Review of Studies of the Economic Impact of the September 11,	 
2001, Terrorist Attacks on the World Trade Center (29-MAY-02,	 
GAO-02-700R).							 
                                                                 
The terrorist attacks on the World Trade Center on September 11  
caused enormous losses in New York City. These include 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 were uninsured or may not
qualify for federal relief or charity. In reviewing eight studies
from seven different organizations on the economic impact of the 
attacks, GAO found that they varied in the standard economic	 
criteria used for analyzing economic impacts. In addition, the	 
studies used different periods of time to estimate future costs  
that might be incurred. GAO found that the study by the New York 
City Partnership provided the most comprehensive estimates. The  
study estimated that the attacks on the two World Trade Center	 
buildings cost $83 billion (in 2001 dollars) in total losses	 
including both direct and indirect costs and $67 billion of the  
losses would likely be covered by insurance, federal payments, or
increased economic activity. Since most of the studies were	 
completed--or based on information developed--in the immediate	 
aftermath of the attacks, the estimates were based on information
that is now dated. Consequently, the estimates are likely 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, becomes known.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-700R					        
    ACCNO:   A03467						        
  TITLE:     Review of Studies of the Economic Impact of the September
11, 2001, Terrorist Attacks on the World Trade Center		 
     DATE:   05/29/2002 
  SUBJECT:   Construction costs 				 
	     Cost analysis					 
	     Economic analysis					 
	     Repair costs					 
	     Terrorism						 
	     New York (NY)					 
	     World Trade Center (NY)				 

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GAO-02-700R
     
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

Page 8 GAO- 02- 700R Impact of Terrorist Attacks on the World Trade Center

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

3 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

5 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

6 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

7 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

8 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

9 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

10 Eight Studies

(cont?d)

! New York City Partnership and Chamber of Commerce, Economic Impact of the
September 11 th 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

11 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

12 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

13 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 4 th 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 4 th 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

15 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

16 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

18 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

19 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 4 th 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 11 th 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

24 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

25 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

26 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

27 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

28 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

29 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

30 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 11 th 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.

(460527)
*** End of document. ***