New York Tallies $13 Billion Toll of Corporate Scandals
New York State Comptroller Alan G. Hevesi has done the math and doesn’t like what he sees. By his count, in the past two years New York State has taken a $13 billion hit as a direct result of corporate scandals of the past two years.
The $13 billion consists of a $2.9 billion loss in the state economy, $1 billion in lost tax proceeds, and over $9 billion in declines in state pension fund value.
In 2002, the Brookings Institute published a report called, "Cooking the Books: The Cost to the Economy," which used the stock market decline to estimate that corporate malfeasance cost the U.S. economy $35 billion in the twelve months following the meltdown of Enron.
Taking into consideration that New York accounts for about 8.4 percent of the nation’s economy, Hevesi arrived at his $2.9 billion estimate of the impact on the state economy. In a release issued by Hevesi’s office, he estimates that New York City alone lost about $260 million in tax revenue and scandals cut the value of the city’s pension fund by $7 billion.
"The wave of corporate corruption scandals didn't just hurt the companies involved and their employees," Hevesi said in the release. "The scandals imposed a huge cost on every American. As investors, they lost hard-earned savings. As honest business people, they faced unfair competition and higher costs of capital. As workers, they confronted increased job losses. As taxpayers, they have to pay higher taxes and face cuts in services."
He added that, "New York was hurt particularly hard."
In response to the scandals, Hevesi said his office has taken the following steps:
- Successfully implementing pension fund reform that both strengthens the fund and provides a gradual increase in contributions for state and local governments.
- Joining in and in some cases leading class action suits against corporations involved in scandals and against the accounting and investment banking firms that aided and abetted the fraud.
- Working with other investors to strengthen corporate governance rules and regulations to safeguard against future scandals.
"Since this March, the market has been showing welcome signs of improvement," he said. "But much of the damage from the scandals remain. The loss to state and local budgets is irretrievable. Individual investors, particularly those who are 50 years and older, are unlikely to fully recoup their losses to their retirement. This outrage can never be repeated."