May 1, 2002 by Sean van Zyl, Editor
With just seven months having past since the tragic events which took place on September 11, 2001, city officials and financial analysts in New York City appear to be adopting a more optimistic outlook with regard to costs associated with the rebuilding and cleanup of downtown Manhattan, as well as the business center’s prospects of economic recovery.
A report just released by the Federal Reserve Bank of New York (FRBNY) suggests that the rebuilding and cleanup costs following the destruction of the twin World Trade Center (WTC) towers will likely be US$6 billion less than had been anticipated shortly after the terrorist attacks. The FRBNY estimates that the total rebuilding and cleanup cost of the area will be between US$25-$29 billion, with much of the monetary saving attributed to a much faster recovery process.
The FRBNY notes that the total recovery cost contained in the report includes that of physical property, life and business disruption. “The losses include both the direct costs of property loss, cleanup, and loss of life and the related costs of lost employee and business income resulting from attack-related disruptions.” Of the total maximum cost of US$29 billion tagged to the terrorist attacks, the bank expects that roughly US$15 billion of this amount will be covered by insurance — assuming that the destruction of the WTC towers will be construed as two separate loss events (this issue is currently before the courts with several insurers contesting that the attack was a single event). “Because of the speed of the cleanup, these estimates have declined from those made last fall. In addition, the death toll has proved to be about half of what was initially feared.”
Tallying direct losses
The FRBNY now pegs the uninsured replacement/repair cost of buildings around the WTC site at between US$10-$14 billion. In total, cleanup and site restoration is likely to cost in the range of US$6-$10 billion, with replacement of the WTC towers carrying a price tag of about US$6.7 billion. Other repairs, to buildings, retail space, communications and the power infrastructure of the area is expected to amount to around US$6 billion, with an equal dollar cost associated to replacing destroyed technology and “fixtures”. The FRBNY notes that the total uninsured cost amounts to about 3% of the city’s annual “gross city product” — or total gross economic output.
The loss associated with human life also fell substantially from early projections, the reserve bank observes, with the latest estimate of “human capital losses” amounting to about US$6 billion — nearly half the amount originally anticipated. “Private insurance and victim compensation funds are anticipated to cover a substantial portion of these losses.
Economic & job losses
The terrorist attacks supposedly “displaced” about 100,000 city workers, according to the FRBNY’s report, with private sector employment dropping by 50,000 immediately following the events. The heaviest hit sectors from a loss of business, or economic sense, were what the FRBNY collectively refers to as “FIRE” — finance, insurance and real-estate. Other industries that suffered notable business and job losses include travel/tourism and the retail trade sector.
The FRBNY report notes that the FIRE business component makes up about 30% of New York City’s total annual earnings. Of the total private sector job loss subsequent to the attacks, FIRE accounted for nearly 60%, with the average estimated annual earnings per worker in the financial sector placed at US$150,000 annually — thus determining an economical loss of about US$3 billion which is significantly lower than the “previous best case scenario”.
However, the city’s reserve bank points out that most recent economic/job data suggests that firms employing many of the displaced workers have returned, or plan to return to the city. Also, the report notes, “…the fact that the bulk of FIRE jobs have not left the region in the wake of the attack is a strong signal of the region’s continued importance as a center of financial activity”. The reserve bank report says that the city’s anticipated tax revenue loss of US$600 million (in terms of the fiscal year ended June 2002) as a result of the terrorist attacks seems reasonable. Overall, the report observes, “the longer term economic prospects for the city appear favorable”.
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