For municipalities, it’s the perfect fiscal storm: decreasing revenue, increasing expenses and a dwindling fund balance.
Local governments continue to weather the sluggish economy by tapping reserve funds. But with municipal budgets being much leaner, these accounts aren’t being replenished and some are nearing exhaustion.
The state Comptroller’s Office recommends that towns, cities and counties keep about 10 percent of their annual budget in reserve. But with the ongoing fiscal crunch and increasing pressure from property owners to lower taxes, many municipalities are spending their reserves down to unsafe levels.
“For the past five years, the financial trends in our municipalities and school districts have become of heightened concern,” said state Comptroller Thomas DiNapoli. “Years of decreasing, stagnant or slow economic growth have led local governments to cut vital services and tap their rainy day funds to balance budgets, a practice that is not sustainable in the long term.”
And the outlook for the future is bleak, according to a report DiNapoli released Friday. The comptroller found local government expenditures ballooned by 17.4 percent between 2006 and 2011. Meanwhile, municipal revenues only grew by 15 percent.
DiNapoli produced the study as his office prepares to roll out a new fiscal stress monitoring system announced in September. The system will rely on data ordinarily reported to the state by municipal entities to calculate a score of fiscal stress.
Overall, local government fund balances dipped by 28 percent since reaching a peak in 2006 and sales tax collections still haven’t recovered to the level they were at prior to the outset of the recession in 2007.
This disparity between revenues and expenditures was greatest in towns across the state, according to DiNapoli’s report. Town expenditures jumped 12.9 percent over five years, while revenues climbed by only 7.1 percent.
Similarly, counties saw a widening gap between revenues and expenses. New York’s 62 counties saw an average 17.2 percent jump in expenditures while revenues climbed by only 13.4 percent.
The state’s cities — excluding New York City — fared a bit better, with expenditures increasing by 8.4 percent and revenues growing by 6.4 percent.
This gap between revenues and expenses plays out in often contentious budget discussions throughout the Capital Region. With a need to maintain basic core services and at least try to comply with the 2 percent tax cap imposed by the state, many municipalities turn to their fund balances to prevent steep tax increases to cover the difference.
For instance, Schenectady County legislators relied on more than $6 million in reserve funds to lower the 2013 tax levy increase from 7.49 percent to 5.9 percent. The Board of Supervisors in neighboring Montgomery County tapped nearly half the existing $4 million fund balance and inflated sales tax projections for 2013 in order to fall below the tax cap, despite the treasurer warning that such budgeting could further deplete the reserves.
Saratoga County’s Board of Supervisors used $7.2 million in reserves in the 2013 budget, just one year after they tapped the fund for $10 million. But relying on reserves is part of today’s economic reality because of unfunded state mandates, explained Spencer Hellwig, the county administrator.
“We’re struggling not only to stop the bleeding but to begin to build that [reserve] back up,” he said.
Saratoga County is responsible for $63.8 million in state mandates next year. The $51.5 million property tax levy and the estimated $12.3 million sales tax revenue only narrowly covers this.
“This is the 800-pound gorilla in the room, there’s no question about it,” he said.
Towns are also trying to get away from relying too heavily on fund balance. In Rotterdam, town officials managed to reduce their reliance on fund balance by $500,000 in the 2013 budget.
Supervisor Harry Buffardi said it’s always a challenge to avoid using the fund balance, especially since state mandates consume much of the tax levy. He said the town is now trying to budget long-term so that it can contain costs and prevent sudden jumps in expenditures that require tapping reserve funds.
“There’s been an addiction to this in the past that we’re trying to wean ourselves from,” he said.
The city of Gloversville has managed to bolster the fund balance significantly over three years through smarter budgeting, said Mayor Dayton King. But finding the balance between revenues is one he continues to struggle with.
“People don’t want to pay more taxes and they don’t want their services cut,” he said.
As a result, the city’s reserves often play a role in reaching a middle ground. Gloversville’s 2013 budget taps $543,324 from the city’s fund balance, leaving about $1 million in the fund.
King is banking on the sales tax revenue from a soon-to-be-opened Wal-Mart Supercenter to help bring in additional sales tax revenue to the city. But in reality, he said the gap between expenditures and revenues is a tough one to bridge.
“There’s certainly a lot of challenges,” he said. “Unfortunately, that’s the case across the state and the country.”