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New York: An Update on the Municipal Financial Crisis

April 6, 2012

An article authored by Robert Ward was just released by the Rockefeller Institute of Government describing the financial crisis of the many New York municipalities.  Ward was recently appointed by State Comptroller Thomas DiNapoli as his new deputy for budget and policy analysis.  In his article Ward notes that around the nation municipalities are falling into bankruptcy and slashing their services.  For example, Highland Park, Mich. is turning off their residential street lights, Stockton Ca. has cut their police force by a quarter in the face of increased crime, and many others have declared municipal bankruptcy.

Ward mentions that Gov. Andrew Cuomo has warned the legislature about this impending fiscal doom and if the problem of unfunded mandates is not addressed the matter will get worse.  In response, the legislature recently created a new pension plan that would require employees to contribute more, among other things,  in an effort to ease the pension burden that is placed on local governments.  However, Ward mentions that this new pension scheme will not result in immediate cost savings because new employees will first have to enter the state workforce.  Therefore, savings may not be recognized for ten years.

Budget gaps are expected from the Great Recession and the lack of available state aid.  However, Ward identifies that these gaps are the result of local governments rubber stamping the same budgets without considering the changing fiscal environment.  This also pushes the financial problems of today into the future.

Further, Ward states that New York has not enacted a state policy that would require local governments to plan ahead in order to avoid a financial crisis.  Local governments have the ability to ask the legislature  for special permission to acquire longer term bonds, however that permission is usually attached to some form of state oversight and is granted because New York does not want to see any local government fall into municipal bankruptcy.

Ward concludes by suggesting two options.  First, local governments facing a crisis will have to accept state oversight and give up some degree of autonomy when forming their budgets.  Second, local governments must recognize and deal with  financial problems at their early stages.

Robert Ward’s article is available here.

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