Bankruptcy Warning Signs For NY Local Governments

Since 2010 seven municipalities nation wide have filed for bankruptcy. California has the largest number of municipalities filing for bankruptcy with three. According to several recent reports, many local governments in New York are in serious financial trouble.

– Rochester used a one-time, $15 million in state aid to reduce its $40 million deficit this year.

– The mayor of Syracuse has asked a law firm to draft a memo about the possibility of municipal bankruptcy.

– In Yonkers, projected deficits over the next four years will total over half a billion dollars.

– Buffalo, Erie County and Nassau County have state imposed control boards already in place.

A recent Albany Times Union article pointed to some of the reasons why New York local governments are in fiscal trouble:

– “This is not a problem of bad management,” said Richard Brodsky, a former state assemblyman who’s now a fellow at Demos, a progressive think tank. “There used to be a manufacturing base with factories, and they would pay taxes. The property tax base that the cities rely on simply can’t fund the level of services that they’ve set up — schools, police, fire — that people expect and deserve.”

– Cities still operate under an old model, with personnel contracts and benefit packages negotiated when their populations were 20 percent greater — before the effects of suburbanization and migration to other states took their full toll — and industrial employment accounted for a larger share of the pie.

– There has been a recent spike in pension costs. Syracuse will spend more to pay for health insurance for retired workers than for current employees in its most recent budget. Syracuse faces a projected $16 million gap in next year’s plan that would eat up 80 percent of its savings fund and projections show that the city will be underwater by 2014.

– As expenses have risen, revenues have fallen. A report issued earlier this month by state Comptroller Tom DiNapoli said local governments lost $400 million in sales and mortgage recording taxes in the year after the 2008 stock market crash. At the same time, property values declined and state aid fell 7 percent. Local governments have not fully recovered from the 2008 crash and things are continuing to get worse.

Stockton California with a population of 290,000 is the largest city by population to file for bankruptcy. Over the past three years Stockton officials have taken drastic steps to address their budget deficits by: eliminating one-fourth of the city’s police officers, one-third of the fire staff, and 40 percent of all other employees. They also cut wages and medical benefits.

With bankruptcy a real possibility for many communities, now more than ever bold leaders willing to act on new ways to operate government are needed!

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