Falling revenues pinch counties

CAPITAL REGION — At one time, Albany County had considered selling bonds this fall to pay for capital projects that are already under way.

But the tight credit market convinced officials to hold off until late next year, according to John Rodat, Albany County’s commissioner of management and budget.

“If the [credit market] isn’t frozen, then it’s certainly slushy,” he said. “We would have ended up paying extraordinarily high interest rates.”

Lenders have tightened their lending standards as a result of the ongoing financial crisis, and despite the bailout, they remain reluctant to lend money except at extremely high interest rates. As a result, counties and towns throughout the country are having a harder time selling short-term and long-term bonds. For instance, the state of Maine recently failed to sell a $50 million transportation bond despite having a good credit rating. This failure, Rodat said, didn’t go unnoticed in Albany County.

Mark LaVigne, a spokesman for the New York State Association of Counties, said only two counties in the state have reported difficulty selling bonds: Erie and Nassau counties.

In New York, counties are more concerned about the slowed growth in sales tax revenue and the cuts to state aid than the credit market.

“Sales tax revenues are stagnant or down,” said William Cherry, Schoharie County treasurer.

Historically, sales tax revenues have grown between 6 to 7 percent a year, and the county depends on that growth to cover the yearly growth in operating expenses. But growth has been flat and is expected to remain flat through 2009.

In addition, there’s been no growth in the property tax base — “that’s another way to get new revenue” — and state aid has been reduced. As a result, the county’s proposed $70 million budget carries a 3.2 percent tax increase.

“Taxpayers are going to see an impact,” Cherry said. “No matter how much local governments cut, we have almost no choice but to go back to the taxpayers.”

Cherry said that Schoharie County has no short-term or long-term debt, so the problems in the credit market are having little effect on county projects.

Other counties said they keep their borrowing to a minimum.

“We do very little borrowing,” said David Wickerham, Saratoga County administrator. The county plans to seek about $12 million in long-term bonds for a new communications system and an animal shelter but will wait for more favorable rates, he said.

One positive development, Wickerham said, was the announcement last week that Advanced Micro Devices will build a $4.5 billion computer chip factory at the Luther Forest Technology Campus in Malta and Stillwater. The project is expected to employ nearly 1,500 people and generate another 1,600 jobs.

“The greatest danger in times like this is unemployment,” he said. “If AMD is bringing in jobs, that takes away that fear for the people who live here.”

LaVigne said counties are upset that state aid — which reimburses counties for the state-mandated programs they provide, such as preschool education and various public health programs — was cut 2 percent for 2008-09 and another 6 percent at the Legislature’s special session in August.

“Counties still have to pay money for providing these services,” he said. “There’s just less revenue to cover the cost.”

He said the counties would like to have the flexibility to make cuts to the mandated programs; right now, they only have the ability to reduce spending on non-mandated programs such as road patrol.

“So when there’s a reduction in state aid, it necessitates a property tax increase,” LaVigne said.

Most counties have seen sales tax growth slow to 1 or 2 percent, LaVigne said.

Bradley Lewis, vice chairman of the Metroplex Development Authority, said municipalities have typically had an easier time obtaining credit than businesses because they have a source of revenue that they can back up with tax power, if necessary.

“It’s clear that municipalities are going to be squeezed because of the sales tax, but it’s not going to go down as much here [as in other parts of the state] because we have a balanced economy,” he said. “There’s no question that municipalities are going to be looking at either financing more with property taxes or doing some cutting.”

Lewis, a Union College economics professor who is currently teaching at Skidmore College, said the credit crunch hasn’t really affected Metroplex and that all of the authority’s projects are moving forward as planned.

“I don’t see us winding up with things simply paralyzed,” he said. “We have a pretty diversified economy. There was never a big speculative boom here.”

But he added that the Van Dyck, the Union Street jazz club and restaurant that was auctioned to the McDonald family this week for $252,000, plus $147,000 in back taxes, probably would have fetched a higher price just a few months ago.

Originally, the Van Dyck was listed for sale at $1.6 million.

“It’s hard for small businesses to get credit, and the Van Dyck lost value because the pool of bidders is smaller,” he said.

Albany County’s sales tax revenue has been strong through the first three quarters of the year, but officials are not expecting that to last. Sales tax revenue growth is currently about 4 to 5 percent but is expected to dip to less than 1 percent by next year, Rodat said.

Albany County released its proposed budget for 2009 on Friday. The $580 million budget would increase taxes by 4 percent and carries a spending increase of 2.2 percent.