 

New York 

GAO-05-269 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-269.

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and methodology, click on the link above. 

For more information, contact 

Nancy R. Kingsbury at (202) 512-2700 or 

kingsburyn@gao.gov. 

Highlights of GAO-05-269, a report to

congressional requesters 

March 2005

SEPTEMBER 11

Recent Estimates of Fiscal Impact of 2001 

Terrorist Attack on New York 

Three recent studies by New York government agencies concluded that the 2001 

terrorist attack on the World Trade Center significantly reduced tax revenues in 

fiscal years 2002 and 2003. But their estimates of forgone tax revenues—$2.5 

billion to $2.9 billion for New York City and about $2.9 billion for New York 

State—are generally less than previous estimates of forgone tax revenues. For 

example, the study completed in 2004 found, from revised economic data, that 

the economic recession that began before the attack generally had a greater 

impact on reducing New York tax revenues than initially projected. The studies 

completed in 2002 and 2003 were issued before subsequent revisions to 

employment data were released. 

While the revised economic data indicate that New York’s economy was 

generally weaker before the attack than initially expected, inherent uncertainties 

and data limitations still prevent the estimates from being precise. The 

differences in the recent estimates reflect the uncertainties, the timing of the 

studies, and data limitations. As GAO reported previously, precisely measuring 

the attack’s effect on economic activity and tax revenues is inherently difficult, 

because it must be disentangled from other factors that also reduced tax 

revenues. In addition, a consensus has not yet emerged on employment and 

income impacts, key factors in measuring the attack’s impact on New York tax 

revenues. 

Previous estimate of 

impact 

 Recent estimate of 

impact 

2002 2003 Total 2002 2003 Total

City Office of 

Management and 

Budget 

$1,600 $1,400 $3,000 $926 $1,569 $2,495

City Comptroller 

n.a. n.a. n.a. 910–

2,015

928 1,838–

2,943

State Comptroller n.a. n.a. n.a. 725 2,175 2,900

State Division of Budget 1,600 4,200 5,800 n.a. n.a. n.a.

Source: New York City Office of Management and Budget (2004), New York City Office of the Comptroller (2002), New York State 

Office of the State Comptroller (2003), and New York State Division of Budget (2002).

Note: Dollars in millions, unadjusted for inflation; n.a. is not applicable. 

While the attack’s fiscal impact on New York from 2002 through 2003 appears to 

be less severe than initially expected, ascertaining its long-term impact is 

difficult, because other events also affected New York’s economy and tax 

revenues. For example, the New York City Office of Management and Budget 

projected more than $400 million in tax revenues forgone for 2004 and 2005, 

derived mostly because of estimates of securities jobs lost as a result of the 

attack. Even so, the extent to which securities jobs are fewer in New York City 

than if the attack had not happened is not clear. Other factors, such as the 

relatively high cost of conducting business have also affected securities 

employment in the city. The city’s property tax revenues will be lower than had 

there been no attack, however, because destroyed and damaged buildings have 

not been reconstructed. 

In 2002, GAO reported that the 

New York budget offices estimated 

that from the terrorist attack, New 

York City sustained tax revenue 

losses of $1.6 billion for 2002 and 

$1.4 billion for 2003, New York 

State $1.6 billion for 2002 and $4.2 

billion for 2003. GAO found some 

limitations to these estimates, such 

as that it is likely that they included 

some of the economic recession 

under way in September 2001, as 

well as events after the attack, such 

as economic fallout from the Enron 

collapse and accounting firm 

improprieties. 

After GAO issued its report in 2002, 

some New York agencies used 

revised economic data to assess 

the attack’s fiscal impact. In this 

context, GAO was asked to update 

its report to ascertain whether the 

recent government studies using 

revised economic data would 

provide more precise information 

on the fiscal impact of the terrorist 

attack. In doing this work, GAO did 

not independently estimate the 

attack’s impact on New York tax 

revenues. 

What GAO Recommends

GAO makes no recommendations 

in this report. 

In commenting on a draft of this 

report, the three New York 

agencies generally agreed with the 

information presented. In addition, 

two of the three agencies provided 

technical comments, which GAO 

incorporated, as appropriate. 
Page i GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Letter 1

Results in Brief 2 

Background 3 

Recent Assessments of Attack: Fiscal Impact Was Substantial but 

Less Than Previously Estimated 9 

The Long-Term Fiscal Impact May Depend on Factors Like 

Reconstruction 13 

Agency Comments 17 

Appendix I Objectives, Scope, and Methodology 18 

Appendix II GAO Contacts and Acknowledgments 20 

GAO Contacts 20 

Acknowledgments 20 

Table 

Table 1: New York Agencies’ Estimates of the 2001 Terrorist 

Attack’s Impact on New York City and State Tax 

Revenues, Fiscal Years 2002–03 9 

Figures 

Figure 1: The Beginning of the Decline in Total Private Sector Job 

Growth in Late 2000 4 

Figure 2: New York City’s Greater Fall in Employment in 4 Months 

Following the Attack Than in Prior Year 5 

Figure 3: The Substantial Fall in New York City Jobs in Some 

Industry Sectors in 4 Months Following the Attack, 

Compared to Prior Year 6 

Figure 4: The Start of the Fall in Total Private Sector Quarterly 

Income Growth in 2001 7 

Figure 5: New Jersey’s 2001 Temporary Increase in Securities 

Employment 15 

Figure 6: New York City’s Share of Total U.S. Securities 

Employment 16 

Contents 
Page ii GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

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Page 1 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

March 30, 2005 

The Honorable Charles B. Rangel 

Ranking Minority Member 

Committee on Ways and Means 

House of Representatives 

The Honorable Carolyn B. Maloney 

The Honorable José E. Serrano 

House of Representatives 

New York’s economy improved significantly in 2004, after declining in the 

previous 3 years. Recent gains in overall employment, tax revenues higher 

than expected, and increased tourism may indicate that New York is 

rebounding from the economic recession that began in early 2001 and 

from the devastation of the September 11, 2001, terrorist attack. 

Nonetheless, because New York’s economic growth has generally lagged 

behind that of the United States since the attack, questions remain about 

the extent to which the losses in jobs and tax revenue New York sustained 

were caused by the attack or by other factors, such as the recession. 

In 2002, we reported that the New York budget offices estimated that for 

2002 and 2003 combined, the impact of the terrorist attack would be about 

$3.0 billion for New York City and $5.8 billion for New York State.1

 The 

estimates were based on economic forecasts that indicated tax revenues 

would likely be much lower than expected because of job and income 

losses brought about by the attack. But we found that the attack’s impact 

on tax revenues in 2003 was uncertain because it depended on factors that 

had not yet been determined, such as the degree to which the attack made 

New York City less attractive for business. 

Since we issued our report in 2002, some New York agencies have used 

revised economic data to assess the attack’s fiscal impact. Consequently, 

you asked us to update our report to ascertain whether the revised 

economic data provide more precise information. Accordingly, we 

 1

GAO, Review of the Estimates for the Impact of the September 11, 2001, Terrorist 

Attacks on New York Tax Revenues, GAO-02-882R (Washington, D.C.: July 26, 2002). 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

reviewed the conclusions of recent government studies on the impact of 

the September 11 terrorist attack on New York tax revenues. 

To identify government studies of impacts on New York tax revenues 

completed since our 2002 report, we reviewed the economics literature 

and searched the Internet, and we contacted officials at the U.S. Bureau of 

Labor Statistics (BLS), Federal Reserve Bank of New York, New York City 

Office of Management and Budget, New York State Division of Budget, and 

other state and local agencies. We identified studies completed by the 

(1) New York City Office of Management and Budget in 2004, (2) New 

York State Office of the State Comptroller in 2003, and (3) New York City 

Office of the Comptroller in 2002. To review the studies, we used standard 

economic criteria, such as whether the studies measured the incremental 

effect of the attacks, used sound economic reasoning, and were based on 

current data. We discussed the impact of the attack with officials in the 

New York City Office of Management and Budget, New York State Office 

of the State Comptroller, and New York City Office of the Comptroller, as 

well as with officials at BLS, the Federal Reserve Bank of New York, New 

York City Independent Budget Office, New York State Division of Budget, 

New York State Financial Control Board, and the Securities Industry 

Association. We also discussed these issues with economics staff of the 

New York State Assembly Ways and Means Committee. In doing this work, 

we did not independently estimate the impact of the terrorist attack on 

New York tax revenues. 

Unless we note otherwise, we determined that the data were sufficiently 

reliable for purposes of this report (app. I has more detail). We conducted 

our work from July 2004 through March 2005 in accordance with generally 

accepted government auditing standards. 

Three recent studies by New York government agencies concluded that 

the terrorist attack on the World Trade Center significantly reduced tax 

revenues in fiscal years 2002 through 2003. But their estimates of the 

forgone tax revenues—$2.5 billion to $2.9 billion for New York City and 

about $2.9 billion for New York State—are generally less than the 

estimates of the forgone tax revenues that were estimated in 2002. For 

example, the most recent study, completed in 2004, found from revised 

economic data that the economic recession generally had a greater impact 

on reducing New York tax revenues than initially projected. The studies 

completed in 2002 and 2003 were completed before final revisions to the 

employment data were released. 

Results in Brief 
Page 3 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

While the revised economic data indicate that New York’s economy was 

weaker before the attack than initially expected, the inherent uncertainties 

and data limitations still prevent the estimates from being precise. As we 

reported previously, precisely measuring the effect of the terrorist attack 

on economic activity and tax revenues is inherently difficult because it 

must be disentangled from the effect of other events that also reduced tax 

revenues, such as the economic recession in 2001. In addition, a consensus 

has not yet emerged on the extent of the attack’s effect on employment 

and income, key factors in measuring New York tax revenues. 

Although the short-term fiscal impact of the attack on New York appears 

to be less severe than initially projected, its long-term impact is difficult to 

ascertain because other events also affected New York’s economy and tax 

revenues. For example, the New York City Office of Management and 

Budget also projected that the city will forgo $400 million annually in 

personal income tax revenues in 2004 and 2005, mostly derived from the 

loss of an estimated 17,000 securities jobs. However, the extent to which 

New York City continues to lose jobs as a result of the attack is not clear, 

because factors such as the relatively high cost of conducting business 

have also affected securities employment in the city. Nonetheless, 

property tax revenues will continue to be lower than if there had been no 

attack, until the destroyed and damaged buildings are reconstructed. 

The three New York agencies generally agreed with the information 

presented. Two also provided technical comments that we incorporated, 

as appropriate. 

The September 11 terrorist attack on the World Trade Center killed nearly 

3,000 people and destroyed and damaged a dozen buildings containing 

millions of square feet of office space. It severely affected New York’s 

economy, already in a downturn from a national recession and the 

collapse of Internet companies and associated industries.2

 Job growth in 

the United States and New York, an important indicator of economic 

conditions, had begun to decline in late 2000, turning negative several 

months before (see fig. 1). For example, job growth, which had been 

slowing in New York City, declined in June 2001, compared with June 

2000, and bottomed out in January 2002. But because some jobs moved to 

 2

According to the Business Cycle Dating Committee of the National Bureau of Economic 

Research, the recession began in March 2001 and ended in November 2001. 

Background 
Page 4 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

other parts of the state, and to states like New Jersey and Connecticut, the 

net impact on New York State and the nation was less than on the city. 

Figure 1: The Beginning of the Decline in Total Private Sector Job Growth in Late 2000 

Source: GAO analysis of Current Employment Statistics data from U.S. Bureau of Labor Statistics and New York State Department of 

Labor. 

Note: Includes revisions released in March 2005. Data for 2004 are subject to revision. Vertical line 

denotes September 2001. 

Although job growth began to slow well before the attack, it declined 

noticeably in the 4 months after September 2001, particularly for New 

York City. Employment growth in several major industry sectors fell more 

in the city than in the state or in the United States. The largest declines 

were in manufacturing and finance. In particular, employment in 

-6

-4

-2

0

2

4

6

1998 1999 2000 2001 2002 2003 2004

Year and month

U.S. N.Y.S. N.Y.C.

Percent change from prior year

9/11 Start of decline in employment 

after period of growth 

Trough of decline in 

employment
Page 5 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

manufacturing declined by about 14 percent in New York City, compared 

with 9 percent in New York State and 8 percent in the nation. In addition, 

the financial sector grew about 1 percent in the United States but declined 

by about 9 percent in the city and about 6 percent in the state. Figure 2 

illustrates these differences. 

Figure 2: New York City’s Greater Fall in Employment in 4 Months Following the Attack Than in Prior Year 

Source: GAO analysis of U.S. Bureau of Labor Statistics and New York State Department of Labor data. 

Note: Employment categories are industry “supersectors,” as defined by the North American 

Industrial Classification System. The change is measured from October 2001 through January 2002 

relative to the same period in the prior year. January 2002 is the trough for New York total 

employment growth, as shown in figure 1. 

-16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6

Manufacturing

Financial 

Professional and business

Trade, transportaton, and utliities

Leisure and hospitality

Construction

Information

Other services

Natural resources and mining

Education and health

Percentage change from prior year

N.Y.C N.Y.S. U.S.
Page 6 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

While some of these major sectors had significant job losses in New York 

City year to year, losses in some subsectors were more substantial. For 

example, employment in the apparel sector of manufacturing declined 21 

percent, and employment in air transportation—a component of the trade, 

transportation, and utilities sector—fell 19 percent from the same period 

the year before (fig. 3). In addition, within the financial sector, 

employment in the securities industry declined about 15 percent. 

Decreased activity in these sectors from the combined effects of the 

recession and the attack contributed to these job losses. For example, a 

significant drop in demand for air travel in the attack’s aftermath is a 

major contributing factor in the decline in air transportation employment. 

Figure 3: The Substantial Fall in New York City Jobs in Some Industry Sectors in 4 Months Following the Attack, Compared to 

Prior Year 

Note: Employment categories are industry sectors defined by the North American Industrial 

Classification System. The change is measured as October 2001 through January 2002 from the 

same period in the prior year. January 2002 is the trough for New York total employment, in figure 1. 

Manufacturing, as a sector, experienced significant declines but accounted 

for 5 percent of the employment in major categories for the city. Finance 

and transportation accounted for larger proportions of employment—15 

-25 -20 -15 -10 -5 0

Trade,

transportation,

and utilities

Transportation and

warehousing

Air transportation

Financial activities

Finance and insurance

Securities

Manufacturing

Nondurable

Nondurable/apparel

Percentage change from prior year 

Source: GAO analysis of current employment statistics data from U.S. Bureau of 

Labor Statistics and New York Department of Labor.
Page 7 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

and 18 percent respectively. For these reasons, the declines in these 

sectors, while somewhat less than those in manufacturing, are particularly 

important for the city’s economic condition. As with employment, income 

growth had already slowed and had turned negative in New York City and 

in the state several months before the attack (see fig. 4). 

Figure 4: The Start of the Fall in Total Private Sector Quarterly Income Growth in 2001 

Source: GAO analysis of Quarterly Census of Employment and Wages data from U.S. Bureau of Labor Statistics and New York State 

Department of Labor. 

Note: The change in private sector quarterly income is measured relative to the prior year. According 

to BLS, because of delays relating to the attack, some businesses may have underreported income in 

third quarter of 2001 and overreported in the fourth quarter. A BLS official said this would not affect 

the overall trend over the latter part of 2001. 

(20)

(15)

(10)

(5)

0

5

10

15

20

1998 1999 2000 2001 2002 2003 2004

Year and quarter

U.S. N.Y.S. N.Y.C.

9/11

Percentage change from prior year
Page 8 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

As discussed above, the securities sector was one of the hardest hit. 

Although the decline in securities employment was not as great as in some 

other sectors, high wage rates for the sector meant a much larger decline 

in income. For example, securities income fell by 28 percent in the first 

quarter of 2002 from the same quarter the previous year. 

Other hard-hit sectors were air transportation, –20 percent; information, 

–14 percent; and professional and technical services, –14 percent. 

The decline in income has important ramifications for the collection of 

state and city revenues. The city’s tax revenue comes from taxes on 

personal and business income and sales, property, and real estate 

transfers; state tax revenue comes from taxes on personal income, 

business income, and sales. In general, property tax receipts are relatively 

stable from year to year, while the other tax receipts vary with economic 

cycles. In particular, because the state’s share of total tax receipts derived 

from income tax is more than 50 percent, its total tax receipts can be 

negatively affected when the economy contracts. In addition, New York 

has a sizable share of relatively high-paying jobs in the securities industry. 

As a result, economic contractions that affect Wall Street and deflate stock 

values can negatively affect both state and city tax receipts. 

The New York budget offices estimated in 2002 that from the terrorist 

attack, New York City sustained tax revenue losses of $1.6 billion for 2002 

and $1.4 billion for 2003, New York State $1.6 billion for 2002 and $4.2 

billion for 2003. In our 2002 report, we found some limitations to these 

estimates, such as that it is likely that they included some of the economic 

recession that was under way in September 2001, as well as events after 

the attack, such as economic fallout from the Enron collapse and 

accounting firm improprieties.3

 Given these limitations, we concluded that 

the estimates for 2002 appeared to reasonably approximate the impact of 

the attack but that the estimates for 2003 were more uncertain because 

they depended on factors that had not yet been determined, such as the 

degree to which the attack made New York City less attractive to 

businesses. 

 3

GAO-02-882R. 
Page 9 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Three studies completed by New York government agencies after our 2002 

report concluded that the September 11 terrorist attack significantly 

reduced New York tax revenues in 2002 and 2003. Their estimates of fiscal 

impact, however, were generally less than the estimates made in the 

attack’s aftermath. For example, the New York City Office of Management 

and Budget estimated in 2004 that the attack reduced the city’s tax 

revenues by about $926 million in 2002 and $1,569 million in 2003, for a 

total revenue loss of about $2.5 billion (see table 1).4

 By comparison, the 

agency’s initial total estimate in 2002 had been about $3.0 billion. Agency 

officials said that revised data on economic growth, employment, and 

income indicated that some of the tax revenue losses they attributed 

initially to the attack were more likely to be attributable to the recession. 

Table 1: New York Agencies’ Estimates of the 2001 Terrorist Attack’s Impact on New York City and State Tax Revenues, 

Fiscal Years 2002–03 

Previous estimatea

Recent estimate 

New York agency 2002 2003 Total 2002 2003 Total

City Office of Management and 

Budget 

$1,600 $1,400 $3,000 $926 $1,569 $2,495

City Comptroller b b b 910–2,015 928 1,838–2,943

State Comptroller b b b 725 2,175 2,900

State Division of Budget 1,600 4,200 5,800 b b b

Source: New York City Office of Management and Budget (2004), New York City Office of the Comptroller (2002), New York State 

Office of the State Comptroller (2003), and New York State Division of Budget (2002). 

Note: Dollars are in millions, unadjusted for inflation. Estimates by the City Office of Management and 

Budget and the City Comptroller represent forgone revenues for New York City for fiscal year July 

through June. The estimates by the State Comptroller and the State Division of Budget represent 

forgone revenues for New York State for fiscal year April through March. 

a

Previous estimate as reviewed in GAO-02-882R. 

 bNot applicable. 

For example, the agency developed a baseline revenue forecast from its 

revenue forecasting models to reflect what the economy would have 

looked like in the absence of the attack. To estimate the attack’s fiscal 

impact, the agency compared the baseline forecast with actual tax 

revenues collected in 2002 and 2003, adjusted for tax policy changes made 

 4

New York City Office of Management and Budget, Impact of 9/11 on New York City Tax 

Revenue (New York: September 15, 2004; rev. February 1, 2005). 

Recent Assessments 

of Attack: Fiscal 

Impact Was 

Substantial but Less 

Than Previously 

Estimated 
Page 10 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

after September 11.5 In its initial study in 2002, the agency assumed that 

employment in the baseline revenue forecast would remain flat for 2001 

and would increase by 0.7 percent in 2002. In its study using revised data, 

the agency estimated that employment would have declined by about 0.2 

percent in 2001 and 1.8 percent in 2002 had there been no attack. With the 

updated forecast, the agency estimated that as a result of the attack, about 

64,000 jobs and $11 billion in income were lost through the end of fiscal 

year 2002—a total of about 91,500 jobs and $22 billion in earnings through 

the end of fiscal year 2003. 

The 2002 study by the New York City Comptroller estimated that the 

terrorist attack reduced the city’s tax revenues by a range of about $910 

million to $2 billion in 2002 and by about $928 million in 2003.6

 The agency 

used two methods to assess the attack’s impact on tax revenues for the 

2002 fiscal year. For example, in deriving the lower estimate, the agency 

assumed that the economic recession in 2001 would be comparable with 

the 1990–92 recession, in terms of reducing the city’s tax revenues. The 

agency then attributed to the terrorist attack the difference between the 

projected fall in tax revenues from the 2001 recession and a forecast of the 

city’s total tax revenues for fiscal year 2002. In deriving its higher estimate, 

the agency compared an estimate of the effect of a slowdown in the city’s 

economic growth on tax revenues with actual tax revenues collected in 

2002 and attributed the difference to the effect of the attack. In addition, 

on the basis of a preattack projection of job growth, the agency estimated 

that the city lost about 146,100 jobs through July 2002. 

The agency’s estimates of forgone revenue for the 2-year period are within 

range of the city budget office’s revised estimate of $2.5 billion, but since 

the city comptroller published its estimates in 2002, subsequent revisions 

to employment and other economic data have become available. For 

example, each year, the New York State Department of Labor revises the 

monthly employment data for the preceding 2 years. In March 2003, the 

state labor department reported that the revised estimate of private sector 

employment in New York was lower, both before and after the attack, than 

indicated in the revisions reported in March 2002. 

 5

The city budget office adjusted actual tax collections for the $1.4 billion in tax increases 

enacted in 2003. But its study did not assess the extent to which the higher taxes might 

have reduced economic activity and tax revenues. 

6

New York City Office of the Comptroller, One Year Later: The Fiscal Impact of 9/11 on 

New York City (New York: September 4, 2002). 
Page 11 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Finally, the New York State Comptroller’s 2003 study concluded that the 

attack reduced the state’s tax revenues by about $725 million in 2002 and 

$2,175 million in 2003, for a total of $2.9 billion.7

 This is roughly half of the 

$5.8 billion loss in tax revenues that the New York State Division of 

Budget estimated in its 2002 analysis.8

 According to the comptroller’s 

office, the recession caused more job losses in the months leading up to 

the attack than initially expected—New York State lost about 75,000 jobs 

before the attack and about 40,000 jobs in its immediate aftermath. In 

addition, the state comptroller concluded that corporate accounting 

scandals significantly reduced the state’s tax revenues after the attack 

because of reduced Wall Street profits and year-end bonuses. As a result, 

agency officials said, the bulk of the state’s tax revenue losses in the 2-year 

period were the result of the recession and other events unrelated to the 

attack. Because the report was issued in early 2003, it did not incorporate 

revisions to the employment data that were made in March 2003. 

Nonetheless, agency officials stated that the revisions provide additional 

support for their view that the recession that was under way at the time of 

the attack was more severe than initially expected. 

Although the recent estimates may be useful as general indicators of the 

relative magnitude of the attack’s impact, inherent uncertainties about 

projecting economic activity in the absence of the attack and data 

limitations prevent them from being precise indicators. The differences in 

the estimates reflect these uncertainties, the timing of the studies, and 

data limitations. Measuring the attack’s effect on economic activity and 

tax revenues precisely is inherently difficult, because this effect must be 

disentangled from the recession and other events. In addition, a consensus 

has not yet emerged on the attack’s effect on employment and income—

key factors in New York tax revenues in its aftermath. 

For example, in a related study in 2002, the Federal Reserve Bank of New 

York used a statistical model to simulate the attack’s effect on 

 7

New York State Office of the State Comptroller, 2003–2004 Budget Analysis: Review of 

Economic and Revenue Forecasts (Albany, N.Y.: March 2003). 

8

In 2005, a New York State Division of Budget official told us that the agency had not 

reassessed the fiscal impact of the terrorist attack but that estimates from the agency’s 

2002 study still appear to be reasonable. See GAO-02-882R for a discussion of that 2002 

study. 
Page 12 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

employment and earnings.9 The study found that the attack’s effect on 

employment had largely run its course by mid-2002 and that it caused net 

earnings losses of about $3.6 billion to $6.4 billion by June 2002. 

Specifically, the study estimated that employment was lower by about 

(1) 38,000 to 46,000 jobs in October 2001, (2) 49,000 to 71,000 jobs in 

February 2002, and (3) 28,000 to 55,000 jobs by June 2002. However, the 

report was completed before the subsequent revisions to employment data 

were available. 

In addition, a 2004 study by BLS economists found that the attack had a 

significant impact on employment in New York City. For example, the 

study estimated that the city lost the equivalent of about 143,000 jobs each 

month for 3 months after the attack and about $2.8 billion in wages.10 The 

authors stated that they believe their estimates were conservative but that 

they were unable to isolate the attack’s impact after January 2002 because 

of other factors that may have also reduced employment. 

Finally, a 2005 report by staff for the New York State Assembly on the 

status of the economy in lower Manhattan stated that the city sustained 

substantial losses in employment and wages after the attack.11 For 

example, the report found that private sector employment in Manhattan 

was lower by 134,547 jobs during the first year after the attack and 172,013 

jobs during the 3 years after the attack. However, the report did not 

attempt to separate out the effect of the attack from other factors that also 

reduced employment. 

 9

Jason Bram, James Orr, and Carol Rapaport, “Measuring the Effects of the September 11 

Attack on New York City,” Economic Policy Review (New York: Federal Reserve Bank of 

New York, November 2002). This study did not estimate fiscal impacts. 

10Michael L. Dolfman and Solidelle F. Wasser, “9/11 and the New York City Economy: A 

Borough-by-Borough Analysis,” Monthly Labor Review (Bureau of Labor Statistics) 127:6 

(June 2004). This study did not estimate fiscal impacts. 

11New York State Assembly Ways and Means Committee Staff, New York State: The Lower 

Manhattan Economy After September 11th (Albany, N.Y.: February 2005). The report also 

estimated that income taxes declined by more than $400 million in the ground zero area of 

the city in the 3 years after the attack. The report did not attempt to separate out the effect 

of the contribution of other factors to economic losses. 
Page 13 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Although the short-term fiscal impact on New York appears to be less 

severe than initially expected, the long-term impact may depend on factors 

such as the pace of reconstructing destroyed and damaged buildings. 

Separating the long-term impact on employment and businesses is also 

difficult because of factors such as New York City’s recovery from the 

recession and businesses deciding to remain there, despite associated risk. 

For example, the New York City Office of Management and Budget 

estimates that the city will lose more than $150 million in annual tax 

payments in fiscal years 2004 and 2005, mostly from property damage and 

loss at the seven World Trade Center buildings. According to the agency, 

only one building is being reconstructed; designs for the other buildings 

are not yet final. As a result, the agency expects that most of the property 

tax revenues that would have been generated had the attack not happened 

will not begin again until after 2010. 

The agency’s estimate of forgone revenues presumes that beginning in 

fiscal year 2002, the city would have received annual property tax 

payments of about $98 million from the leaseholder, based on the market 

value of the commercial office space.12 The precise amount the city would 

have received in revenues in the absence of the attack is not clear. 

Historically, the city received about $28 million annually in payments in 

lieu of taxes from the buildings’ owner—the Port Authority of New York 

and New Jersey. Before the attack, the Port Authority leased several of the 

buildings and the city submitted a property tax bill to the leaseholder for 

about $98 million. But agency officials said that the city never received 

these tax revenues because the leaseholder contested the tax bill. After the 

buildings were destroyed, beginning in 2003, the city received payments in 

lieu of taxes from the Port Authority of about $3 million, representing the 

value of the World Trade Center site before any improvements. In 

addition, according to a new agreement with the Port Authority, the 

agency said that the city will receive about $6 million in fiscal year 2005 

and $13 million in subsequent years. 

The New York City Office of Management and Budget projected that the 

city would also forgo more than $400 million annually in personal income 

 12The property tax was based on the capitalization of net income of a market basket of 

similar buildings in lower Manhattan. After 2002, the property tax was projected to increase 

at the billable assessed value growth rate for commercial properties. 

The Long-Term Fiscal 

Impact May Depend 

on Factors Like 

Reconstruction 
Page 14 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

tax revenues in 2004 and 2005, derived from the loss of an estimated 

17,000 securities jobs. To develop this estimate, the agency used 

information on the proportion of securities jobs in lower Manhattan in 

March 2001 and an estimate of the number of jobs remaining outside New 

York City as a result of the attack, as of September 2003. Agency officials 

said that these jobs were relocated to New Jersey and Connecticut. 

How much the attack continues to affect securities employment is not 

clear. It may induce some businesses to relocate some jobs to ensure the 

continuity of their business in the event of a future catastrophic event. But 

the city’s share of total U.S. securities employment has been falling, partly 

because of the relatively high cost of conducting business in the city. As a 

result, separating the attack’s effect from structural changes in the 

industry is difficult. Figure 5 shows that job growth in the securities 

industry declined in the city after the attack but gradually recovered. In 

contrast, securities employment growth in New Jersey spiked sharply, but 

only temporarily. 
Page 15 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Figure 5: New Jersey’s 2001 Temporary Increase in Securities Employment 

Source: GAO analysis of Current Employment Statistics data from U.S. Bureau of Labor Statistics and New York State Department of 

Labor. 

Note: Includes revisions released in March 2005. Data for 2004 are subject to revision. Vertical line 

denotes September 2001. Employment growth is in securities, commodity contracts, and other 

financial investments and related activities. 

In addition, New York City’s share of U.S. total employment in securities 

fell sharply after the attack but then recovered and returned to a level near 

its long-term trend (see fig. 6). According to reports by the Federal 

Reserve Bank of New York and the Securities Industry Association, the 

downward trend began well before the 2001 attack, because of relatively 

higher business costs in the city, and the recession and attack exacerbated 

the trend. An official with the budget office said that New York City’s 

-30

-20

-10

0

10

20

30

40

1998 1999 2000 2001 2002 2003 2004

Year and month

N.Y.C. securities N.J. securities Conn.securities

9/11

Percent change from prior year
Page 16 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

competitive position has improved because of rising commercial rents and 

land use pressures in New Jersey. For example, according to the agency, 

commercial rents in Hudson County, New Jersey—the most common 

destination for securities jobs leaving New York City—were 97 percent of 

those downtown in 2004, compared with 73 percent in 1990. 

Figure 6: New York City’s Share of Total U.S. Securities Employment 

Source: GAO analysis of Current Employment Statistics data from U.S. Bureau of Labor Statistics and New York State Department of 

Labor. 

Note: Includes revisions released in March 2005. Data for 2004 are subject to revision. Vertical line 

denotes September 2001. Employment is in securities, commodity contracts, and other financial 

investments and related activities. The trend line was estimated using the share of New York City 

securities employment as the dependent variable and time as the independent variable. 

15

20

25

30

35

40

1990 1992 1994 1996 1998 2000 2002 2004

Year and month

N.Y.C. securities as a percentage of U.S. Trend of N.Y.C securities as a percentage of U.S. 

9/11

Percent
Page 17 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Finally, federal assistance to the New York City area in response to the 

attack has included funding for initial response efforts and infrastructure 

restoration and improvement, compensation for disaster-related costs and 

losses, and Liberty Zone tax benefits and business attraction and retention 

programs. According to the New York City agencies, however, none of the 

federal assistance provided so far has been to directly compensate for the 

tax revenues estimated to have been lost as a result of the attack. 

We provided the three New York agencies with a draft of this report for 

their review and comment. The New York City Deputy Director of the 

Office of Management and Budget generally agreed with the report’s 

content. The New York City Deputy Comptroller for Budget commented 

that the report accurately described the information in that agency’s 2002 

study. Both officials also provided technical comments, which we 

incorporated, as appropriate. The New York State Deputy Comptroller for 

the City of New York commented that the report accurately summarized 

the findings in that agency’s 2003 study. In addition, the official said that 

the attack had a serious impact on the city and state economies but that 

later events—such as corporate scandals and wars in Afghanistan and 

Iraq—also had an impact, especially on financial markets, and that events 

such as these increase the difficulty of isolating the long-term impact of 

the terrorist attacks. 

As agreed with your offices, unless you publicly announce this report’s 

contents earlier, we plan no further distribution of it until 30 days from its 

issue date. We will then send copies to interested congressional 

committees. We will also make copies available to others on request. In 

addition, the report will be available at no charge on GAO’s Web site at 

www.gao.gov. 

If you have any questions about this report, please contact me at (202) 

512-2700. Key contributors to this report are listed in appendix II. 

Nancy R. Kingsbury, Managing Director 

Applied Research and Methods 

Agency Comments 
Appendix I: Objectives, Scope, and 

Methodology 

Page 18 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Congressional requesters asked us to review recent government studies’ 

conclusions about the impact of the September 11 terrorist attack on New 

York tax revenues. To identify government studies of the impact on New 

York tax revenues completed since our July 2002 report, we reviewed the 

economics literature and searched the Internet, and we interviewed 

officials at the U.S. Bureau of Labor Statistics (BLS), Federal Reserve 

Bank of New York, New York City Office of Management and Budget, New 

York State Division of Budget, and other state and local agencies. We 

identified studies of the fiscal impacts by the (1) New York City Office of 

Management and Budget (2004), (2) New York State Office of the State 

Comptroller (2003), and (3) New York City Office of the Comptroller 

(2002). In addition, in our literature review, we identified related studies 

about the employment and income effects of the attack issued by BLS, the 

Federal Reserve Bank of New York, and New York State Assembly Ways 

and Means Committee staff. To review the studies, we used standard 

economic criteria, such as whether the studies measured the incremental 

effect of the attacks, used sound economic reasoning, and were based on 

current data. In doing this work, we did not independently estimate the 

impact of the terrorist attack on New York tax revenues. 

We discussed the attack’s impact on New York’s economy with senior 

officials of the three New York agencies, as well as officials at BLS, the 

Federal Reserve Bank of New York, New York City Independent Budget 

Office, New York State Division of Budget, New York State Financial 

Control Board, Securities Industry Association, and TenantWise (a 

commercial real estate firm in New York) and economics staff of the New 

York State Assembly Ways and Means Committee. 

We took several steps to assess the validity and reliability of data 

underlying the estimates of the New York agencies that we discuss in this 

report. We reviewed the documentation, methods, and key assumptions 

underlying the agencies’ analyses, and the documentation and procedures 

underlying key inputs, such as the employment and income data from the 

Current Employment Statistics and the Quarterly Census of Employment 

and Wages programs, which are administered cooperatively by BLS and 

the New York State Department of Labor. We also interviewed officials at 

BLS and the New York State Department of Labor about their procedures 

for collecting and revising these data. 

In addition, we reviewed revenue reports and financial statements 

prepared by the state and city and reviewed by independent auditors, and 

we discussed the validity and reliability of data on city and state tax 

revenues with officials at the New York City Independent Budget Office, 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology 

Page 19 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

New York City Office of the Comptroller, New York City Office of 

Management and Budget, New York State Financial Control Board, and 

New York State Office of the State Comptroller. We used data from 

Current Employment Statistics and the Quarterly Census of Employment 

and Wages programs in the background and findings sections of this 

report. Unless we note otherwise, we determined that the data were 

sufficiently reliable for purposes of this report. 

We conducted our work from July 2004 through March 2005 in accordance 

with generally accepted government auditing standards. 
Appendix II: GAO Contacts and 

Acknowledgments 

Page 20 GAO-05-269 Fiscal Impact of 2001 Terrorist Attack 

Nancy R. Kingsbury (202) 512-2700, kingsburyn@gao.gov

Joseph D. Kile (202) 512-5684, kilej@gao.gov 

In addition to the persons named above, Carol Bray, Tim Guinane, 

Penny Pickett, Teresa Renner, and Anne Stevens made key contributions 

to this report. 

Appendix II: GAO Contacts and 

Acknowledgments 

GAO Contacts 

Acknowledgments 

(460569) 
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