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August 1, 2012

 

DiNapoli: Local Governments Facing New Fiscal Reality

Most Cities in Stress, Struggling to Keep Financial Houses in Order

The Great Recession has created difficulties for many local governments that continue to threaten their fiscal health, according to an analysis issued today by State Comptroller Thomas P. DiNapoli. The study found that nearly 300 local governments had deficits in 2010 or 2011 and more than 100 had inadequate cash on hand to pay their current bills.

The analysis warns that some municipalities and school districts have become increasingly vulnerable to unanticipated expenses such as emergencies, mandates and unexpected spikes in the costs of goods and services. The report is based on an analysis of data from 4,000 local governments and recent audits.

“Our communities are facing a challenging economic reality,” DiNapoli said. “There are no quick fixes and any future economic shocks could have a devastating impact on some communities. Difficult choices are ahead but they start with better long-range planning and an honest conversation about the numbers. By preparing more accurate and realistic budgets, local officials will be better able to deal with these issues without overburdening taxpayers.”

DiNapoli’s Division of Local Government and School Accountability collects and analyzes the annual financial reports from local governments, school districts, public authorities, fire districts and other special taxing districts.

Although cities seem to be most at risk – due to population loss, declining or stagnant property assessments, high poverty rates and older and decaying infrastructure – the analysis shows all local governments have been impacted by shortfalls in expected revenues since the onset of the Great Recession. For example:

  • County sales tax collections dropped by 5.9 percent during the Great Recession, most significantly impacting counties and cities, but also affecting towns and villages. It has taken three years for this source of revenue to recover to 2008 levels.
  • Property values in nine downstate counties -- Dutchess, Nassau, Orange, Putnam, Rockland, Sullivan, Suffolk, Ulster and Westchester -- have experienced a downturn since 2008. And nearly half of upstate counties experienced similar declining property values between 2010 and 2011.
  • State Aid and Incentives for Municipalities (AIM) payments have been in decline for the past three years. Since 2008-09, AIM has been reduced by $50 million and has been completely eliminated for New York City.
  • Eight local governments are dangerously close to exceeding their constitutional tax limit -- Cortland County, Binghamton, Gloversville, Jamestown, Lackawanna, New York City, Village of Herkimer and Village of Lyons. If a local government exceeds this limit, which is different from the property tax cap, state aid is withheld. Since the limit is calculated as a percentage of the five-year property value, more local governments may face this dilemma.
  • Statewide mortgage recording tax revenues have been on the decline since peaking in 2005. Towns have been particularly affected, collecting $240 million less in 2010 than they did in 2005.

All told, local governments suffered an actual decline in revenues of more than $400 million during the recession. The result has been reduced spending on public safety, health and recreational programs, garbage collection and transportation.

The analysis also highlighted a number of issues identified in 60 audits released during the 2011-12 fiscal year by the Comptroller’s office (charts of local governments’ performance are included in the report). These include:

  • Seventeen audit reports identified local governments that have such poor financial systems that they did not know their current financial condition or were unaware of how their actual expenditures compare to what they have previously budgeted. As a result, these local governments enacted budgets that resulted in routine annual deficits, threatening their long-term fiscal health. Rockland County had the highest general fund deficit that grew in part because of questionable budgeting practices.
  • Thirty audit reports included findings that officials adopted inaccurate budgets that resulted in surpluses and retention of excess fund balances. As a result, taxpayers paid more than necessary to fund operations, which was more commonly an issue among school districts.
  • Thirteen reports identified inadequate recordkeeping which did not provide an accurate picture of the local government’s true financial condition.

DiNapoli urged local governments to institute effective multi-year financial planning processes to identify structural imbalances between revenues and expenditures, and use excess fund balances for immediate needs such as paying off debt.

For a copy of the report visit: http://www.osc.state.ny.us/localgov/pubs/fiscalrealities2012.pdf


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