Unless Schenectady leaders take action now to collect more of the city’s delinquent taxes or find other sources of revenue, the budget deficit will grow exponentially in the next few years, the state Comptroller’s Office said.
The auditors projected a $6.7 million deficit in 2014 — so large that the city would be left in the red even if every property owner paid their taxes in full. The audit urged the City Council take take action immediately and fix the problem within the next year to avoid an exploding budget deficit.
But Mayor Gary McCarthy said the deficit projections were overblown.
“They take kind of the worst-case scenario,” he said.
At a glance
A look at future budget gap projections for the city of Schenectady:
Source: Draft audit by state Comptroller’s Office
He noted, for example, that the state pension system has required “dramatic” increases in recent years to recover from the stock market crash. Those increases have been projected to level out soon, but he said the audit didn’t take that into consideration.
“It assumes we will not benefit from the turnaround in the state pension system,” he said. “That’s one big area where you could see a $1 million to $2 million dollar shift.”
He said the city is not as bad off as it might seem.
“We’re in a difficult time,” he said. “But it’s within our means to deal with it.”
The state Comptroller’s Office on Tuesday released an audit of the city’s finances, looking at the period from Jan. 1, 2011, to June 30, 2012.
The report wasn’t all bad. Auditors said city officials were “adequately” monitoring the city’s finances, answering a criticism leveled by many outsiders who have suggested McCarthy is not doing enough to keep the city in good fiscal health.
The audit also said the city’s financial condition “appears to be slowly improving.”
But it isn’t getting better quickly enough. The state required the city to immediately initiate corrective action and file a written plan within 90 days. That plan should be made public.
However, the audit didn’t have many ideas for how to fix the city’s problems.
Auditors suggested consolidating the Police Department with countywide operations, a political minefield that has been staunchly opposed by the police union and every suburb surrounding the city.
Auditors also suggested consolidated some firefighting operations. It was not clear how those operations could be consolidated, since most other operations in the county are performed by volunteer departments. The city already has a contract to provide hazardous materials response teams throughout the county.
Beyond those ideas, the auditors simply encouraged the city to continue its plan to foreclose on tax-delinquent properties, using its HOME program and the Land Bank. The city plans to sell those properties to new owners, who would presumably pay taxes.
The audit also urged city officials to find other sources of revenue before the city’s savings accounts run out of cash.
According to the audit, city officials are hoping to collect 44 percent more of the existing taxes that currently go unpaid. In 2011, the city issued tax bills for $31 million, but only collected $27 million, leaving Schenectady $4 million short.
McCarthy hopes that strict tax-foreclosure efforts will encourage property owners to pay up in the future. But auditors said that wouldn’t be enough to balance the city’s budget in future years, though it would resolve the 2013 deficit.
The auditors projected a budget gap of $2.2 million in 2013. However, the city budget proposed by the mayor had a $3.1 million deficit. The City Council cut that by $900,000 and took steps to reduce it by another $600,000 by setting aside items that they hope they will not need next year. If they turn out to not need those expenses, the money would be used to reduce the deficit.
The city needs to do more, according to the audit.
“The city would still need to implement further cost savings or increase revenues in future years,” it said.
The audit predicted huge increases in the deficit, but didn’t explain how they came to those conclusions. Starting with the $2.2 million gap projected in 2013, the audit predicted a $6.7 million gap in 2014, followed by a $9.4 million gap in 2015 and a $12.9 million gap in 2016.
In each year, the audit assumed the city would increase taxes to the maximum allowed, which is 2 percent. The gap would be the amount of money the city would still need, after taking into account all revenues.
Auditors didn’t recommend holding the tax increase below 2 percent, given the seriousness of the deficit.
They noted that in 2012, the city could have legally raised $1.6 million more than it actually levied in taxes. They also said the city is officially in “fiscal stress” and urged the council to closely watch budget expenses and fix the situation within the next year.
“The city still faces a number of challenges moving forward; how it manages itself for the remainder of 2012 and throughout 2013 will be critical,” the audit said.
The final version of the audit was released Tuesday — a day early — after being leaked to the news media.
In the final version, McCarthy responded to the audit in writing by noting that the city needs more state aid. Schenectady gets less than Troy, Utica, Rome and Niagara Falls.
“All four of these cities have smaller populations than Schenectady yet they receive more state aid,” he wrote. “If Schenectady received the same state aid as Utica, the city would receive an additional $5 million in revenue, which would alleviate much of the financial distress cited in this report.”
He also noted that the city and county had consolidated more services in the new sales tax agreement, which calls for a shared labor attorney and shared purchasing department.