Deficits Push N.Y. Cities and Counties to Desperation


nys-albanyAlbany – It was not a good week for New York’s cities and counties.

On Monday, Rockland County sent a delegation to Albany to ask for the authority to close its widening  budget deficit by issuing bonds backed by a sales tax increase.

On Tuesday, Suffolk County, one of the largest counties outside New York City, projected a $530 million deficit over a three-year period and declared a financial emergency. Its Long Island neighbor, Nassau County, is already so troubled that a state oversight board seized control of its finances last year.

And the city of Yonkers said its finances were in such dire straits that it had drafted Richard Ravitch, the former lieutenant governor, to help chart a way out.

Even as there are glimmers of a national economic recovery, cities and counties increasingly find themselves in the middle of a financial crisis. The problems are spreading as municipalities face a toxic mix of stresses that has been brewing for years, including soaring pension, Medicaid and retiree health care costs. And many have exhausted creative accounting maneuvers and one-time spending cuts or revenue-raisers to bail themselves out.

The problem has national echoes: Stockton, Calif., a city of almost 300,000, is teetering on the verge of bankruptcy. Jefferson County, Ala., made the biggest Chapter 9 bankruptcy filing in history in November and stopped paying its bondholders. In Rhode Island, the city of Central Falls declared bankruptcy last year, and the mayor of Providence, the state capital, has said his city is at risk as its money runs out.

New York City’s annual pension contributions have increased to $8 billion from $1.5 billion over the past decade.

“We really are up against it,” Mayor Michael R. Bloomberg said during a recent trip to Albany, urging the state to reduce pension benefits for future public employees. In a radio interview on Friday, Mr. Bloomberg noted the spreading financial woes of local governments, saying, “Towns and counties across the state are starting to have to make the real choices – fewer cops, fewer firefighters, slower ambulance response, less teachers in front of the classroom.”

And Thomas S. Richards, the mayor of Rochester, recently described a grim situation facing New York’s cities in testimony to the State Legislature, saying, “I fear that Rochester and other upstate cities are approaching the point of financial failure and an inevitable financial control board – as is the case in Buffalo – unless something is done now.”

The concerns of municipal officials are validated by the ratings agency Moody’s, which downgraded the debt of Rockland County and Utica last month, and Yonkers and Long Beach last year. New York is hardly alone, and certainly not the worst; for four straight years, Moody’s has had a negative outlook for the country’s local governments. And the problems are likely to persist.

“We expect that the pressure from fixed expenditures, and pensions in particular, will continue to be a strain,” said Geordie Thompson, a Moody’s analyst. “This is where the budgetary tradeoffs will continue to be difficult. There will have to be tradeoffs that will have to be made to make those payments.”

Pension costs are a particular problem. The stock market collapse of 2008 decimated public pension fund investments, and municipalities are now being asked for greater contributions to make up for the losses. The impact has been drastic: Three percent of New York property tax collections were used to pay pension costs in 2001; by 2015, pension costs are expected to eat up 35 percent of property tax collections.

Falling property values have also affected cities and towns because lower assessments hurt property tax collections.

The state is taking some steps to ease municipal burdens, but they come with risks. A relatively new plan allows municipalities to borrow from the state pension fund, with interest, a portion of their required contributions to the pension system.

“It’s the worst thing that you can do financially,” said Steve Bellone, the Suffolk County executive. “But when you are up against the wall and you have a county that has used every one-shot revenue that it can possibly use already, and you’re facing a deficit of huge proportions, suddenly that becomes not such a bad option.”

Suffolk and Nassau are borrowing a combined $85 million this year to pay their required contribution into the state pension system.

“That’s where we’re at today,” Mr. Bellone said. “We are in a financial crisis.”

In an interview, Mayor Stephanie A. Miner of Syracuse said that “this is uncharted water, in terms of fiscal crisis.” Her city asked Syracuse University for help, and last year the university agreed to pay $500,000 a year for five years to help bail the city out.

But Syracuse still faces a deficit that threatens to deplete its reserves. The city has cut 125 jobs in two years, transferred a city-run senior center to the Salvation Army and consolidated its purchasing with the county’s. It is now considering charging residents extra for picking up televisions with their garbage.

Like many other mayors, Ms. Miner blamed the state government for passing unreasonable costs, like pensions and other mandates, on to municipal governments.

“Unless Albany changes its policies,” she said, “we will be dead.”

Gov. Andrew M. Cuomo is suggesting new strategies, proposing in his budget to allow municipalities like Albany to receive millions of dollars more in state aid over the next fiscal year in exchange for receiving less in the future. The governor is also proposing that the state assume a greater share of Medicaid cost increases borne by local governments, and that state and local governments be allowed to reduce the pension benefits of future public workers.

“The administration is monitoring each situation closely and remains in direct contact with local officials to find ways the state can be helpful to get them through these very difficult times,” Josh Vlasto, a spokesman for the governor, said.

The crisis has been forecast by financial experts for some time, in part because municipalities often lag the national economy, meaning that their troubles can crest even as problems for the state and federal governments ease.

“These municipalities will not recover when the economy recovers,” said Richard Brodsky, a former assemblyman who is advising Yonkers.

“Everybody was complicit in this tsunami, and now it’s landing, but not in Washington or Albany,” he said. “It’s in places like Yonkers, where the choice is between school kids and safe streets.”

C. Scott Vanderhoef, the Rockland County executive who was the Republican Party’s nominee for lieutenant governor in 2006, said his county’s $52 million deficit had accumulated over the past four or five years. The county legislature rejected proposed layoffs and service cuts in the budget, so the county is seeking to issue bonds to help bridge its budget gap.

“We don’t want to become Erie County or Nassau County,” he said, referring to two counties whose finances are overseen by control boards. “I think you’ll see a dropping off of the programs that many counties now view as important – law enforcement, economic development, parks and recreation. Those kinds of programs will disappear. Counties will become welfare and Medicaid managers.”

{NY Times/ Newscenter}