Why NY municipalities are going broke – By George J. Marlin

The following appears in the August 23-29, 2012 issue of the Long Island Business News:

In an important report released this month, State Comptroller Thomas P. DiNapoli diagnosed the rapidly declining fiscal health of municipalities throughout the Empire State.

“No matter how you measure it,” he states, “almost all cities in New York are stressed and have to work hard to keep their fiscal houses in order. … If a city is not facing budget solvency issues, it is likely facing service delivery stress – that is, it is having a hard time maintaining the services its residents want and need.”

The reason why municipalities are in fiscal peril: Tax revenues do not match expenditures.

First the revenue side of the ledger.

Since the Great Recession began in 2008, property tax revenues in most municipalities have declined due to the drop in residential and commercial real estate values. In the nine downstate suburban counties, including Nassau and Suffolk, property values have, on average, decreased 5.3 percent annually.

Upstate declines during the same period have been smaller, 1.8 percent a year, because many cities in northern regions did not participate in this century’s real estate boom. For instance, between 1998 and 2005, property values in Oswego were down 45 percent; Dunkirk, -38 percent; Fulton, -12 percent; Schenectady, -11 percent; and Buffalo, -10 percent.

State aid to municipalities, which peaked in 2008-2009, has declined over the last three fiscal years. Fewer home sales translated to lower mortgage recording tax income. The comptroller’s report points out that since 2005, “local governments have lost nearly $320 million in annual MRT revenues.”

Many municipalities are also reaching their constitutional tax limits. There are presently eight local governments that have hit the total amount of property taxes that can be levied.

Declining populations due to huge manufacturing job losses have also contributed to lagging tax dollars. Buffalo, whose population stood at 532,000 in 1960, is now down to 240,000. With more than 40,000 single-family homes abandoned, the city’s property tax base has been wrecked.

As for expenditures, thanks to unfunded state mandates, gratuitous public employee contracts and spiraling pension and health care contributions, local magistrates are cutting essential services to cover those costs.

There are over 2,000 unfunded mandates imposed on New York municipalities. These mandates, of which Medicaid is the most costly, consume more than 60 percent of county governments’ budget dollars. For example, Erie County in 2003 had announced that its Medicaid costs hit $175 million while its total property tax revenue was expected to be $128 million. County officials told The New York Times, “Every penny we take in the county property taxes is used to pay for Medicaid. This is before we pay for any libraries or plow any roads or pay for any police services.”

Instead of grappling with the fiscal crisis and making tough budget decisions, some municipal leaders have resorted to sloppy bookkeeping or cooking the books. The comptroller points out an audit uncovered that the Village of Freeport between 2006 and 2010 adopted unrealistic general fund budgets that resulted in operating deficits totaling $10.9 million. The budget included $5 million in transfers from nonexistent reserves. In addition, Freeport issued long-term debt to cover short-term operating deficits. This is like using one’s credit card to make a current mortgage payment. One is merely transferring debt, not paying it down.

The comptroller’s report is a wake-up call. And if state and local elected officials do not aggressively address these fiscal woes by slashing state mandates, enacting genuine pension reform, renegotiating union contracts and scrapping rigged arbitration boards, expect the day of reckoning to quickly arrive and distressed municipalities lining up to enter into receivership.

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