New York’s local government finances continue to suffer under the strain of population loss and property tax pressures, according to a new report by Comptroller Alan Hevesi.
“The tenuous financial condition of some local governments (particularly Upstate) persists despite several positive developments in the past year,” the report said.
The report said that some changes designed to ease fiscal stress, such as the cap in local Medicaid costs, increases in the state’s revenue sharing program, and “substantial” increases in school aid, did not have a significant impact on localities.
Localities continued to increase local property taxes, despite changes designed to keep taxes down, the report said.
“Property tax levies grew much faster between 2000 and 2005 than during the previous five years,” the report said. The growth during that period was two to three times the rate of inflation. Localities pointed to decreased rate of growth in other revenue sources and increased expenditures on health care and other benefits to explain the increase, the report said.
The report noted that property tax growth exceeds growth in all other revenues.
In addition, negative population growth "threaten the vitality of many communities,” the report said. The report noted that virtually all population growth between 2000 and 2005 took place in the New York metro area.
Slow or negative growth in the Upstate region “has caused the fiscal health of Upstate local governments to suffer.”
The report highlighted six other fiscal trends in local governments negatively impacting finances, including tax limit warnings, local sales tax rates, revenue sharing, pension contributions, debt and deficit financing.
Tax Limit Warnings: The rise in property taxes is causing many localities to reach their constitutional limit on property tax levies, the report said.
“Nearly 15 percent of cities exhausted 80 percent or more of their tax limits in 2006, compared to less than 2 percent in 1999,” the report said. “In 2005, five counties exceeded their 80 percent threshold, including three counties (Fulton, Cortland and Montgomery) that exceeded 90 percent of their limits.”
Of the state’s “Big Four” cities, Rochester and Buffalo continue to approach their tax limits.
“In 2006, Rochester exhausted 87 percent of its tax limit, up from 84 percent in 2005,” the report noted. “Buffalo exhausted 92 percent of its limit in 2006, an increase of 4 percent over 2005.”
The report said that the increases were largely due to “stagnant tax bases and increased levies for the operations of their dependent school districts.”
Local sales taxes: Local sales tax rates continue to climb, the report noted.
“As of August 2006, 52 of 57 counties have local sales tax rates above 3 percent – 41 of these are at or above 4 percent.” This means that 85 percent of the state’s population lives in areas where the combined state and local sales tax is 8 percent or more.
Sales tax revenue is sensitive to changes in the economy, the report noted. “This makes estimating future revenues difficult and makes local governments particularly vulnerable to negative changes or economic slowdowns.”
Revenue sharing: The report showed that, despite increased revenue sharing from the state, “there remains a considerable disparity between current funding levels and what municipalities would be receiving had levels of funding kept pace with inflation or growth in the state budget over the last two decades.”
Local government pensions: Although many localities point to pension costs as a major budget strain, the Comptroller’s report said that the recent rise in contributions has leveled off and “even begun to decline.”
“Rates for 2008 will be 9.6 percent of payroll (down from 12.9 percent in 2005) for the Employee Retirement System and 16.6 percent (down from 17.6 percent in 2005) for the Police and Fire Retirement System,” the report said.
Local government debt: “Debt is becoming an increasingly onerous financial burden for local governments,” the report warned. “As local governments issue more debt, increased debt service payments may constrict their capacity to cope with economic downturns for unforeseen financial responsibilities.”
Total outstanding debt for the state’s local governments doubled between 1994 and 2004, from $16.6 billion to $31.2 billion, the report said.
“The most dramatic increases in outstanding debt occurred in school districts and villages,” the report said. “For villages, total outstanding debt more than doubled from $772 million to $1.6 billion; for school districts, it more than tripled from $4.1 billion to $14.9 billion.”
Debt financing: Along with the increased debt burden, local governments have been financing debt more often, the report said.
“Since 1994, the state Legislature has authorized 34 bond issuances to finance local government operating deficits, totaling $279.4 million,” the report said. “Eleven of these financings have been authorized in the last three years.”
The Comptroller’s office said it is responding to growing pressures on municipalities by “expanding its performance auditing capabilities, increasing the number of budget reviews performed on behalf of local governments, initiating a series of local government policy reports and enlarging its already robust training and technical assistance efforts.”
The report is available at www.osc.state.ny.us/localgov/datanstat/annreport/06annreport.pdf.