Page 1 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

May 29, 2002

Congressional Requesters

Subject: Review of Studies of the Economic Impact of the September 11,

2001, Terrorist Attacks on the World Trade Center

In response to your request, we identified and reviewed several key

studies of the economic impact of the September 11, 2001, terrorist attacks

on the World Trade Center buildings in New York City. On April 15, 2002,

we briefed your staff on the results of our review. The information in

enclosure I formed the basis for our briefing. We have since updated some

of the information in enclosure I, using new information, which became

available after the briefing.

Background

The terrorist attacks caused enormous destruction in New York City. The

losses included the direct costs of the destruction to lives and property, as

well as cleanup, and the indirect costs of lost income brought about by

business closings and related spending reductions. It is expected that

some of the losses will be covered by payments from private insurance,

emergency federal relief funds, and charitable contributions. Other losses,

however, may never be recovered because some individuals and

businesses may not have been insured or may not qualify for federal relief

or charity.

Summary

Eight studies from seven different organizations were identified as being

the most comprehensive studies available on the economic impact of the

September 11, 2001, terrorist attacks. The seven organizations (in the

order in which the studies were published) are

• New York City Office of the Comptroller,

• New York Governor and State Division of the Budget,

• New York City Partnership and Chamber of Commerce,

Washington, DC 20548
Page 2 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

• Fiscal Policy Institute,1

• New York State Senate Finance Committee,

• Milken Institute,2 and

• New York State Assembly Ways and Means Committee.

In addition, recent studies by the Federal Reserve Bank of New York and

the New York City Independent Budget Office include updated

information on some of the economic impacts.

In general, the eight studies we reviewed varied in the extent to which

they met standard economic criteria for analyzing economic impacts (see

enclosure I for criteria). For example, most of the studies estimated only

certain categories of losses and did not estimate the offsetting payments,

nor the possible gains from the increased economic activity that the

payments might generate. In addition, the studies used different lengths of

time to estimate the costs that might be incurred in the future. For these

reasons, the estimates that the different studies generated are generally

not comparable.

Although it was not without some limitations—such as being based on

some preliminary information that is now dated—we found that the study

by the New York City Partnership provided the most comprehensive

estimates, as follows: The attacks on the two World Trade Center

buildings cost about $83 billion (in 2001 dollars) in total losses (including

both direct and indirect costs); about $67 billion of the losses would most

likely be covered by insurance, federal payments, or increased economic

activity.

Only three of the eight studies used a national or regional perspective in

estimating the indirect costs or losses in personal and business income.

For example, a falloff in tourist and business travel affected popular

destinations throughout the country. Some losses incurred by the New

York City economy, in contrast, may have been offset within the national

economy, given that some businesses that closed after the attack relocated

to New Jersey and Connecticut. The study by the Milken Institute, for

example, estimated that for 2001 alone, the economy of the New York-New

 1

 Fiscal Policy Institute is a nonprofit research and education organization that focuses on

New York tax, budget, and economic issues.

2

 Milken Institute is a nonprofit organization that conducts research in economics,

business, and finance.
Page 3 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

Jersey metropolitan area sustained income losses of about $2.7 billion,

while all the metropolitan areas in the country sustained losses of about

$191 billion.

In addition, since most of the studies were completed—or were based on

information developed--in the immediate aftermath of the attack, the

estimates of impact were based on preliminary information that is now, in

some cases, dated. For example, the study by the New York City

Partnership and the New York Comptroller’s Office estimated that it would

cost from $5 to $6 billion to clean up the site of the World Trade Center

and the surrounding areas and that the cost in loss of life (in terms of

foregone income) would be from $10 billion to $11 billion.

More recently, an official with the New York City Comptroller’s Office

indicated that, as of April 4, 2002, the cleanup of the World Trade Center

site has been quicker and cheaper than initially estimated. Additional costs

could be incurred, however, if the foundation at the World Trade Center

site needs repair. New York City’s Independent Budget Office reported

that, as of March 15, 2002, the city had spent about $825 million for World

Trade Center-related costs, including about $350 million to remove debris.

In addition, the Federal Reserve Bank of New York recently reported that

because fewer lives were lost than initially feared, the cost in loss of life

would be about $6 billion. Furthermore, the U.S. economy has rebounded

from the slowdown that was already under way when the attacks

occurred. Several studies estimated that the slowdown would continue

into 2002. Although the economic recovery in New York may lag behind

the national recovery, the stronger-than-anticipated U.S. growth may, to a

certain extent, have mitigated the economic impact of the terrorist attacks.

Consequently, the estimates of losses from the attacks are likely to

continue to evolve as activities, such as cleanup and stabilization, are

completed and as factors, such as the long-term consequences of the

attacks on the health of the survivors, become known. Finally, although

more data on the performance of the economy since September 11 are

becoming available, the more distant the attacks become in time, the less

easy it may become to disentangle the economic impact from other events,

such as the fallout from the Enron bankruptcy or changing

macroeconomic conditions.

Agency Comments

We provided a draft of this letter to the seven different organizations for

their review and comment. The chief economists at the Fiscal Policy
Page 4 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

Institute and the New York State Assembly Ways and Means Committee,

the Associate Fiscal Analyst at the New York State Senate Finance

Committee, and the Director of Regional and Demographic Studies at the

Milken Institute provided oral comments. They generally agreed with the

way we characterized their studies, but provided clarifications and

editorial comments, which we incorporated throughout the letter, as

appropriate. The New York City Office of the Comptroller declined to

comment on the draft.

In a May 14, 2002, letter, the Director of the New York State Office of

Federal Affairs (representing the New York Governor and State Division of

the Budget) said we made substantive errors in describing the Governor’s

and state budget office’s October 9, 2001, studies. In particular, the official

said, these studies were not designed to be a comprehensive economic

cost analysis; the estimate of the direct costs and loss of tax revenues

associated with the terrorist attacks was $46 billion, not the $54 billion

contained in the Governor’s October Rebuild NY-Renew America plan and

supporting budget documents. In his letter, the official noted that of the

$54 billion estimate, $8 billion represented the estimate for a stimulus

package for New York’s economy and should not be included as a cost of

the terrorist attacks.

We recognize the difficult task faced by the New York State and City

offices, as well as other organizations, in attempting to estimate the

economic impact of the terrorist attacks, especially in the immediate

aftermath of the attacks. We agree that some of the $54 billion estimate

should not be attributed as a cost of the attacks. Nonetheless, the $54

billion estimate was represented in state budget office documents as the

total cost of the economic impact of the attacks. For example, the budget

office’s New York Federal Recovery Plan states, “Current estimates

indicate that the State and City of New York will require approximately

$54 billion in Federal assistance in order to return New York to its

economic status prior to the September 11th terrorist attacks on the

United States.” However, as we noted in our draft letter, of the total $54

billion estimate, $3 billion was identified as being needed for

infrastructure improvements unrelated to the attacks and therefore should

not be attributed as a cost of the attacks. The New York State Office of

Federal Affairs’ comments and our point-by-point responses are provided

in enclosure II.

The Senior Vice President for Research & Policy at the New York City

Partnership provided written comments, which characterized our review

as a useful summary of the studies of the economic impact of September
Page 5 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

11. The official said, however, that in discussing the Partnership’s

estimates of the economic value of lives lost in the attacks, we said that

the foregone earnings approach implied that the lives of high-income

workers have greater “value” than low-income workers. The Partnership

said that they did not intend this implication. We incorporated their

explanation in enclosure I.

Scope and Methodology

To review the studies, we compared the studies’ methods and assumptions

with basic principles of economic analysis. We also talked to federal, state,

and local officials and conducted an Internet search. Our review focused

on the studies that were the most comprehensive. We performed our work

from February through May 2002 in accordance with generally accepted

government auditing standards. As agreed with your staff, we will conduct

some additional follow-up work to evaluate the estimates of losses in tax

revenues to the State of New York and New York City.

- - - - -

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

contents earlier, we plan no further distribution of it until 7 days after the

letter date. We will then send copies to interested members of the

Congress. This letter will also be available at no cost on the GAO Web site

at http://www.gao.gov.

If you have any questions or would like to discuss the letter further, I can

be reached at (202) 512-2700. Major contributors to this letter include

Scott Farrow, Tim Guinane, Penny Pickett, Kathleen Scholl, and Mark

Stover.

Nancy R. Kingsbury

Managing Director, Applied Research

 and Methods

Enclosures
Page 6 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

List of Congressional Requesters

The Honorable Carolyn Maloney

House of Representatives

The Honorable Charles Rangel

House of Representatives

The Honorable Nita Lowey

House of Representatives

The Honorable John LaFalce

House of Representatives

The Honorable Maurice Hinchey

House of Representatives

The Honorable Jerrold Nadler

House of Representatives

The Honorable Jose Serrano

House of Representatives

The Honorable Steve Israel

House of Representatives
Page 7 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

Enclosure I

1

Review of Studies of the Economic Impact

 of the September 11, 2001, Terrorist Attacks

on the World Trade Center

Results of Work

for Congressional Requesters
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2

Objectives, Scope, and Methodology

Objectives

! Identify the key studies of the economic impact of the

terrorist attacks on the World Trade Center buildings in

New York City.

! Assess the studies and their estimates of the economic

impact of the terrorist attacks.
Page 9 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Objectives, Scope, and Methodology

(cont’d)

Scope and Methodology

! We reviewed comprehensive studies that we found

available, based on discussions with federal, state, and

local government officials and an Internet search.

! We assessed the extent to which the studies’ methods

and assumptions fulfilled basic principles of standard

economic analysis, including whether they

! accounted for major categories of losses and payments over the

short and long run,

! included documentation for supporting data and assumptions,
Page 10 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

4

Objectives, Scope, and Methodology

(cont’d)

! included a baseline to control for the economic slowdown under way

before September 11, 2001,

! used the best available information,

! included only the costs required to rebuild or restore property losses

to pre-attack levels,

! avoided double-counting losses,

! used a national or regional perspective, and

! used formal economic models or professional judgment based on

economic principles.
Page 11 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Objectives, Scope, and Methodology

(cont’d)

 We spoke to federal, state, and local officials about the

methods and assumptions used in the studies.

 We did not validate models or data.

 We performed our work from February through May 2002 in

accordance with generally accepted government auditing

standards.
Page 12 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Background

Background

 Terrorists attacked the two World Trade Center buildings in

New York City on September 11, 2001. Losses were direct

and indirect. Federal, state, local, and nongovernment

organizations responded by providing New York City with

financial and other assistance.

 Direct losses

! Human lives;

! Property loss: buildings, business fixtures, computer equipment,

phone and power utilities, subway stations, planes, vehicles;

! Costs to respond to the emergency, remove debris, stabilize

buildings, and clean up;

! Health effects, injuries, and emotional distress; and

! Costs to provide temporary living assistance.
Page 13 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Background

(cont’d)

 Indirect losses

! Lost employee income and business profits associated with firms

closed or cut back, temporarily or permanently, because office

space and infrastructure were destroyed or damaged;

! Lost employee income and business profits associated with other

firms that depended on those that closed or cut back;

! Spending reductions from other income losses triggered by the

firms that closed or cut back;

! Fiscal impacts such as reduced tax revenues; and

! Delays to travelers and commuters.

 Fiscal impacts such as reduced tax revenues are

represented in gross income losses, since taxes are

transfers of income from taxpayers to government.
Page 14 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Background

(cont’d)

! Losses may be reimbursed through payments from

private insurance, federal disaster relief programs, and

charity.

! Economic impacts from losses and payments may ripple

through the economy well after the disaster. Their

estimated value in the future should be discounted to the

present to reflect differences in the time value of money.

! Total losses may exceed total payments because some

losses may not be covered, such as for individuals who

did not receive unemployment insurance and for

businesses that were uninsured or had deductibles.
Page 15 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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The Eight Studies We Identified

 The Studies

 We identified eight studies from seven organizations as

generating a range of estimated economic impacts. In the

order they were issued, they are

! City of New York Office of the Comptroller, The Impact of the

September 11 WTC Attack on NYC’s Economy and City Revenues

(Oct. 4, 2001).

! New York Governor and State Division of the Budget, Rebuild New

York–Renew America: The World Trade Center Attacks; Current

Estimated Cost; and other supporting documents (Oct. 9, 2001).

! Fiscal Policy Institute, World Trade Center Job Impacts Take a

Heavy Toll on Low Wage Workers (Nov. 5, 2001).
Page 16 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Eight Studies

(cont’d)

! New York City Partnership and Chamber of Commerce, Economic

Impact of the September 11th Attack on New York City (Nov. 2001; rev. Feb.11, 2002).

! Milken Institute, The Impact of September 11 on U.S. Metropolitan Economies (Jan. 2002).

! New York State Senate Finance Committee Staff, Financial Impact of the World Trade Center Impact, prepared by DRI-WEFA (Jan. 2002).

! New York State Assembly Ways and Means Committee Staff, New

York State Economic Report (Mar. 2002).

! Fiscal Policy Institute, The Employment Impact of the September 11 World Trade Center Attacks: Updated Estimates Based on the

Benchmarked Employment Data (Mar. 8, 2002).
Page 17 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Eight Studies

 (cont’d)

! Additionally, we examined reports from March 2002 by the

New York City Independent Budget Office and April 18,

2002, by the Federal Reserve Bank of New York.

! The Fiscal Policy Institute developed preliminary estimates

in a September 28, 2001, study that were revised in its two

later studies. We looked at these also.
Page 18 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Accounting for Major Categories

 of Losses and Payments or Gains

 Accounting for Major Categories

 Since the studies varied in the extent to which they

accounted for major categories of losses estimated and time

covered, they are not all comparable. For various times

through 2003, for example, the New York

! Comptroller’s Office estimated $90 billion to $105 billion in direct

losses and indirect losses,

! Partnership estimated $83 billion in direct losses and indirect

losses, and

! State budget office estimated $54 billion in direct losses, fiscal

impacts, and other costs.
Page 19 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Accounting for Major Categories

 of Losses and Payments or Gains

 Additionally,

! The Fiscal Policy Institute estimated $21 billion in indirect losses

and 73,900 layoffs in the 4th quarter of 2001. It estimated that

about 60 percent of the workers dislocated by the attacks worked

in low-wage occupations, earning $11 an hour or less.

! The New York State Assembly Ways and Means study estimated

that of the 125,300 jobs lost in New York in the 4th quarter of

2001, 80 percent resulted from the attacks. It estimated that the

attacks would generate about $27 billion in indirect losses

through 2002.

 Some studies provided detailed breakouts of losses by

entity or specific sector, but estimates varied. For example,
Page 20 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

14

Accounting for Major Categories

 of Losses and Payments or Gains

! the Comptroller’s Office estimated losses of $3 billion to the

Metropolitan Transit Authority, $2.4 billion to the Port Authority,

and $2 billion in utility repair costs to AT&T and Verizon, while

! the Partnership’s estimates were $1.5 billion to the Metropolitan Transit Authority, $1 billion to the Port Authority, and $2 billion for

phone and power utilities.

 Meanwhile,

! the state budget office estimated losses of $50 million to the City

University of New York and

! the Partnership estimated $800 million in economic impacts to

hospitals and health care providers through 2003.

 No study estimated specific losses to nonprofit entities or

small businesses.
Page 21 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Accounting for Major Categories

 of Losses and Payments or Gains

 One study estimated the major categories of payments and

expected increases in economic activity:

! The Partnership estimated about $14 billion in payments from the

federal government, $37 billion from private insurance, and $16

billion in increased economic activity (from payments and

increased construction).

 Two other studies estimated the major payment categories:

! The comptroller’s office estimated about $20 million in payments

from the federal government, potential insurance payments of

$21 billion for property and human losses, and $16 billion to $18

billion for disability and business interruption.
Page 22 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Accounting for Major Categories

 of Losses and Payments or Gains

! The New York State Senate Finance Committee study estimated

potential insurance payment of $36 billion to $54 billion and

payments from charities of about $1 billion.

 Only the Partnership calculated the difference between the

estimates of total losses and total payments and gains—a

net loss of about $16 billion.
Page 23 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

17

Including Supporting Documentation

 Documentation Supporting Assumptions

 Several studies did not include sufficient support for

independent reviewers to replicate and verify their

estimates. For example,

! In estimating $14.4 billion in cleanup and emergency response

costs, the Partnership cited the New York City comptroller and

New York governor but without providing details (material, labor,

security costs).

 Similarly,

! The state budget office estimated about $14.7 billion in cleanup

and emergency response costs and $8.3 billion in office and

hotel replacement costs but cited New York City as the source

without providing details (material, labor, security, derivation of

replacement value).
Page 24 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Measuring Impact Relative

to a Baseline

 Using a Baseline

 Most of the studies indicated using a baseline to reflect the

way the economy would have proceeded if the attacks had

not happened. But some studies may not have fully

disentangled the effects of the attacks from income and job

losses that would have occurred anyway.

 Two examples are that

! The comptroller’s office did not measure economic impact relative to a baseline because (according to an official who

worked on the study) pre-September 2001 payroll jobs data

indicated that New York City’s economy had performed well relative to the national economy through August. Thus, the study

assumed that the economic slowdown after September 11

resulted from the effects of the terrorist attacks.
Page 25 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Measuring Impact Relative

to a Baseline

! The Federal Reserve Bank study reported that the state budget

office’s estimate of $9 billion in tax revenue losses through fiscal

year 2003 did not “clearly distinguish the effects of the economic

downturn from the effects of the attack.” An official with the state

budget office disagreed, saying that the estimates accounted for

the economic downturn already under way at the time of the

attacks.
Page 26 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

20

Using the Best Available

Information

Best Available Information

Although the studies may have used the best available 

information when they were developed, most were based on 

information developed in fall 2001. Some information is 

therefore now dated. For example,

Human Loss

! The Partnership and Comptroller’s Office estimated the cost of 

human loss at $10 billion to $11 billion (in forgone lifetime 

income), based on 5,000 or more deaths. 

! The Federal Reserve Bank of New York reported as of April 18 

that because deaths were fewer than initially feared, costs were

about $6 billion. 
Page 27 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

21

Using the Best Available

 Information

 Clean-Up

! The Partnership and state budget office estimated $5 billion

 to $6 billion to clean up the World Trade Center site and surrounding areas.

! A comptroller’s office official indicated that as of April 4, cleanup had been quicker and cheaper than anticipated. Costs could rise

however, if the foundation at the World Trade Center site needs

repair (for example, to prevent water from leaking through it).

! New York City’s Independent Budget Office reported the city’s

spending about $825 million for costs related to the World Trade

Center, including about $350 million to remove debris and $340

million for overtime for uniformed services.

! The Federal Reserve Bank of New York reported that because of

the speed of the cleanup, estimates of certain repair and cleanup costs have declined since those made in fall 2001.
Page 28 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

22

Using the Best Available

 Information

Job Losses

! An official with the New York State Assembly Ways and Means

Committee staff said that as of May 14, 2002, many of the jobs

that left New York in the aftermath of the terrorist attacks have

relocated back to New York.

 The Fiscal Policy Institute and the Partnership revised their

initial studies. For example,

! The Fiscal Policy Institute estimates as of March 2002 that

layoffs numbered 73,900 in the 4th quarter of 2001, slightly less than estimated last fall, primarily because of fewer reductions in

hotel and restaurant jobs, which outweighed greater-thananticipated reductions in air transport.

! As of February 11, 2002, the Partnership still expected net losses

to be around $16 billion.
Page 29 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

23

Including Only Attack-Related

Costs in Estimates of Losses

 Including Only Attack-Related Costs

 Most studies estimated only direct or indirect costs, but the

state budget office included in its $54 billion estimate $3

billion to enhance public infrastructure and programs

involving safety.

! State budget officials said that of the $54 billion, only $46 billion

was attributable to the attacks; the other $8 billion was for

general economic stimulus unrelated to the attacks.

! However, state budget documents clearly link the $54 billion to

the attacks. For example, one states: “Current estimates indicate

the State and City of New York will require approximately $54

billion in Federal assistance in order to return New York to its

economic status prior to the September 11th terrorist attacks on

the United States.” (New York State Division of Budget, New

York’s Federal Recovery Plan)
Page 30 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Including Only Attack-Related

Costs in Estimates of Losses

! Moreover, the state budget documents indicate that of the $8 billion

budget officials said was for economic stimulus, $5 billion was an

estimate of costs to support families and dislocated workers who are

unemployed because of the overall economic uncertainty created by

the terrorist attacks, and to rebuild New York City and ensure New

York’s recovery from the events of September 11.
Page 31 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Avoiding Double-Counting

of Losses

 Avoiding Double-Counting

 Two of the eight studies may have double-counted some

losses:

! In estimating total indirect losses, the comptroller’s office

estimated $21 billion in losses in gross city product (GCP)

through 2002—personal income plus business profit—associated

with firms estimated to have closed or cut back, plus $3 billion in

wages lost to employees whose firms moved to other states.

 But GCP would include wages of employees whose firms closed

or cut back and moved.

! The state budget office included a $3 billion request for payment

of federal aid in a $54 billion estimate of costs without providing

support that it represented a loss, not a gain, to New York.
Page 32 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Using a National or Regional

Perspective

 National or Regional Perspective

 Falloffs in tourism and business travel affected areas

beyond New York. Some of the city’s losses were offset in

the national economy as some businesses that closed

moved to New Jersey and Connecticut. But only a few

studies’ estimates took a national or regional perspective.

! The New York State Senate Finance Committee estimated

losses of $639 billion to the United States through 2003 and $22

billion to New York State (in current dollars).

! The Milken Institute estimated losses of $2.7 billion to the New

York–New Jersey metropolitan area in 2001 and $191 billion to all 315 U.S. metropolitan areas (in constant 2001 dollars).

! New York State Assembly Ways and Means estimated that about

40 percent of the gross domestic product slowdown in 2001

resulted from the September 11 attacks.
Page 33 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Using Formal Models or Professional

Judgment

 Formal Models and Judgment

 The studies variously combined formal economic models

with professional judgment to simulate the economy after

September 11, 2001.

! In general, models are designed to measure small

incremental changes in the economy, such as when a

firm moves into or out of a regional economy.

! Since the terrorist attacks caused a substantive shock to

the New York City economy, it is not yet known whether

the models measured it accurately.
Page 34 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Using Formal Models or Professional 

Judgment

Also,

! The Partnership and Comptroller’s Office used forgone lifetime earnings to estimate losses in human capital of $10 billion to $11 

billion. 

! The Partnership estimated that for each death among 5,000 deaths, 

$2 million in lifetime earnings were lost, based on an average 

annual salary of $150,000 (discounted to the present). A 

Partnership official said that their calculation of the loss of human 

capital was an effort to estimate the lost economic productivity of the 

workers who perished, not to establish an estimate of the value of 

the lives that were lost.

! In general, the forgone earnings approach has limitations. For 

example, it generates higher values for individuals with higher 

income and lower values for volunteers and individuals with lower 

income. 
Page 35 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Observations

 Observations

 The New York City Partnership and Chamber of Commerce

study generated the most comprehensive estimates—direct

and indirect losses, payments, and increased economic

activity—but it is not without some limitations, such as some

outdated data.

 All the studies’ estimates are moving targets because

cleanup and other activities are still going on, and the

attacks’ full consequences on factors such as survivors’

health may not be known for years.
Page 36 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

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Observations

 More data on the economy’s performance since September

11, 2001, are becoming available, but as the attacks

become more distant in time, it may be less easy to

disentangle their economic effects from other events that

would have occurred anyway (such as fallout from Enron

and changing macroeconomic conditions).
Page 37 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

Enclosure II: Agency Comments and Our

Response

See comment 2.

See comment 1.
Page 38 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

See comment 3.

See comment 5.

See comment 4.
Page 39 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

The following are GAO’s comments on the State of New York Office

of Federal Affairs’ letter dated May 14, 2002.

GAO Comments

1. We believe that we have correctly characterized the Governor’s

Rebuild NY-Renew America plan and the supporting budget office

documents. As we noted in the draft correspondence, of the total $54

billion estimate stated in the Governor’s plan, $3 billion should not be

attributed as a cost of the attacks because it is for activities, such as

infrastructure improvements, that are unrelated to the attacks.

2. We selected the eight studies for our review because we found that

they were the most comprehensive available at the time of our review.

As noted in our draft letter, we agree that $3 billion of the $54 billion in

estimated costs should not be attributed to the attacks. However, the

$54 billion estimate was represented by the state budget office as the

total cost of the economic impact of the attacks. For example, the

budget office’s New York’s Federal Recovery Plan states that “Current

estimates indicate the State and City of New York will require

approximately $54 billion in Federal assistance in order to return New

York to its economic status prior to the September 11th terrorist attacks

on the United States.” In addition, The World Trade Center Attacks:

Current Estimated Cost provides a “preliminary” cost estimate of $54

billion. Based on our review, of the $8 billion identified by the

Governor’s office as economic stimulus, about $5 billion should be

attributable as costs associated with the attacks. This is because the

$5 billion represents an estimate of the costs to (1) support families

and dislocated workers who are unemployed because of the overall

economic uncertainty created by the terrorist attacks and (2) rebuild

New York and ensure that the New York economy recovers from

September 11. Moreover, after providing comments to us, an official

with the state budget office clarified that at least some of the $5 billion

could be considered to be an estimate of the direct costs of the

terrorist attacks.

3. Our draft letter cited an April 18, 2002, study by the Federal Reserve

Bank of New York, which stated that the state budget office’s estimate

of $9 billion in tax revenue losses through fiscal year 2003 does not

“clearly distinguish the effects of the economic downturn from the

effects of the attack.” After providing comments to us, an official with

the state budget office clarified that they disagree with the Federal

Reserve Bank’s findings. We will examine the state budget office’s tax
Page 40 GAO-02-700R Impact of Terrorist Attacks on the World Trade Center

revenue analysis as part of our follow-up work reviewing estimates of

the fiscal impacts of the terrorist attacks.

4. We agree that some of the information used by the different studies is

now dated. Moreover, the estimates are likely to change as efforts to

clean up and stabilize the World Trade Center site and surrounding

areas are completed and other factors, such as the long-term

consequences on the health of the survivors, become known. In an

effort to assist Congress as it considers issues relating to recovering

from the economic effects of the terrorist attacks, we reviewed the

eight studies in terms of the extent to which they met standard

economic criteria, including whether they included best available

information.

5. We reviewed the Governor’s plan and the supporting documents

prepared by the state budget office, including New York’s Federal

Recovery Plan, The World Trade Center Attacks: Current Estimated

Cost, Economic Recovery Plan Summary, 4-Point Economic Plan

Recovery, and Analysis of Revenue Loss Resulting from World Trade

Center Attack. Moreover, we discussed the estimates with an

economist and another official in the state budget office. Based on this

review, we briefed the congressional staff on the results of our work

up to April 15, 2001. Moreover, the purpose of our review was to

assess studies of the economic impacts of the September 11, 2001,

terrorist attacks, not to develop our own economic impact analysis.

Finally, as discussed earlier, we plan to review the state budget office’s

tax revenue analysis as part of our follow-up work reviewing estimates

of the effect of the terrorist attacks on tax revenues to New York.

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