Grim financial year faces city
New deficit looms; layoffs get consideration
SCHENECTADY The city was able to buy its way out of the 2011 deficit, but it’s likely to fall into another hole this year with no more cash on hand for a bailout, the City Council finance committee chairman said.
The city used up almost all of its savings to get out of a $5 million hole at the end of 2011. Now, there’s only $76,000 left. That’s not enough to pay the bills if the city goes into the red again this winter.
And even if the City Council takes steps now to cut costs, it probably won’t be enough, finance Chairman Carl Erikson said.
“Overall for 2012, we’re going to end up with a deficit,” he said. “Just from what I’ve seen, our expenses are increasing and our revenues are decreasing.”
Mayor Gary McCarthy continued to say there’s no reason for drastic cuts. He said his plan to get more property owners to buy in Schenectady while enforcing codes and foreclosing on those who don’t pay taxes will eventually bear fruit.
“It’s really a 24- or 30-month plan,” he said. “I’m going to do the job, and people will look back and say, ‘Wow, he did a good job and this worked out.’ ”
Last year, the city’s tax revenue fell short — $3.4 million less than what was anticipated in the 2011 budget. Many other revenues also came in well short of the city’s expectations, and the city ended up collecting just $67.3 million, far below the budget line of $77.3 million. Most city departments cut costs in an attempt to balance out the budget, and they appeared to slash $5.2 million in expenses. But it wasn’t enough — they ended up spending $72.1 million, and McCarthy had to spend almost all of the city’s savings to bridge the gap.
This year, under the first budget McCarthy created, many revenues were lowered to what he called “more realistic” figures.
But there are three possible holes in the budget, adding up to a worst-case scenario of a $4.8 million deficit.
The first hole is due to a late policy change. Although the City Council agreed early this year to make the county whole on unpaid property taxes, it didn’t budget for that cost, which could be $1.5 million. The council made last year’s payment early this year — but if the amount of unpaid property taxes remains the same, they must find another $1.5 million to pay the county again at some point this year.
Also, the 2012 budget estimates that the city will collect $3 million more in taxes than it collected last year.
This year’s budget also anticipated $400,000 through the sale of foreclosed homes, but that process started slowly and won’t be done in time to sell the houses this year.
McCarthy acknowledged earlier this year that the city wouldn’t make the $400,000 goal this year.
Council members already discussed selling city cars to pay the county bill. Now that it’s clear how little the city collected in taxes last year, the tax revenue portion of the 2012 budget is also being called into question.
Erikson said he doesn’t have confidence that the city can collect $3 million more in taxes, even though the council hired a collections company for the task.
“From what I understand, they’re doing a decent job,” he said. “But it was tough to estimate the first year how they’re going to perform because we don’t have a baseline.”
Finance Commissioner Ismat Alam said the city has had great success in tax collection so far this year, picking up $2 million in overdue taxes. That will go a long way toward helping the city meet its tax collection goal this year.
Alam said she’s also hoping that city officials negotiate their way out of the deficit this year, partly through changes to employee health care. A combined management-employee committee is looking at that, she said: “There are a lot of confidential things going on.”
And the city will negotiate a sales tax agreement with the county this fall. That could result in a change that helps the city, Alam said, though it’s not clear how long those negotiations would take.
Layoff, pension issues
In the meantime, she said, short-term changes must be made.
“These are tough times. We have to make decisions,” she said.
Erikson said layoffs, service cuts and contract negotiations are all on the table. He said he would hold finance committee meetings to focus the City Council on making cuts. Because of the state’s new 2 percent tax cap law, he said, the council can’t use a large tax increase to solve the problem.
“At the end of the day, you have to cut services. You have a series of really crappy options,” he said. “As a group, we’ve got to come up with: ‘These are the least painful or least detrimental to the city.’ ”
Councilman Vince Riggi, the only non-Democrat on the council, agreed.
“We should go over our 2012 budget and see what we can pare back. We can’t go on with business as usual,” he said. “If it’s going to be layoffs, it’s going to be layoffs. Whatever it takes.”
Erikson wants the unions to agree to benefit cuts.
“That seems to me to be the easy one. Everyone keeps their jobs,” he said. “To me, that seems like a really good idea.”
But in the long term, Erikson said, he wants to lobby the state to substantially reduce the pension system.
“I don’t see how we can continue to prosper and pay people to work for 25 years and pay them a pension for 40 years and through a little gimmick that pension is 100 percent [of their salary]. That’s unsustainable,” he said.
Layoffs may be the least likely solution for this year’s financial problems. Republican City Committee Chairman Michael Cuevas, who worked as the city’s corporation counsel under Mayor Frank Duci, said that it would take about a month for employees to use their bumping rights to move downward rather than accepting a layoff. Once layoffs reach the lowest-rung employees, he said the city generally must wait one to two months for the employees to use up their accumulated sick and vacation time. Erikson said it would also take one to two months for council members to agree on specific layoffs.
That means that if they begin now, they would likely save only three to five months of salary and benefits per employee. That means they’d have to lay off three or more people to save the costs of one full year’s pay. And layoffs increase the city’s unemployment insurance costs, which must be balanced against the savings.
Under the guns
As for reducing or changing benefits or passing more of the cost to employees, McCarthy said negotiations are already under way. The fact that the city is in a financially perilous position will help, he said.
He also said city employees are looking to save money wherever possible.
“If you look at last year’s budget, I cut the budget by $5 million internally, without the City Council. We are doing that still, every day,” he said.
There isn’t a hiring freeze, but department heads discuss whether they need an employee every time a vacancy appears, rather than hiring to fill every position, he said.
The mayor said the City Council should work on policies rather than trying to find budget cuts. Council members could work on finding better markets to sell the city’s recycling or ways to convince more residents to recycle.
They could also work on policies to improve the tax collection or fee collection rate, he said. The city used to post a tax collection rate of 92 percent or better. By contrast, the city collected just 78.2 percent of its taxes last year.
The city used to collect more because it ran a tax foreclosure program every year, threatening to take owners’ houses if they didn’t pay up. While most owners quickly paid, the city would up taking title each year to about 25 percent of the properties that owed tax bills. The city would then sell them at auction but was left with the cost of maintaining and winterizing the buildings before the auction. One paralegal ran the program at City Hall.
“Historically, it’s worked for the city,” said Cuevas, the former corporation counsel. “That’s how you get your collection rate to the 90s that it had been.”
The city stopped running that program when it started selling unpaid tax liens to American Tax Funding, which offered to pay dollar for dollar and make its profit off of the penalties and fees assessed to late-payers.
But in recent years, ATF has offered less for the city’s liens, and last year it offered so little that city officials decided to stop selling the liens and begin their own collections.
The city started a foreclosure process, too, but the law department is focusing on long-delinquent properties. City officials expect to take the titles to almost all of those properties.
McCarthy said it will work in the long run.
“The things I’m doing are not designed for quick headlines,” he said. “I’ve mapped out what I’m looking to do. I feel very confident.”