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February 20, 2008

DiNapoli: State’s Revenue Sharing Formula Outdated

Ignores Similarities Between Small Cities and “Urban” Villages

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The 50-year-old formula New York State uses to provide aid to local governments needs a complete overhaul to ensure localities are getting their fair share, according a revenue sharing report released today by State Comptroller Thomas P. DiNapoli. The report found that 279 small “urban” villages would receive millions in additional state aid if the revenue sharing formula took into account characteristics these villages share with small cities, such as population, rather than historical municipal labels.

“The terms ‘city,’ ‘town,’ and ‘village’ have more to do with history than present day governmental functions,” DiNapoli said. “The current formula for state aid ignores the reality that many villages and towns have surpassed cities in size and provide similar services. In the interest of fairness, the state’s decades-old revenue sharing formula needs to change. But increased assistance for villages and towns shouldn’t come at the expense of cities.”

NYCOM Executive Director Peter Baynes said, “This report highlights what NYCOM has been saying for years that cities and villages are contending with many of the same fiscal challenges and therefore they all, regardless of class, deserve a predictable, equitable and adequate level of state assistance. Furthermore, our 2008 Legislative Program calls for a revenue sharing formula that not only reflects rising costs, but also considers the need demonstrated by each municipality, as well as the types and levels of services provided. We appreciate State Comptroller DiNapoli’s efforts to help bring these issues to light and, in turn, strengthen our case for increased state aid to local governments.”

The state’s revenue sharing program was once a stable revenue source for local governments, providing them with a predictable, flexible source of unrestricted state aid. But after the state’s fiscal crisis in the early 1990’s, local aid was dramatically cut and then future increases were primarily directed to cities. By 2005, more than half of all revenue sharing funds went to cities.

There are 553 villages and 61 cities (excluding New York City) in the state. There are 279 villages that are similar in structure, demography and financial condition to 52 cities. These smaller “urban” villages provide many of the same services as cities such as police, fire, libraries, water, sewer and garbage collection. In 2006, revenue sharing constituted 9.3 percent of total revenues for downstate cities and 5.4 percent for upstate cities. Revenue sharing for these villages on the other hand made up only one percent of their total revenue.

The report provides two scenarios of what state revenue sharing for these villages would look like if they had received more equitable aid distributions. Under one scenario, if aid had been distributed based on similar municipal characteristics rather than municipal labels they would have received $109 million in state funding in the 2007-08 fiscal year, compared to the $16.9 million they actually received. Under another model, these villages would have received $27.6 million as compared to $16.9 million had they benefited from similar increases in aid as cities over the past decade. While the report primarily focused on villages, a similar situation would apply to many urban towns.

Click here for a copy of the report.

Click here for a copy of the 2006 report examining New York’s outdated classifications of local governments.


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