Home Government Report: Municipalities struggling to meet fiscal demands

Report: Municipalities struggling to meet fiscal demands

Since 2008, governments at a municipal and county level in the Hudson Valley and across the state have had to deal with an economic recession, a decline in mortgage tax revenue, declining sales tax revenue, a tax cap on budgets and rising pension and health care costs. And it’s not over yet.

State Comptroller Thomas DiNapoli recently released his annual report on local governments and expressed concern about New York municipalities’ ability to meet their respective fiscal challenges.

According to DiNapoli, more than 100 local governments do not have enough cash on hand to pay even 75 percent of their current liabilities and almost 300 ended fiscal years 2010 and/or 2011 in a deficit. Twenty-seven local governments have not only drained their fund balances, but spent more than they had in them.

“Years of receding, stagnant and painfully slow economic growth have led local governments to cut vital services and tap their rainy day funds to balance budgets,” DiNapoli said in his report. “(This) is a practice that is not sustainable in the long term.”

The comptroller’s office will institute an early warning monitoring system to identify local governments experiencing budgetary issues so that actions can be taken before a crisis develops.

“I recognize that these are volatile fiscal times for New York’s local governments,” DiNapoli said. “The Office of the State Comptroller is committed to helping you get through these challenges.”

In the midst of a recession and the tax cap, municipalities have been judiciously holding their purse strings. Between 2010 and 2011, expenditures grew by less than 1 percent, while revenues decreased by 0.5 percent. In 2008, when the recession began, revenues were immediately cut in half and state aid also substantially dropped.

At the county level, health, cultural and recreational programs have been cut by $265 million statewide, while cities have cut public safety and garbage collection by $76.2 million. Towns and villages have cut garbage collection, as well as cultural and recreation programs by $77 million.

Cutting services have replaced raising taxes, due to the 2 percent tax cap on the tax levy signed into law in 2010 and general outcry over taxation and spending. Property tax increases averaged 2.9 percent between 2011 and 2012, down from 7.7 percent between 2002 and 2003.

Sales taxes increased 3.9 percent year to year in 2012, though sales tax increases averaged 5.1 percent before the recession.

Mortgage recording tax revenues continue to decline, though the decline is starting to slow as the housing market begins to rebound. Since 2005, when mortgage recording taxes peaked, governments have lost $320 million annually. Towns collected $249 million less in 2011 than in 2005.

To fill budget gaps without raising taxes, local governments have been dipping into their fund balances. Fund balances are down 28 percent from their peak in 2006. While municipalities routinely take money from fund balances, taking too much can cause bond ratings to drop and create fiscal instability down the road.

DiNapoli noted that while the economic outlook appears to be improving, local governments may still be in trouble. At the height of the recession, fund balances and money from the stimulus package helped keep municipalities afloat.

“Local governments in most of New York state are struggling with the effects of several years of structural budget imbalance,” DiNapoli said.

Charles Strome, the city manager of New Rochelle, said a lot of DiNapoli’s report was old news and that it didn’t address that state mandates are hurting governments the most.

“He’s not telling us anything we don’t already know or do,” Strome said. “I find it tough to take. The level of government that is causing us the most fiscal stress is the one that tells us we’re in fiscal stress. If only they would come up with solutions.”

Strome said that further reductions in services will be needed if the state does not get serious mandate relief. During the 2012 budget process, the tax cap only allowed the city to raise $1.2 million in revenue, while health and pension costs totaled $2.8 million.

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