Comptroller: Local governments face grim fiscal reality

Aug 2, 2012

A report from the state comptroller finds local governments in New York are struggling financially. Around 10 percent are running deficits or suffering from cash flow problems, and there is no end in sight.

State Comptroller Tom DiNapoli finds that out of more than 4,000 local governments and school districts, 300 report budget deficits, and 100 do not have enough cash on hand to pay all of their bills.  

Many municipalities that are in the black are only keeping afloat financially by spending down their reserves.  DiNapoli says the financial squeeze comes as the recession continues to linger, tax revenues and state and federal aid decline, and health care costs for governments grow.   

“It’s the new fiscal reality,” Di Napoli said.

The declines in aid and revenue total more than $400 million dollars. DiNapoli says cities are feeling the greatest pressure but suburban and rural areas are also hurting, as sales tax revenues shrink and property values decline.  The housing slump has meant fewer houses bought and sold, and the mortgage recording tax revenue is down.

DiNapoli says the recently enacted property tax cap is another hurdle for local governments, though he says political pressure have kept taxes from rising at previous levels. Instead, governments are resorting to spending cuts and are reducing police and fire protection, garbage collection, recreational programs and road repair.

Even with lower tax increases and spending cuts, eight counties, cities and villages are reaching their constitutional taxing limit, and face a cut-off of all state aid if they raise taxes any higher.

But even worse, the comptroller’s report finds that many municipalities don’t even fully grasp the scope of their fiscal troubles, due to poor budgeting practices like overestimating revenue and underestimating costs.

“If you don’t have your own budget house in proper order, where at least you’re dealing with honest numbers, you’re going to find yourself really caught in a tough situation,” DiNapoli said.

The comptroller says in the long term, an improved economy, and perhaps government consolidation could ease the pressure. But he says in the short run, there aren’t any simple solutions or fixes.
 
“It’s going to mean in the short run, continuing to make very tough choices on spending,” DiNapoli said. “We can’t escape that.”  

The comptroller says his report did not find that any municipalities are in any immediate danger of bankruptcy, like some local governments in California. But he says it is possible that some cities, towns or villages could find themselves under the strictures of a state appointed financial control board in the future.