September 24, 2012
DiNapoli Proposes Early Warning System To Identify Local Governments In Fiscal Stress
New Report Finds Cities' Financial Outlook Deteriorating; Contains Detailed Economic and Demographic Data for Cities
With a growing number of local governments facing significant fiscal stress, State Comptroller Thomas P. DiNapoli announced plans today to implement an early warning monitoring system that would identify municipalities and school districts experiencing signs of budgetary strain so that corrective actions can be taken before a full financial crisis develops.
"Local officials are struggling to cope with considerable economic challenges and structural budget imbalances and the situation may only get worse," said DiNapoli. "That's why my office is proposing an early warning system that will identify those headed down the path to fiscal crisis sooner and give local officials and the public sufficient time to discuss options for turning things around."
Using data already submitted by more than 4,000 local governments, DiNapoli's office will calculate and publicize an overall score of fiscal stress for municipalities and school district across the state. These scores will be used to classify whether a community is in "significant fiscal stress," "moderate fiscal stress," or "nearing fiscal stress." This system is based on a process that DiNapoli's auditors have been using to detect financial problems in communities.
The early warning system will include nine financial indicators, such as cash-on-hand and patterns of operating deficits, together with broader demographic information like population trends and tax assessment growth. DiNapoli plans to distribute the proposed system to officials in the state for their review during a 60-day comment period. DiNapoli will implement the system starting with those localities whose fiscal year ends December 31, 2012 and later apply it to villages and school districts whose fiscal years end at various periods throughout the year.
The proposed system was announced in conjunction with a report released by DiNapoli today that examines the demographic and financial trends of New York's 61 cities (excluding New York City) over the past three decades. The report found that many of New York's cities are struggling to balance budgets and revitalize deteriorating local economies. This report is the second in a series of reports examining local government finances and factors causing fiscal stress.
"Cities are struggling to keep their heads above water," said DiNapoli. "The fiscal challenges they face have evolved over many years and are systemic."
Since 1980 city expenditures have jumped $2.7 billion, while locally raised revenues increased by only $2.1 billion, according to the report. Cities historically relied on property taxes as their primary source of revenue to fund expenses. With property taxes outpacing housing values and income levels, many troubled cities are relying more on sales taxes and are increasing fees for services. Due to a stagnant economy, however, these new revenue sources have not kept pace with growing expenditures.
State aid has increased from 16 percent to 21 percent of total revenues for cities over three decades, while federal aid has declined from an average of 17.5 percent of total revenues to 6.8 percent. The level of growth in state aid has varied from one city to another.
Other findings in the report include:
The report includes extensive charts detailing specific economic and demographic information about New York's cities. For a copy of the report visit: http://osc.state.ny.us/localgov/pubs/fiscalmonitoring/pdf/nycreport2012.pdf
For more detailed information about DiNapoli's proposed fiscal stress monitoring system visit:http://osc.state.ny.us/localgov/pubs/fiscalmonitoring/pdf/fiscalstressmonitoring.pdf
To see DiNapoli's first report released in August on fiscal stress, click here.