Early warning system for municipalities in trouble

September 26, 2012

The New York State Comptroller says he’ll institute an early warning system for the state’s many municipalities that are in financial trouble, to try to help turn them around before things get even worse.

The Comptroller’s office routinely audits local governments around the state, and has already determined that hundreds are in financial trouble, with more than 300 running deficits, and over 100 without enough cash on hand to pay their current bills. 

Comptroller Tom DiNapoli says his office is beginning a monitoring system to identify municipalities most at risk for a financial meltdown. 

“We’re hoping it will be used really as an early warning system,” said DiNapoli. “To avoid a crisis.”

The Comptroller says he does not want to see the pattern  in California of municipal bankruptcies to spread to New York.

The early warning report will use nine financial indicators, including the amount of cash on hand, the size of operating deficits, as well as demographic trends like population size and tax growth that the Comptroller’s office has recently studied. 

DiNapoli says overall, local governments are taking in far less revenue than they are spending. Statewide, cities’ budgets total $2.7 billion dollars, but only $2.1 billion dollars in tax revenue is collected.  In recent years, state and federal aid has declined.

The numbers show clear economic differences in the upstate and downstate regions. While New York City, Long Island, and portions of the Hudson Valley are relatively stable, upstate areas like Buffalo and Niagara Falls have lost nearly one third of their population. The poverty rate is high and unemployment exceeds the statewide average of 8.5% to as high as 14% in Gloversville and over 12% in Elmira.

But DiNapoli says it would hurt all of the local governments in New York if one were to have to declare bankruptcy.

“I’m not projecting it’s going to happen, but if there’s a bankruptcy in one part of the state, that has a potential negative impact on municipalities all across the state,” DiNapoli said.

DiNapoli says the experts in his office will be available to counsel local government leaders on how to better manage their finances or what steps they might need to take.

The New York State Conference of Mayors says the state needs to do more, though, than just identify the problems. Executive Director Peter Baynes, in a statement, says local governments need help coping with unfunded state mandates, rising pension costs, and declining state aid.  He says without changes, municipalities have no choice but to cut workers and slash services. 

Comptroller DiNapoli agrees that long term fixes are needed, and he says Governor Cuomo and the legislature may have to act.

Early But in the meantime, he says, the early warning system will provide more transparency to the public about the finances of the governments they support through their taxes, and he hopes they’ll become more engaged in trying to find answers.