Broke New York municipalities have more choices than bailouts or bankruptcy

October 16, 2012

Things are heating up in Albany, New York’s capitol. Someone close to Governor Andrew Cuomo appears to have been whispering into the ear of New York Post reporter Fredric Dicker:

Several of New York’s biggest cities — including Yonkers, Rochester and Syracuse — are “close to bankruptcy’’ and are looking for a bailout from Gov. Cuomo’s administration, The Post has learned.

Mayors of the three cities, all of which face runaway labor, pension and education costs and shrinking property-tax bases, have held secret talks in recent weeks on their financial options, and the possibility of “bankruptcy’’ has been discussed, a source close to the mayors said.

Meanwhile, aides to Cuomo are working on a new plan to link any future aid to the ailing cities to “workout plans’’ that reduce local costs, the source said.

The mayor of Yonkers, Mike Spano, is telling a similar story to the local paper in his city:

Yonkers Mayor Mike Spano said he and several upstate mayors plan to meet privately with Gov. Andrew Cuomo later this month to discuss ways the state can help their financially-distressed cities stave off insolvency.

Since mid-July, the mayors of Yonkers, Syracuse, Rochester, Albany and Utica have been convening to hash out ideas to reduce local costs, including more state school aid, pension relief and help with the costs of employee benefits.

Spano told The Journal News on Monday that a state “bailout is not an option” because it would “just kick the can down the road.”

Yonkers already received $137 million in the fiscal year 2010-2011, of which $20 million was a non-recurring advance (page 26). New York State combines general purpose aid, emergency funding to cities, emergency funding to eligible municipalities and supplement municipal funding into one category in its budget called “Aid and Incentives to Municipalities (AIM).” The total 2011 general fund revenues were $600 million. Of this, 23% of the budget was state aid.

Meanwhile, Yonkers continues to face increasing budget shortfalls, and the state seems unwilling to continue topping them up. From The Journal News again:

At the same time, he [Mayor Spano] added, Yonkers and other cities won’t be able to dig out of their fiscal messes entirely on their own.

A four-year financial forecast projects the city’s aggregate budget shortfall could rise to $428 million by 2016.

If the state doesn’t help somehow, Spano said, the prospect of a financial control board will loom larger — and that’s an outcome nobody wants.

Yonkers already has crushing taxes, including high property tax rates, an 8.375% sales tax and an income tax surcharge (page 25). There seems to be little space for revenue increases. It is the cost side of the budget that needs to be addressed. I wrote previously about how unions were crushing Yonkers with a $70,996 starting salary for firefighters. In contrast, the starting base salary for a New York City firefighter is about $39,400. The per capita income for Yonkers residents is $29,191 (as of 2010), according to the U.S. Census. Yonkers cannot afford this kinds of public worker compensation, and it is way out of line with surrounding communities.

Reuters reported in August that New York State may move to a new form of control board:

The new control boards, which could serve either as advisers or managers, might be triggered for municipalities such as Utica and Troy that have been in economic decline for decades. Some downstate local governments, including Rockland County and Yonkers, also might be at risk.

Some emergency control boards have stronger powers than local elected officials; they can suspend union contracts, for example. Buffalo’s control board froze public workers’ salaries from 2003 to 2007, prompting the employees to sue.

Yonkers and other fiscally constrained New York cities can enter Chapter 9 bankruptcy without the approval of the state. They can also seek to be placed under emergency control boards. In either case, the question is how to lower employee compensation costs. That is what the governor’s staff needs to focus on. California is letting bankrupt cities drive over the cliff with little or no support. New York can aspire to a better approach to help its cities become fiscally sustainable.

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