New Fiscal Reality Facing Local Communities

When Detroit, once one of America’s largest cities and industrial engines, files for bankruptcy to resolve its fiscal woes, it gets people talking. And now, a brighter spotlight has been placed on the fiscal challenges facing local communities around the nation and here in New York.

Many are asking if Detroit’s fiscal situation and bankruptcy are a foreshadowing of what’s to come for other local governments as a number of factors continue to push them toward a financial cliff.

Municipal bankruptcies are rare around the nation. They have never happened in New York, and with good reason. Bankruptcy proceedings of municipalities in other states have left fiscal problems unresolved for years, while making it more difficult for local governments to deliver services.

But there are wider lessons to be learned from Detroit. One of the biggest takeaways is the importance of having an honest conversation about the difficult challenges facing local governments and how they can best achieve real solutions when their regional economies, demographics, and traditional revenue sources change.

Here in New York, the Great Recession and our slow national and state recovery have directly affected several sources of local revenue. For instance, sales-tax revenues have suffered major declines, state and federal aid haven’t kept pace with inflation, and property taxes — the most significant source of local revenue — have been capped by the state.

Additionally, government spending is outpacing government revenue. From 2006 through 2011, county expenditures jumped 17.2 percent, while revenues climbed 13.4 percent. Total city expenditures increased 8.4 percent, but revenues only increased 6.4 percent. And town expenditures grew 12.9 percent, as revenues merely increased 7.1 percent. By 2011, nearly 300 local governments had deficits and more than 100 had inadequate cash on hand to pay their bills.

Meanwhile, population and job losses in many communities outside of New York City have resulted in higher-than-average unemployment, rising poverty rates, and an increased demand for government services.

Combined, these factors are having a real and adverse effect on the day-to-day operations of local governments. So what are the solutions that can help?

Before you can attack a problem, you need to understand what you are facing. This is why my office has developed an early warning system to present a realistic account of local-government finances and help foster much-needed public discussions at the local level about fiscal stress so that corrective actions can be taken.

My Fiscal Stress Monitoring System uncovers specific counties, cities, towns, villages, and school districts that are in significant stress or approaching stress. The system — developed by experts who understand the complexity of local government finances — scores municipalities and school districts on various financial indicators.

Our system’s first set of scores identified two dozen communities from every region of the state facing some level of fiscal stress. This included eight counties, three cities, and 13 towns. This list was a wakeup call for many local officials and for taxpayers.

Now the attention must turn to solutions. Although there will be no one-size-fits-all approach to dealing with fiscal stress, there are initial steps that should be taken.

Given the tough choices facing local governments, elected leaders and their constituents must work together. Local officials should go the extra mile to inform their constituents and seek their input on budget decisions. Voters owe it to themselves to learn more about the financial decisions being made in their communities and help prioritize their community’s needs more effectively.

To help our partners at the local level become more efficient, more creative, more forward-thinking, and more effective with available resources, my office also created a new local government support program — ACT FAST — which stands for Avoid Crisis Tomorrow with Fiscal Awareness Strategies Today.

By request, we will provide accelerated risk assessments to determine the specific services that could be beneficial to individual communities. This approach will help us provide the best resources and advice to local governments so that they can make better budget decisions. These can include audits, budget reviews, and help with long-range financial planning.

I believe these types of preventive actions — ideally developed with active participation from citizens who will be affected — will result in less cost and less disruption to vital services.

Knowledge is power. By fostering a much-needed public discussion about fiscal stress, we can help communities across New York avoid following Detroit down a troubled financial path.

Thomas P. DiNapoli is the New York State Comptroller.