Sources: Schenectady officials gamble to fill city budget deficit

PHOTOGRAPHER: Kathleen Moore

With few choices remaining, city officials are basing next year’s budget on revenues so risky the state Comptroller’s Office has advised against it.

“We have no choice but to look to these extreme measures, things we’re never done before, to balance the books,” said city Councilman and Finance Committee Chairman Carl Erikson. “We’re so tight, we’re down to scratching pennies from the kiddie jar.”

Actually, a kiddie jar would be less risky than what the city has planned, according to the state.

Officials are reviewing the city’s finances and plan to make a full report soon, with recommendations and suggestions. But two sources who are familiar with the review say it comes down to one basic problem: the city is balancing its budget on guesses and hopes.

The state Comptroller’s Office is advising the city to stop relying on “uncertain” revenues, according to the sources, who requested anonymity because they were not authorized to discuss the matter.

Mayor Gary McCarthy is developing his budget, which will be given to the City Council on Oct. 1. His director of operations, William Winkler, acknowledged the problem with uncertain revenue.

“We have some initiatives that are going to help, we just don’t know how much,” he said.

Those initiatives include selling some of the houses taken in foreclosure last week, selling water to Niskayuna, and taking in sewage sludge from customers outside the city.

“But none of those have kicked in yet,” Winkler said. “I’m concerned. We have some major issues to overcome.”

Both Winkler and Erikson said the city has to close a $5 million to $6 million deficit to balance the 2013 budget. McCarthy said he thinks the deficit will be paid off by the end of 2013 — but he won’t know until next year what mix of revenues will be raised to pay it off.

That’s the problem, Winkler said: the city doesn’t know how much it will raise in new revenue. Yet Schenectady must, somehow, raise enough to close the deficit next year. Cities are not supposed to carry a deficit from year to year.

So Schenectady has to hope the new initiatives work out, Winkler said.

“I know it may look like we’re looking at uncertain revenue, but it may be what we have to do now,” he said, “because we have nothing else.”

McCarthy has taken some of the traditional steps: He’s asked the council for permission to eliminate seven jobs, and he’s asked department heads to cut their budgets by 8.5 percent.

The police and fire departments are already close to meeting that cut, he said. Public safety is the biggest cost in the budget.

The job cuts might not lead to layoffs — McCarthy said he wants to eliminate supervisory positions, letting people “bump” downward. The final workers bumped would be pushed into vacant positions loading garbage trucks, so they would not be out of a job — if they chose to take it.

McCarthy said he thinks those job cuts improve the city, rather than hurting services.

“We’ve got a lot more supervisors than we need,” he said.

The police department would also end up with one less command staffer when Chief Mark Chaires retires. McCarthy wouldn’t say whether he’ll eliminate an assistant chief or the chief’s position — but there will be one fewer commander next year.

However, City Hall workers afraid of massive layoffs were hoping for one big improvement in the city’s revenue: sales tax.

The city has always received roughly $11 million of the county sales tax. When the countywide sales tax began in 1989, the county kept $13.4 million, while the city got $11.4 million. This year, the county is collecting $90 million, while the city will get $11.2 million.

Some city workers were incensed when a majority of the City Council agreed to a $500,000 increase in the sales tax distribution. They argued that the city should get far more than $11.7 million — perhaps as much as $20 million. They complained that they would lose their jobs, or be forced to work harder to make up for other layoffs, while the county would continue to rake in the bulk of the sales tax money.

Speaking anonymously, the two sources said the city needed a much higher amount of sales tax because it is guaranteed revenue — unlike home sales. They criticized the City Council’s decision as a missed opportunity. But McCarthy said the county couldn’t afford to give up millions in sales tax revenue.

“The county doesn’t have a lot of money. They’re under pressure,” he said. “Yes, it would be nice if we got $5 million, but the money isn’t there.”

Erikson disagreed. In the last two years, sales tax has increased by $8 million — all of which the county kept.

“They’re not in trouble,” he said. “The repercussion is the city tax, which subsidizes all the county infrastructure, is higher. We’ve been getting $25,000 increases [in sales tax] while they’ve gotten millions. We’re not even seeing the sales tax benefit of what Metroplex has done.”

By his calculations, a fair distribution would give the city $19 million, instead of $11.7 million, a $7.3 million increase.

“That would solve that problem,” Erikson said of filling the deficit.

Then, if the city’s other initiatives brought in some cash, the extra money could be used to lower taxes.

“Now you’ve got $4 million, $5 million extra. You’re seeing a significant, double-digit reduction in property tax,” he said.

The council is set to vote on the new sales tax contract Monday. It would give the city $11.7 million, plus about $215,000 in extras, next year.

It would allow the city to get more money if the county collects more in sales tax in future years. If the sales tax revenue goes up 3 percent, the city’s $11.7 million will be increased by 3 percent.

Two council members plan to vote against the contract, while three plan to vote for it. The contract needs four votes to pass, and the only unknown is Councilwoman Marion Porterfield, who is serving as a delegate at the Democratic National Convention. She will be back for Monday’s meeting.