With the rapid rise of artificial intelligence (AI) as a core force reshaping society and the economy in just a few years, the potential impacts it brings have sparked strong concerns among fiscal officials. New York City Comptroller Mark Levine released a report on Thursday (May 21), urging local lawmakers to establish a fiscal emergency fund to protect New Yorkers from potential economic downturns caused by AI technologies.
The report highlighted that AI will reshape the economy of New York City in both positive and negative ways, making it crucial to be prepared for potential economic losses ahead of time. Levine urged lawmakers to allocate 16% of annual tax revenue as a reserve fund, which would be sufficient to offset a “typical economic recession”.
“Three years ago, it was hard to get anyone in government to care about this,” Levine said at a press conference discussing the anticipated changes AI will bring. “But now, they are starting to care… People are feeling anxious and lost, and what I’m pointing out is something unequivocal, something that must be done immediately.”
A report from the St. Louis Federal Reserve Bank in January highlighted that AI is reshaping our way of life and work, and its impact on the Gross Domestic Product (GDP) is already being felt through investment trends.
However, Levine pointed out that AI has also sparked significant anxiety, with concerns rising about it replacing white-collar office jobs. More worrisome is the potential for the current investment fervor to turn into an “investment bubble burst”, which could lead to a severe economic recession.
The Comptroller’s report detailed five predicted scenarios of how AI could affect the economy of New York, with two scenarios highlighted as follows:
In an AI-enabled economy, productivity gradually increases with limited impact on the labor market. Levine noted that with many top private equity investment firms supporting AI such as Apollo, Blackstone, and KKR headquartered in New York, the total year-end bonuses in the locality have increased accordingly. The report analyzed that scenario one is most likely to occur with a probability of 35%.
If the current AI investment boom collapses, it will have profound negative ripple effects on the overall economy. The report predicted that in this scenario, the US stock market would plummet by nearly 35% in the first year; and if the recession scenario materializes, over 50,000 jobs in the private sector of New York City will be lost within the first year. By the third quarter of 2027, the total employment in the private sector of New York City will decrease by approximately 135,000 from the baseline.
Scenario two has a probability of 25%, with the Comptroller’s office estimating that New York City’s fiscal tax revenue would cumulatively decrease by nearly $9 billion over four years.
Of the five scenarios analyzed by the Comptroller’s office, three scenarios involve negative outcomes for employment, economic growth, or tax revenue, accounting for a total probability of 50%. In these cases, the city government’s primary responsibility will be to maintain critical municipal services operation under significant budget pressure.
Levine admitted that the specific impacts of AI on the future are still shrouded in uncertainty, but lawmakers must be proactive by trimming existing budget expenditures to bolster this fiscal reserve.
He explicitly mentioned two potential areas for cuts: the CityFHEPS housing assistance program and the budget for primary and secondary education. Levine stated: “We have to consolidate some schools. I know this is politically very difficult, very, very challenging, but we have to do it.”
The report specifically noted that the current economic uncertainty has had a heavy impact on recent college graduates. Data shows that the unemployment rate among young New Yorkers with a university education has surpassed that of their less educated peers.
Despite the future development trends being dubbed as “AI Fog” by business experts and major media outlets, Levine strongly urges lawmakers to act swiftly.
“We have never seen a transformation like this before,” Levine lamented. “The Industrial Revolution took about 40 years to fully unfold in New York City, and the AI timeline I’m giving you now is only 3 to 5 years. We are in a completely unknown territory.”