After a couple of years of listening to distressed local governments complain about declining state aid and runaway costs from state mandates, and basically telling them to stop whining, Gov. Andrew Cuomo now has recognized they do have a chronic fiscal imbalance that needs to be corrected if they are to avoid insolvency. The state Financial Restructuring Board he announced two weeks ago appears to be a serious, thoughtful proposal that could help. But it won’t eliminate the need for mandate relief and changes in the Taylor Law to control health and pension costs for union workers, the biggest drivers of municipal budgets.
The board would consist of the state budget director, secretary of state, comptroller, attorney general and an expert from the private sector. Unlike a Financial Control Board, the kind that New York City, Yonkers, Troy, Buffalo and Nassau County have all used, this one would be voluntary for municipalities. It wouldn’t have the power to coerce actions and abrogate contracts. Municipalities would only have to follow the restructuring plan worked out for them, which might include consolidation, shared services, debt refinancing, layoffs, spending cuts, if they accepted state aid attached to it. The state has $80 million set aside to encourage consolidation, and other pots of money it could use as well for restructuring incentives.
The panel could also offer municipalities and their unions the option of binding arbitration to settle disputes. Binding arbitration, which is now required as the last step in labor impasses with police and firefighters, is a big reason for municipalities’ runaway costs. Cuomo’s plan would save them money by expediting the arbitration process and having the state pick up the cost.
But it could well wind up costing them much more unless arbitration awards are capped at 2 percent, the amount municipalities are allowed to raise property taxes each year under the state-imposed cap. The same cap is needed for police and fire arbitration awards, or else the law should be allowed to lapse altogether when it sunsets at the end of June.
Other mandates will still have to be eased or eliminated if the state’s many struggling cities, most of them upstate, are to get their finances back in long-term balance. An education system that relied less on the property tax, and more on a broader, fairer state income tax, would also leave more local tax money to pay for government services.
Cuomo says this will be one of the benefits of the Financial Restructuring Board: It will gain a better understanding of the common problems facing local governments, and be able to make a better case for changes at the state level to help solve them.
Local governments shouldn’t dismiss this board, and should take advantage of what it has to offer, but should also keep up the pressure for mandate relief.